Conversant 10Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-30135

CONVERSANT, INC.

(Exact name of registrant as specified in its charter)



Delaware		77-0495335
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

30699 RUSSELL RANCH ROAD, SUITE 250

WESTLAKE VILLAGE, CALIFORNIA 91362

(Address of principal executive offices, including zip code)

(818) 575-4500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

The number of shares of the registrant’s common stock outstanding as of May 2, 2014 was 66,998,165.

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CONVERSANT, INC.

INDEX TO FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED MARCH 31, 2014



PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2014 and December 31, 2013
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three-month Periods Ended March 31, 2014 and 2013
	Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the Three-month Period Ended March 31, 2014
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Three-month Periods Ended March 31, 2014 and 2013
	Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures

PART II.	OTHER INFORMATION AND SIGNATURES
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Mine Safety Disclosures
Item 5.	Other Information
Item 6.	Exhibits
	Signatures

	Certification of CEO - Sarbanes-Oxley Act Section 302
	Certification of CFO - Sarbanes-Oxley Act Section 302
	Certification of CEO and CFO - Sarbanes-Oxley Act Section 906

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONVERSANT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)



	March 31, 2014			December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	90,444		$	81,319
Accounts receivable, net	131,558			148,738
Prepaid expenses and other current assets	10,042			9,897
Income taxes receivable	43,683			7,057
Deferred tax assets, current portion	4,982			1,556
Current assets held for sale	—			32,802
Total current assets	280,709			281,369
Assets held for sale, less current portion	—			55,642
Property and equipment, net	27,356			28,006
Goodwill	402,254			388,922
Intangible assets acquired in business combinations, net	51,754			48,501
Deferred tax assets, less current portion	336			12,422
Other assets	2,434			2,913
TOTAL ASSETS	$	764,843		$	817,775

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	109,370		$	126,472
Other current liabilities	2,429			4,057
Liabilities related to assets held for sale	—			7,646
Total current liabilities	111,799			138,175
Income taxes payable, less current portion	23,911			24,050
Deferred tax liabilities, less current portion	10,639			855
Borrowings under credit agreement	60,000			140,000
Other non-current liabilities	9,288			8,740
Liabilities related to assets held for sale, less current portion	—			1,058
TOTAL LIABILITIES	215,637			312,878

Commitments and contingencies (Note 10)

STOCKHOLDERS’ EQUITY:
Convertible preferred stock, $0.001 par value; 20,000,000 shares authorized; no shares issued or outstanding at March 31, 2014 and December 31, 2013	—			—
Common stock, $0.001 par value; 500,000,000 shares authorized; 66,957,715 and 66,828,670 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively	67			67
Additional paid-in capital	467,063			461,822
Accumulated other comprehensive loss	(4,625		)	(2,722		)
Retained earnings	86,701			45,730
Total stockholders’ equity	549,206			504,897
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	764,843		$	817,775

See accompanying Notes to Condensed Consolidated Financial Statements

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CONVERSANT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)



	Three-month Period Ended March 31,
	2014			2013

Revenue	$	145,913		$	134,483
Cost of revenue	47,220			42,330
Gross profit	98,693			92,153

Operating expenses:
Sales and marketing	26,515			21,063
General and administrative	17,870			16,593
Technology	15,972			13,623
Amortization of intangible assets acquired in business combinations	4,538			3,551
Total operating expenses	64,895			54,830
Income from operations	33,798			37,323
Interest and other income (expense), net	(264		)	(406		)
Income before income taxes	33,534			36,917
Income tax expense	13,452			13,538
Net income from continuing operations	20,082			23,379
Discontinued operations (Note 5):
Net income from discontinued operations	155			2,904
Gain on sale, net of tax	34,226			—
Net income	54,463			26,283

Other comprehensive income (loss):
Foreign currency translation	(1,903		)	(2,867		)
Total comprehensive income	$	52,560		$	23,416

Basic net income per common share from:
Continuing operations	$	0.30		$	0.31
Discontinued operations	$	0.51		$	0.04
Net income	$	0.81		$	0.35

Diluted net income per common share from:
Continuing operations	$	0.29		$	0.30
Discontinued operations	$	0.50		$	0.04
Net income	$	0.79		$	0.34

Weighted-average shares used to calculate net income per common share:
Basic	67,087			75,648
Diluted	68,727			77,567

See accompanying Notes to Condensed Consolidated Financial Statements

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CONVERSANT, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)



	Preferred Stock		Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity
	Shares	Amount	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity

Balance at December 31, 2013	—	—	66,828,670		$	67	$	461,822		$	(2,722	)	$	45,730		$	504,897
Non-cash, stock-based compensation	—	—	—		—		4,749			—			—			4,749
Shares issued in connection with employee stock programs	—	—	887,446		—		3,438			—			—			3,438
Tax benefit from employee stock transactions	—	—	—		—		2,235			—			—			2,235
Repurchase and retirement of common stock	—	—	(758,401	)	—		(5,181		)	—			(13,492		)	(18,673		)
Net income	—	—	—		—		—			—			54,463			54,463
Foreign currency translation	—	—	—		—		—			(1,903		)	—			(1,903		)
Balance at March 31, 2014	—	—	66,957,715		$	67	$	467,063		$	(4,625	)	$	86,701		$	549,206

See accompanying Notes to Condensed Consolidated Financial Statements

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CONVERSANT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	Three-month Period Ended March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	54,463		$	26,283
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,924			9,709
Non-cash, stock-based compensation	4,749			4,797
Provision for doubtful accounts and sales credits	1,057			1,760
Gain on sale of business	(34,226		)	—
Amortization of discount on note receivable	—			(570		)
Deferred income taxes	1,020			1,210
Tax benefit from stock-based awards	2,235			2,245
Excess tax benefit from stock-based awards	(2,237		)	(2,399		)
Changes in operating assets and liabilities, net of effects of business acquisition	3,306			6,430
Net cash provided by operating activities	40,291			49,465

Cash flows from investing activities:
Purchases of property and equipment	(1,738		)	(1,401		)
Principal payments received on note receivable	—			1,005
Proceeds from the sale of business, net of cash divested	72,813			—
Payments for acquisition, net of cash acquired	(24,286		)	—
Net cash provided by (used in) investing activities	46,789			(396		)

Cash flows from financing activities:
Proceeds from borrowings under credit agreement	55,000			—
Repayments under credit agreement	(135,000		)	(62,500		)
Repurchases and retirement of common stock	(18,673		)	—
Proceeds from shares issued under employee stock programs	3,438			5,835
Excess tax benefit from stock-based awards	2,237			2,399
Net cash used in financing activities	(92,998		)	(54,266		)

Effect of exchange rate changes on cash and cash equivalents	110			(2,307		)
Effect on cash and cash equivalents from discontinued operations	14,933			—
Net increase (decrease) in cash and cash equivalents	9,125			(7,504		)
Cash and cash equivalents, beginning of period	81,319			136,638
Cash and cash equivalents, end of period	$	90,444		$	129,134

See accompanying Notes to Condensed Consolidated Financial Statements

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CONVERSANT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. THE COMPANY AND BASIS OF PRESENTATION

Company Overview

Conversant, Inc. and its subsidiaries (''Conversant'' or the "Company''), offer a comprehensive range of digital marketing services across its Affiliate Marketing and Media segments. The Company's services help marketers achieve a variety of strategic objectives, including customer relationship management, new customer acquisition and branding. The Company changed its name from ValueClick, Inc. to Conversant, Inc. on February 3, 2014.

In periods prior to the third quarter of 2013, the Company derived its revenue from three business segments: Affiliate Marketing, Media and Owned & Operated Websites. In the third quarter of 2013, the Company's board of directors approved a plan to sell the Company's Owned & Operated Websites business segment. As a result of this plan and subsequent sale of this business in the first quarter of 2014, the Owned & Operated Websites segment met the definition of a business held for sale at December 31, 2013. The results of operations for the Owned & Operated Websites segment have been excluded from continuing operations for all periods herein and reported as discontinued operations. See Note 5 for additional information on this divestiture. With this divestiture, the Company now operates in two business segments: Affiliate Marketing and Media. All prior period segment information herein has been recast to conform to this presentation.

AFFILIATE MARKETING - Conversant's Affiliate Marketing segment, which operates under the "CJ Affiliate by Conversant'' brand name, provides the technology, network and customer service that, in combination, enable advertisers to create their own fully-commissioned online sales force comprised of third-party website publishers, also known as affiliates. Advertisers upload their offers onto the Company's platform, making them available for placement by affiliates. Affiliates apply to join the advertiser's program, and upon acceptance, affiliates select and place the advertiser's offers on their websites or mobile websites, in email campaigns or in search listings. These links are served and tracked by the Company's platform. As a result, when a consumer clicks on one of the affiliate's links and makes an online purchase or completes an agreed-upon action on the advertiser's website or mobile website, the transaction is automatically tracked and recorded. The Company collects commissions due from advertisers and disburses these commission payments to thousands of individual affiliates each month. Our technology and service offerings enable marketers to execute their own affiliate marketing programs without the expense of building and maintaining their own in-house technical infrastructure and resources.

Our Affiliate Marketing segment principally generates revenue from variable commissions paid to the Company by advertisers, which are based on a percentage of commissions advertisers pay to affiliates, or on a percentage of transaction revenue generated from the advertising programs managed by the Company's affiliate marketing platform. The commission payments advertisers pay to the Company are separate from the commission payments advertisers pay to affiliates. The Company does not receive any portion of affiliate publisher commissions, and the Company does not generally generate revenue directly from affiliates.

MEDIA - Conversant's Media segment provides a comprehensive suite of digital marketing services and tailored programs that help marketers create and increase awareness for their products and brands, attract visitors and generate leads and sales through the Internet and mobile applications. The company's platform enables marketers to deliver personalized and individualized communications, and is designed for flexibility based on each brand’s specific needs. The level of personalization, data integration, creative development, cross-channel delivery, and measurement sophistication are tailored for each individual client.

On February 6, 2014, the Company acquired SET Media, a digital video technology company. SET Media strengthens the Company's technology offerings and adds unique video targeting and brand safety capabilities to its personalization platform. SET Media is included in the Company's Media segment. See Note 4 for additional information on this acquisition.

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Basis of Presentation and Use of Estimates

The condensed consolidated financial statements are unaudited and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. As permitted by the Securities and Exchange Commission (“SEC”) under Rule 10-01 of Regulation S-X, the accompanying condensed consolidated financial statements and related notes have been condensed and do not contain certain information that may be included in Conversant's annual consolidated financial statements and notes thereto. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in Conversant's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 3, 2014. The December 31, 2013 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including, but not limited to, those related to: i) the allowance for doubtful accounts and sales credits; ii) the fair value of the Company's debt; iii) the valuation of equity instruments granted by the Company; iv) the value assigned to, recoverability and estimated useful lives of, goodwill and intangible assets acquired in business combinations; v) the Company's income tax expense, its deferred tax assets and liabilities and any valuation allowances recorded against deferred tax assets; and vi) the recognition and disclosure of contingent liabilities. These estimates and assumptions are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.

2. RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, which changes the criteria for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations that have, or will have, a major effect on the organization’s operations and financial results should be presented as discontinued operations. Additionally, the guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The amendments in ASU No. 2014-08 will be applied prospectively to annual periods beginning on or after December 15, 2014, and interim periods within those years, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations and cash flows.

In July 2013, the FASB determined that an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss carryforward or other tax credit carryforward when settlement in this manner is available under applicable tax law. This guidance is effective for the Company's interim and annual periods beginning January 1, 2014. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows.

In March 2013, the FASB issued new accounting guidance clarifying the accounting for the release of cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows.

In February 2013, the FASB issued a final rule related to the reporting of amounts reclassified out of accumulated other comprehensive income that requires entities to report, either on the face of their financial statements or in a footnote to their financial statements, the effects on earnings from items that are reclassified out of other comprehensive income. The new accounting rules were effective for the Company on January 1, 2013. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows.

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3. STOCK-BASED COMPENSATION

In the three-month periods ended March 31, 2014 and 2013, the Company recognized stock-based compensation of $4.7 million and $4.5 million, respectively. The following table summarizes, by statement of comprehensive income line item, the impact of stock-based compensation and the related income tax benefits recognized in the three-month periods ended March 31, 2014 and 2013 (in thousands):



	Three-month Period Ended March 31,
	2014			2013
Sales and marketing	$	1,161		$	1,158
General and administrative	2,403			2,254
Technology	1,185			1,105
Total stock-based compensation	4,749			4,517
Related income tax benefits	(1,942		)	(2,088		)
Stock-based compensation, net of tax benefits	$	2,807		$	2,429

4. RECENT BUSINESS COMBINATION

On February 6, 2014, the Company completed the acquisition of SET Media, a digital video technology company. Under the terms of the agreement, the Company acquired all outstanding equity interests in SET Media for total cash consideration of $24.6 million. The Company also assumed 52,000 unvested options to purchase shares of Conversant common stock valued at $0.9 million. The fair value of the assumed unvested stock options will be expensed over the future service period.

SET Media strengthens the Company's technology offerings and adds unique video targeting and brand safety capabilities to its personalization platform. These factors contributed to a purchase price in excess of the fair value of SET Media's net tangible and intangible assets acquired, and, as a result, the Company has recorded goodwill in connection with this transaction. The results of SET Media's operations are included in the Company's consolidated financial statements beginning on February 6, 2014.

The preliminary allocation of the purchase price (based upon preliminary valuation assumptions that may change upon completion of our analysis) to the assets acquired and liabilities assumed, based on their estimated fair values, resulted in $13.4 million in goodwill, $10.1 million in amortizable intangible assets, including $8.1 million of developed technology with a useful life of four years, $5.0 million in deferred tax assets and $4.0 million in deferred tax liabilities. The Company does not expect any goodwill to be tax deductible. This acquisition is not considered material for purposes of further disclosure.

5. DISCONTINUED OPERATIONS

On January 10, 2014, the Company completed the disposition of its Owned & Operated Websites segment. The proceeds from the sale consisted of gross cash consideration of $80.0 million, and $74.8 million net of cash divested. The company incurred $2.0 million in transaction costs in connection with the divestiture. The divestiture generated a pre-tax gain of $7.0 million, which includes a $1.4 million reclassification adjustment relating to the foreign currency translation amounts previously included in other comprehensive income, and a $34.2 million gain net of income taxes due to a tax benefit of $27.2 million realized upon the sale due primarily to tax deductible goodwill.

The assets and liabilities of the Owned & Operated Websites segment were classified as held for sale as of December 31, 2013, and the historical results of operations of the Owned & Operated Websites segment are treated as discontinued operations herein. The Company determined that its Owned & Operated Websites segment met the definition of an asset held for sale in the third quarter of 2013.

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The following amounts related to the Owned & Operated Websites segment for the three-month period ended March 31, 2013 were derived from historical financial information. All amounts have been segregated from continuing operations and reported as discontinued operations (in thousands):



	Three-month Period Ended March 31, 2013
Revenue	$	30,955

Income from discontinued operations before income taxes	4,270
Income tax expense	1,366
Net income from discontinued operations	$	2,904

The components of assets and liabilities held for sale at December 31, 2013 are as follows (in thousands):



	December 31, 2013
Current assets held for sale:
Cash and cash equivalents	14,933
Receivables, net	15,113
Other current assets	2,756
	32,802
Assets held for sale, less current portion:
Property and equipment, net	1,554
Goodwill	45,878
Intangible assets acquired in business combinations	7,798
Other assets	412
	55,642
Current liabilities related to assets held for sale:
Accounts payable and accrued expenses	7,242
Other current liabilities	404
	7,646
Liabilities related to assets held for sale, less current portion:
Deferred tax liabilities	1,058
Other non-current liabilities	—
	1,058

6. GOODWILL AND INTANGIBLE ASSETS

As a result of the Company's sale of its Owned & Operated Websites businesses as described in Note 1, the Company's reporting units now consist of the Affiliate Marketing, Enterprise (formerly named Dotomi) and Media operating segments as of March 31, 2014. The changes in the carrying amount of goodwill, by reporting unit, for the three-month period ended March 31, 2014 were as follows (in thousands):



	Affiliate Marketing			Enterprise		Media			Total
Balance at December 31, 2013	$	30,657		206,861		$	151,404		$	388,922
Foreign currency translation adjustments	(61		)	—		(26		)	(87		)
Acquisition	—			—		13,419			13,419
Balance at March 31, 2014	$	30,596		$	206,861	$	164,797		$	402,254

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Goodwill, accumulated impairment losses and the net carrying amount of goodwill, by reporting unit, as of March 31, 2014 and December 31, 2013 were as follows (in thousands):



	Affiliate Marketing		Enterprise		Media			Total
March 31, 2014
Goodwill	$	30,596	$	206,861	$	276,797		$	514,254
Accumulated impairment losses	—		—		(112,000		)	(112,000		)
Goodwill, net	$	30,596	$	206,861	$	164,797		$	402,254

December 31, 2013
Goodwill	$	30,657	$	206,861	$	263,404		$	500,922
Accumulated impairment losses	—		—		(112,000		)	(112,000		)
Goodwill, net	$	30,657	$	206,861	$	151,404		$	388,922

The gross balance, accumulated amortization and net carrying amount of the Company’s intangible assets as of March 31, 2014 and December 31, 2013 were as follows (in thousands):



	Gross Balance		Accumulated Amortization			Net Carrying Amount
March 31, 2014
Customer, affiliate and advertiser relationships	$	96,970	$	(64,241	)	$	32,729
Trademarks, trade names and domain names	8,032		(7,740		)	292
Developed technologies	39,870		(21,907		)	17,963
Non-competition agreements	$	840	$	(70	)	770
Total intangible assets	$	145,712	$	(93,958	)	$	51,754

December 31, 2013
Customer, affiliate and advertiser relationships	$	95,810	$	(60,799	)	$	35,011
Trademarks, trade names and domain names	11,873		(10,555		)	1,318
Developed technologies	31,770		(19,598		)	12,172
Total intangible assets	$	139,453	$	(90,952	)	$	48,501

The following table summarizes, by consolidated statement of comprehensive income line item, the impact of amortization expense recognized for the three-month periods ended March 31, 2014 and 2013 (in thousands):



	Three-month Period Ended March 31,
	2014		2013
Amortization of acquired developed technologies included in consolidated cost of revenue	$	2,309	$	1,985
Amortization of acquired intangible assets included in consolidated operating expenses	4,538		3,551
Total	$	6,847	$	5,536

Estimated intangible asset amortization expense for the remainder of 2014, the succeeding four years and thereafter, is as follows (in thousands):



	Amortization included in:
	Cost of revenue		Operating expenses		Total
Nine months ending December 31, 2014	$	7,462	$	10,818	$	18,280
2015	6,283		14,425		20,708
2016	2,025		8,378		10,403
2017	2,025		44		2,069
2018	169		44		213
Thereafter	—		81		81
Total	$	17,964	$	33,790	$	51,754

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7. ACCOUNTS RECEIVABLE

Accounts receivable are stated net of an allowance for doubtful accounts and sales credits of $7.2 million at March 31, 2014 and $6.9 million at December 31, 2013. No customers accounted for more than 10% of the accounts receivable balance at March 31, 2014 or December 31, 2013.

8. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014			December 31, 2013
Computer equipment and purchased software	$	57,852		$	55,965
Furniture and equipment	7,916			7,837
Leasehold improvements	10,724			10,660
Property and equipment, gross	76,492			74,462
Less: accumulated depreciation and leasehold amortization	(49,136		)	(46,456		)
Total property and equipment, net	$	27,356		$	28,006

9. FAIR VALUE MEASUREMENT

The accounting guidance for fair value measurements defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The accounting guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as fair value measured based on observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as fair value measured based on observable inputs other than the quoted prices included within Level 1 that are observable, either directly or indirectly; and Level 3, defined as fair value measured based on unobservable inputs for which there is little or no market data, therefore requiring the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

As of March 31, 2014 and December 31, 2013, the carrying amounts of net accounts receivable, and accounts payable and accrued expenses approximate fair value due to their short-term nature. The carrying amount of cash equivalents, which consist of money market accounts, approximate fair value using level 1 inputs. Based on borrowing rates that are available to the Company for loans with similar terms and consideration of the Company’s credit risk, the carrying value of the company's debt approximates its fair value and is a Level 2 measurement within the fair value hierarchy.

10. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that is reasonably possible to have a material adverse effect on the Company's business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

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11. INCOME TAXES

As of December 31, 2013, the Company had recorded a liability of $18.7 million for unrecognized tax benefits. During the three-month period ended March 31, 2014, the Company’s liability for unrecognized tax benefits increased by $0.4 million as a result of income tax positions taken during the period and decreased by $0.3 million for tax settlements during the quarter. Additionally, $0.3 million of unrecognized tax benefits were removed related to the completion of the sale of the Owned & Operated Websites segment, resulting in a total liability for unrecognized tax benefits at March 31, 2014 of $18.5 million. If these tax benefits are recognized in future periods, the liability for unrecognized tax benefits would be recorded as a reduction to income tax expense. Facts and circumstances could arise in the twelve-month period following March 31, 2014 that could cause the Company to reduce the liability for unrecognized tax benefits, including, but not limited to, settlement of income tax positions or expiration of statutes of limitations. Because the ultimate resolution of uncertain tax positions depends on many factors and assumptions, the Company is not able to estimate the range of potential changes in the liability for unrecognized tax benefits or the timing of such changes.

The Company’s policy is to recognize interest and penalties expense, if any, related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2013, the Company had recorded an accrual of $9.7 million for interest and penalties related to unrecognized tax benefits. During the three-month period ended March 31, 2014, the Company recognized $0.3 million in gross interest and penalties, which was offset by $0.1 million in interest paid relating to the settlement of tax positions and $0.2 million of accrued interest that was removed related to the completion of the sale of the Owned & Operated Websites segment, resulting in an accrual for interest and penalties related to unrecognized tax benefits of $9.7 million at March 31, 2014. During the three-month period ended March 31, 2013, the Company recognized $0.4 million in gross interest and penalties. The accrual for interest and penalties related to unrecognized tax benefits is included in non-current income taxes payable balance on the accompanying condensed consolidated balance sheet.

The Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. These include the 2009 through 2013 tax years for federal purposes, 2004 through 2013 tax years for various state jurisdictions, and 2004 through 2013 tax years for various foreign jurisdictions. The Company is currently under audit examination by the Internal Revenue Service for the 2007 tax year, and in various state and foreign jurisdictions for various tax years.

12. STOCKHOLDERS’ EQUITY

In September 2001, the Company’s board of directors authorized a stock repurchase program (the “Program”) to allow for the repurchase of shares of the Company’s common stock at prevailing market prices in the open market or through unsolicited negotiated transactions. Since the inception of the Program and through December 31, 2013, the Company’s board of directors authorized a total of $1.0 billion for repurchases under the Program and the Company had repurchased a total of 80.9 million shares of its common stock for approximately $926.8 million. During the three-month period ended March 31, 2014, the Company repurchased 0.8 million shares for $18.7 million. As of March 31, 2014, up to an additional $81.3 million of the Company’s capital was available to be used to repurchase shares of the Company’s outstanding common stock under the Program. Subsequent to March 31, 2014, the Company repurchased 0.8 million shares for $19.8 million, leaving approximately $61.5 million available under the Program as of May 9, 2014.

Repurchases have been funded from available working capital and borrowings under the Company's credit facility, and all shares have been retired subsequent to their repurchase. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management or the Company’s board of directors determines additional repurchases are not warranted. The amounts authorized by the Company’s board of directors exclude broker commissions.

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13. NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share for the periods indicated (in thousands, except per share data):



	Three-month Period Ended March 31,
	2014		2013
Net income	$	54,463	$	26,283

Weighted-average common shares outstanding - basic	67,087		75,648
Dilutive effect of employee stock-based awards	1,640		1,919
Number of shares used to compute net income per common share - diluted	68,727		77,567

Net income per common share:
Basic	$	0.81	$	0.35
Diluted	$	0.79	$	0.34

Employee stock-based awards totaling 7,000 shares and 9,000 shares during the three-month periods ended March 31, 2014 and 2013, respectively, were excluded from the computation of diluted net income per common share because their effect would have been anti-dilutive under the treasury stock method.

14. CREDIT AGREEMENT

On August 19, 2013, the Company entered into a Second Amended and Restated Credit Agreement (the "Credit Facility"), which amended and restated the Company's previous credit facility in its entirety. The amended Credit Facility consists of a revolving loan commitment of $400.0 million, with a Company option to increase the total revolving loan commitment to $500.0 million subject to certain conditions. The expiration date under the amended Credit Facility was extended to August 19, 2018. Borrowings under the facility bear interest at either (i) the Base Rate, which is equal to the highest of (a) the administrative agent's prime rate, (b) the federal funds rate plus 1.50% and (c) the one month reserve adjusted daily London Interbank Offered Rate ("LIBOR") plus 1.50%, or (ii) LIBOR, in each case plus an applicable margin as in effect at each interest calculation date. The applicable margin in effect from time to time is based on the Company’s total leverage ratio. The applicable margins range from 1.25% to 1.75% for LIBOR loans and from 0.25% to 0.75% for Base Rate loans.

Certain of the Company's domestic subsidiaries have guaranteed the obligations of the Company and all future domestic subsidiaries of the Company also are required to guarantee the obligations of the Company under the Credit Facility. The Company's obligations are collateralized by a lien on substantially all of its present and future assets pursuant to a separate security agreement (the "Security Agreement"). In addition, the obligations of each subsidiary guarantor are collateralized by a lien on substantially all of such subsidiary’s present and future assets pursuant to a separate guaranty agreement (the "Guaranty Agreement"). The subsidiary guarantees and the collateral under the Security Agreement are subject to release upon fulfillment of certain conditions specified in the Credit Facility, Security Agreement and the Guaranty Agreement.

The Credit Facility is available to be used by the Company to, among other things, fund its working capital needs and for other general corporate purposes, including acquisitions and stock repurchases. The Company used borrowings under the Credit Facility to settle the prior credit facility and fund a portion of the Company's stock repurchases in the current quarter. The Company pays a commitment fee on the unused portion of the revolving loan commitment amount up to a maximum of 0.30% based on the Company’s total leverage ratio. The agreement also defines customary events of default such as failure to pay interest or principal when due, material inaccuracy of representations or warranties, bankruptcy events, change of control, a material adverse change in financial condition or operations, or a default of covenant. Upon the occurrence of an event of default, the principal and accrued interest under the Credit Facility then outstanding may be declared due and payable. At March 31, 2014, there was $60 million outstanding under the revolving loan commitment.

The Company has provided various representations and agreed to certain financial covenants including a total leverage ratio, a fixed charge coverage ratio and a minimum unrestricted, unencumbered liquid assets requirement. At March 31, 2014 and December 31, 2013, the Company was in compliance with all of the financial covenants of its credit facilities.

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15. SEGMENTS, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS

The Company derives its revenue from two business segments: Affiliate Marketing and Media. These business segments are presented on a worldwide basis. Prior to the third quarter of 2013, the Company operated in a third segment, Owned & Operated Websites. However, in the third quarter of 2013, the Company's board of directors approved a plan to sell the Owned & Operated Websites business segment. As a result of this plan and subsequent sale of this business in the first quarter of 2014, the Owned & Operated Websites segment met the definition of a business held for sale at December 31, 2013, and also met the reporting requirements to be reported as discontinued operations. Accordingly, the results of operations for the Owned & Operated Websites segment have been excluded from continuing operations for all periods herein and reported as discontinued operations.

The following table provides revenue and segment income from operations for each of the Company’s two business segments. The Company accounts for inter-segment revenue as if the revenue was derived from third parties, that is, at current market prices. Segment income from operations, as shown below, is the performance measure used by management to assess segment performance and excludes the effects of stock-based compensation, amortization of intangible assets and corporate expenses, as these items are excluded from the segment performance measures utilized by the Company's chief operating decision maker in evaluating the performance of the segments. Corporate expenses consist of those costs not directly attributable to a business segment, and include: salaries and benefits for the Company’s executive, finance, legal, corporate governance, human resources, and facilities organizations; fees for professional service providers including audit, tax and Sarbanes-Oxley compliance; certain legal fees not directly attributable to a business segment; insurance; acquisition related costs; and, other corporate expenses.



	Revenue						Segment Income from Operations
	Three-month Period Ended March 31,
	2014			2013			2014		2013
	(in thousands)
Affiliate Marketing	$	42,464		$	38,311		$	26,112	$	22,925
Media	103,462			96,256			29,129		31,323
Inter-segment revenue	(13		)	(84		)	—		—
Total	$	145,913		$	134,483		$	55,241	$	54,248

A reconciliation of total segment income from operations to consolidated income from operations is as follows for each period (in thousands):



	Three-month Period Ended March 31,
	2014			2013
Segment income from operations	$	55,241		$	54,248
Corporate expenses	(9,847		)	(6,872		)
Stock-based compensation	(4,749		)	(4,517		)
Amortization of acquired developed technology included in consolidated cost of revenue	(2,309		)	(1,985		)
Amortization of acquired intangible assets included in consolidated operating expenses	(4,538		)	(3,551		)
Consolidated income from operations	$	33,798		$	37,323

Depreciation and leasehold amortization expense included in the determination of segment income from operations as presented above for the Affiliate Marketing and Media segments is as follows for each period (in thousands):



	Three-month Period Ended March 31,
	2014		2013
Affiliate Marketing	$	364	$	341
Media	2,378		2,395
Corporate	326		263
Total	$	3,068	$	2,999

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The Company’s continuing operations are domiciled in the United States with operations internationally in Europe, South Africa and China through wholly-owned subsidiaries. Revenue is attributed to a geographic region based upon the country from which the customer relationship is maintained.

The Company’s geographic information was as follows (in thousands):



	Revenue
	Three-month Period Ended March 31,
	2014			2013
United States	$	133,583		$	122,511
International	12,442			12,155
Inter-regional eliminations	(112		)	(183		)
Total	$	145,913		$	134,483

	Income from Operations
	Three-month Period Ended March 31,
	2014			2013
United States	$	33,044		$	35,643
International	754			1,680
Total	$	33,798		$	37,323

For the three-month periods ended March 31, 2014 and 2013, no customer comprised more than 10% of total revenue from continuing operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

This report contains forward-looking statements based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled “Risk Factors” in this Form 10-Q and similar discussions in our Annual Report on Form 10-K for the year ended December 31, 2013, and in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.

OVERVIEW

Conversant, Inc. and its subsidiaries (collectively "Conversant" or the "Company" or in the first person, "we", "us" and "our") offer a comprehensive range of digital marketing services across our Affiliate Marketing and Media segments. The Company's services help marketers achieve a variety of strategic objectives, including customer relationship management, new customer acquisition and branding. The Company changed its name from ValueClick, Inc. to Conversant, Inc. on February 3, 2014 to highlight the Company's capabilities in personalized digital marketing and its focus on helping marketers engage in conversations with their target audiences.

In periods prior to the third quarter of 2013, we derived our revenue from three business segments: Affiliate Marketing, Media and Owned & Operated Websites. In the third quarter of 2013, our board of directors approved a plan to sell the Owned & Operated Websites business segment. As a result of this plan and subsequent sale of this business in the first quarter of 2014, the Owned & Operated Websites segment met the definition of a business held for sale at December 31, 2013. The results of operations for the Owned & Operated Websites segment have been excluded from continuing operations for all periods herein and reported as discontinued operations. See Note 5 to our condensed consolidated financial statements included herein for additional information on this divestiture. With this divestiture, we now operate in two business segments: Affiliate Marketing and Media. All prior period segment information herein has been recast to conform to this presentation.

AFFILIATE MARKETING - Conversant's Affiliate Marketing segment, which operates under the "CJ Affiliate by Conversant'' brand name, provides the technology, network and customer service that, in combination, enable advertisers to create their own fully-commissioned online sales force comprised of third-party website publishers, also known as affiliates. Advertisers upload their offers onto the Company's platform, making them available for placement by affiliates. Affiliates apply to join the advertiser's program, and upon acceptance, affiliates select and place the advertiser's offers on their websites or mobile websites, in email campaigns or in search listings. These links are served and tracked by the Company's platform. As a result, when a consumer clicks on one of the affiliate's links and makes an online purchase or completes an agreed-upon action on the advertiser's website or mobile website, the transaction is automatically tracked and recorded. The Company collects commissions due from advertisers and disburses these commission payments to thousands of individual affiliates each month. Our leading technology and service offerings enable marketers to execute their own affiliate marketing programs without the expense of building and maintaining their own in-house technical infrastructure and resources.

Our Affiliate Marketing segment principally generates revenue from variable commissions paid to the Company by advertisers, which are based on a percentage of commissions advertisers pay to affiliates, or on a percentage of transaction revenue generated from the advertising programs managed by the Company's affiliate marketing platform. The commission payments advertisers pay to the Company are separate from the commission payments advertisers pay to affiliates. The Company does not receive any portion of affiliate publisher commissions, and the Company generally does not generate revenue directly from affiliates.

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On February 6, 2014, we acquired SET Media, a digital video technology company. SET Media strengthens our technology offerings and adds unique video targeting and brand safety capabilities to our personalization platform. SET Media is included in our Media segment, and its results of operations are included in our consolidated financial statements beginning on the date of acquisition. See Note 4 to our condensed consolidated financial statements included herein for additional information on this acquisition.

SEGMENT OPERATING RESULTS

The following table provides revenue, cost of revenue, gross profit, operating expenses, and income from operations information for our two business segments. Segment income from operations, as shown below, is the performance measure used by management to assess segment performance and excludes the effects of: stock-based compensation, amortization of intangible assets and corporate expenses. Corporate expenses consist of those costs not directly attributable to a business segment, and include: salaries and benefits for our executive, finance, legal, corporate governance, human resources, and facilities organizations; fees for professional service providers including audit, tax and Sarbanes-Oxley compliance; certain legal fees not directly attributable to a business segment; insurance; acquisition related costs; and, other corporate expenses. A reconciliation of segment income from operations to consolidated income from operations and a reconciliation of segment revenue to consolidated revenue are also provided in the following table.



	Three-month Period Ended March 31,
	2014			2013
	(in thousands)
Affiliate Marketing
Revenue	$	42,464		$	38,311
Cost of revenue	4,543			4,562
Gross profit	37,921			33,749
Operating expenses	11,809			10,824
Segment income from operations	$	26,112		$	22,925

Media
Revenue	$	103,462		$	96,256
Cost of revenue	40,363			35,839
Gross profit	63,099			60,417
Operating expenses	33,970			29,094
Segment income from operations	$	29,129		$	31,323

Reconciliation of segment income from operations to consolidated income from operations:
Total segment income from operations	$	55,241		$	54,248
Corporate expenses	(9,847		)	(6,872		)
Stock-based compensation	(4,749		)	(4,517		)
Amortization of acquired developed technology included in consolidated cost of revenue	(2,309		)	(1,985		)
Amortization of intangible assets included in consolidated operating expenses	(4,538		)	(3,551		)
Consolidated income from operations	$	33,798		$	37,323

Reconciliation of segment revenue to consolidated revenue:
Affiliate Marketing	$	42,464		$	38,311
Media	103,462			96,256
Inter-segment eliminations	(13		)	(84		)
Consolidated revenue	$	145,913		$	134,483

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RESULTS OF OPERATIONS—THREE-MONTH PERIOD ENDED MARCH 31, 2014 COMPARED TO MARCH 31, 2013

Revenue. Consolidated revenue for the three-month period ended March 31, 2014 was $145.9 million compared to $134.5 million for the same period in 2013, representing an 8.5% increase.

Affiliate Marketing segment revenue increased 10.8% to $42.5 million for the three-month period ended March 31, 2014 compared to $38.3 million in the same period in 2013. This revenue increase was attributable to net new client wins as compared to the year ago period, as well as an increase in transaction volumes associated with existing customers.

Media segment revenue increased 7.5% to $103.5 million for the three-month period ended March 31, 2014 compared to $96.3 million for the same period in 2013. Revenue growth was driven by our mobile, video and CRM offerings and was partially offset by weakness in our display and ad serving businesses.

Cost of Revenue and Gross Profit. Cost of revenue includes payments to website publishers, certain labor costs that are directly related to revenue-producing activities, Internet access costs, amortization of developed technology acquired in business combinations, and depreciation on revenue-producing technologies.

Our consolidated cost of revenue was $47.2 million for the three-month period ended March 31, 2014 compared to $42.3 million for the same period in 2013, an increase of 11.6%. Our consolidated gross margin decreased to 67.6% from 68.5% for the three-month periods ended March 31, 2014 and 2013, respectively.

Cost of revenue for the Affiliate Marketing segment remained consistent at $4.5 million for the three-month periods ended March 31, 2014 and 2013. Our Affiliate Marketing gross margin increased to 89.3% for the three-month period ended March 31, 2014 compared to 88.1% for the same period in 2013. The improvement in Affiliate Marketing segment gross margin for the three-month period ended March 31, 2014 was due the operating leverage associated with the higher revenue described above, as the cost of revenue for the Affiliate Marketing consists primarily of fixed costs.

Cost of revenue for the Media segment increased $4.5 million, or 12.6%, to $40.4 million for the three-month period ended March 31, 2014 compared to $35.8 million for the same period in 2013. Our Media segment gross margin decreased to 61.0% for the three-month period ended March 31, 2014 compared to 62.8% for the same period in 2013. The decrease in our Media segment gross margin in the current year period was primarily due to revenue mix, with our relatively lower gross margin products (mobile and video) having the highest percentage revenue growth and our relatively highest gross margin product (ad serving) being down as compared to the year ago period.

Operating Expenses:

Sales and Marketing. Sales and marketing expenses consist primarily of compensation and employee benefits of sales and marketing and related support teams, certain advertising costs, travel, trade shows, and marketing materials.

Total sales and marketing expenses for the three-month period ended March 31, 2014 were $26.5 million compared to $21.1 million for the same period in 2013, an increase of 25.9%. The increase was primarily due to marketing related costs associated with our corporate rebranding in the first quarter of 2014, higher costs as a result of increased headcount in our sales and marketing organizations and the inclusion of SET Media beginning February 6, 2014. Our sales and marketing expenses as a percentage of revenue were 18.2% for the three-month period ended March 31, 2014 compared to 15.7% for the same period in 2013. We currently expect our sales and marketing expenses in the remainder of 2014 to be significantly higher than the comparable periods in 2013.

General and Administrative. General and administrative expenses consist primarily of facilities costs, executive and administrative compensation and employee benefits, depreciation, professional services fees, insurance costs, bad debt expense, and other general overhead costs. General and administrative expenses increased to $17.9 million for the three-month period ended March 31, 2014 compared to $16.6 million for the same period in 2013, an increase of $1.3 million. As a percentage of revenue, general and administrative expenses remained consistent at 12.2% for the three-month period ended March 31, 2014 compared to 12.3% for the year-ago period.

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Technology. Technology expenses include costs associated with the maintenance and ongoing development of our technology platforms, including compensation and employee benefits for our engineering departments, as well as costs for contracted services and supplies. Technology expenses for the three-month period ended March 31, 2014 increased to $16.0 million, or 10.9% of revenue, compared to $13.6 million, or 10.1% of revenue, for the same period in 2013, an increase of 17.2%. The increase was primarily due to higher costs as a result of increased headcount in our technology organization and the inclusion of SET Media beginning February 6, 2014.

Segment Income from Operations. Affiliate Marketing segment income from operations for the three-month period ended March 31, 2014 increased 13.9% to $26.1 million, from $22.9 million in the same period of the prior year, and represented 61.5% and 59.8% of Affiliate Marketing segment revenue for the three-month periods ended March 31, 2014 and 2013, respectively. The increase in this segment's operating income margin from the year ago period is primarily due to the operating leverage associated with the increased revenue as described above.

Media segment income from operations for the three-month period ended March 31, 2014 decreased 7.0% to $29.1 million, from $31.3 million in the same period of the prior year, and represented 28.2% and 32.5% of Media segment revenue in these respective periods. Media segment operating income margin decreased from the prior year due to the lower gross margin as described above, higher operating expenses in the current year related to increased headcount and marketing spend, and the inclusion of SET Media beginning February 6, 2014.

Stock-Based Compensation. Stock-based compensation for the three-month period ended March 31, 2014 remained relatively consistent at $4.7 million compared to $4.5 million for the same period in 2013. We currently anticipate stock-based compensation of approximately $5.3 million in the quarter ending June 30, 2014 and in the range of $21 million to $23 million for the full year ending December 31, 2014. Such amounts may change as a result of higher or lower than anticipated equity award grants to new and existing employees, differences between actual and estimated forfeitures of stock awards, fluctuations in the market value of our common stock, modifications to our existing stock award programs, additions of new stock-based compensation programs, or other factors.

Amortization of Intangible Assets. Amortization of developed technologies acquired in business combinations, included in Cost of revenue, for the three-month periods ended March 31, 2014 was $2.3 million compared to $2.0 million in the year ago quarter. The increase is due to the acquisition of SET Media. Amortization of all remaining intangible assets, included in Amortization of intangible assets acquired in business combinations, increased to $4.5 million for the three-month period ended March 31, 2014 compared to $3.6 million for the same period in 2013. The increase is due to the acquisition of SET Media as well as accelerated amortization of certain tradenames in connection with the company rebranding in the first quarter of 2014. We currently anticipate total amortization expense, including those recorded in Cost of revenue, of approximately $25.1 million for the year ending December 31, 2014.

Interest and Other Expense, Net. Interest and other expense, net remained relatively consistent at $0.3 million for the three-month period ended March 31, 2014 compared to $0.4 million for the same period in 2013.

Income Tax Expense. For the three-month periods ended March 31, 2014 and 2013, we recorded income tax expense of $13.5 million. The increase in the effective income tax rate for the three-month period ended March 31, 2014 to 40.1% from 36.7% in the same period of the prior year was primarily due to benefits recognized in the year ago period related to the federal research credit for which no corresponding 2014 tax benefit is currently available, and to a lesser extent, greater benefits recognized in the year ago period related to stock-based compensation. We currently anticipate an effective income tax rate for the year ending December 31, 2014 of approximately 41%.

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Adjusted EBITDA as a Non-GAAP Financial Performance Measure

In evaluating our business, we consider earnings from continuing operations before interest, income taxes, depreciation, amortization, and stock-based compensation ("Adjusted EBITDA"), a non-GAAP financial measure, as a key indicator of financial operating performance and as a measure of the ability to generate cash for operational activities and future capital expenditures. We use Adjusted EBITDA in evaluating the overall performance of our business operations. We believe that this measure may also be useful to investors because it eliminates the effects of period-to-period changes in income from interest on our cash and cash equivalents, note receivable, and borrowings, and the costs associated with income tax expense, capital investments, acquisitions, and stock-based compensation expense which are not directly attributable to the underlying performance of our continuing business operations. Investors should not consider this measure in isolation or as a substitute for income from operations, or cash flow from operations determined under U.S. Generally Accepted Accounting Principles (“GAAP”), or any other measure for determining operating performance that is calculated in accordance with GAAP. In addition, because Adjusted EBITDA is a non-GAAP measure, it may not necessarily be comparable to similarly titled measures employed by other companies.

The following is a reconciliation of net income from continuing operations to Adjusted EBITDA for the three-month periods ended March 31, 2014 and 2013 (in thousands):



	Three-month Period Ended March 31,
	2014		2013
Net income from continuing operations	$	20,082	$	23,379
Interest and other expense, net	264		406
Income tax expense	13,452		13,538
Amortization of acquired developed technology included in cost of revenue	2,309		1,985
Amortization of acquired intangible assets included in operating expenses	4,538		3,551
Depreciation and leasehold amortization	3,068		2,999
Stock-based compensation	4,749		4,517
Adjusted EBITDA	$	48,462	$	50,375

Adjusted EBITDA for the three-month period ended March 31, 2014 decreased to $48.5 million from $50.4 million for the same period in 2013, representing a decrease of $1.9 million, or 3.8%. The decrease is due to the decreased operating income in our Media segment as described above as well as higher corporate expenses, including a portion of the marketing costs associated with the Company's rebranding. For the three-month period ending June 30, 2014 we also expect our Adjusted EBITDA to be lower than the year ago period due primarily to higher operating expenses.

Liquidity and Capital Resources

We have financed our operations, our stock repurchases and our cash acquisitions primarily through working capital generated from operations and borrowings under our credit facility. At March 31, 2014, our cash and cash equivalents balances totaled $90.4 million, of which $60.6 million was denominated in foreign currencies and held by our foreign subsidiaries. A majority of the cash held abroad could be repatriated to the U.S. but, under current law, may be subject to U.S. federal income taxes (subject to an adjustment for foreign tax credits).

Net cash provided by operating activities decreased to $40.3 million for the three months ended March 31, 2014 compared to $49.5 million in the same period of 2013. The decrease in cash provided by operations was due to the lower Adjusted EBITDA in the current year period as described above, the inclusion of the Owned & Operated Websites segment cash flows in the year ago period, and lower contribution from working capital changes in the current year period.

Net cash provided by investing activities of $46.8 million for the three-month period ended March 31, 2014 was primarily due to net proceeds of $72.8 million received from the sale of the Owned & Operated Websites segment, offset partially by the use of $24.3 million for the acquisition of SET Media and $1.7 million for equipment purchases. Net cash used in investing activities of $0.4 million in the three-month period ended March 31, 2013 was due to the use of $1.4 million for equipment purchases, offset partially by payments received on a note receivable of $1.0 million.

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Net cash used in financing activities of $93.0 million for the three months ended March 31, 2014 was primarily due to net repayments under our credit facility of $80.0 million and stock repurchases of $18.7 million, offset by $3.4 million in proceeds received from shares issued under our employee stock programs and $2.2 million in excess tax benefits from exercises of stock-based awards. Net cash used in financing activities of $54.3 million for the three months ended March 31, 2013 was primarily due to repayments under our credit facility of $62.5 million, offset partially by proceeds received from shares issued under our employee stock programs of $5.8 million and $2.4 million in excess tax benefits from exercises of stock-based awards.

Credit Facility

On August 19, 2013, we entered into a Second Amended and Restated Credit Agreement (the "Credit Facility"), which replaced our previous credit facility. The Credit Facility consists of a revolving loan commitment of $400.0 million, with an option to increase the total revolving loan commitment to $500.0 million subject to certain conditions. The Credit Facility expires on August 19, 2018. Availability under the Credit Facility is subject to our meeting certain financial and non-financial covenants, as more fully described in Note 14 to our Condensed Consolidated Financial Statements included herein. The Credit Facility provides us with additional financial flexibility for pursuing acquisitions, repurchasing our common stock and general corporate purposes. At March 31, 2014, there was $60.0 million outstanding under the Credit Facility.

Stock Repurchase Program

Repurchases have been funded from available working capital and borrowings under our credit facility, and all shares have been retired subsequent to their repurchase. There is no guarantee as to the exact number of shares that will be repurchased by us, and we may discontinue repurchases at any time that management or our board of directors determines additional repurchases are not warranted. The amounts authorized by our board of directors exclude broker commissions.

Commitments and Contingencies

There were no significant changes to our commitments and contingencies during the three-month period ended March 31, 2014.

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. We have also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and certain of our officers, employees and former officers, directors and employees of acquired companies, in certain circumstances.

It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.

Capital Resources

We believe that the combination of our existing cash and cash equivalents, our Credit Facility and our expected future cash flows from operations will provide us with sufficient liquidity to fund our operations and capital requirements for at least the next twelve months.

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However, it is possible that we may need or elect to raise additional funds to fund our activities beyond the next year or to consummate acquisitions of other businesses, products or technologies. We could raise such funds by selling more stock to the public or to selected investors, or by borrowing under the current or any replacement line of credit, or through other debt instruments. In addition, even though we may not need additional funds, we may still elect to sell additional equity securities for other reasons. We cannot assure you that we will be able to obtain additional funds on commercially favorable terms, or at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders may be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock.

Although we believe we have sufficient capital to fund our activities for at least the next twelve months, our future capital requirements may vary materially from those now planned. The amount of capital that we will need in the future will depend on many factors, including:


•	the macroeconomic environment;


•	the market acceptance of our products and services;


•	the levels of promotion and advertising that will be required to launch our new products and services and achieve and maintain a competitive position in the marketplace;


•	our business, product, capital expenditures and technology plans, and product and technology roadmaps;


•	capital improvements to new and existing facilities;


•	technological advances;


•	our competitors’ responses to our products and services;


•	our pursuit of strategic transactions, including mergers and acquisitions;


•	the extent of dislocations in the credit markets in the United States;


•	the timing and outcome of examinations by tax authorities;


•	our stock repurchase program; and


•	our relationships with our advertiser customers and publisher partners.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, those related to revenue recognition, allowance for doubtful accounts and sales credits, stock-based compensation, income taxes, goodwill and other intangible assets, debt, and contingencies and litigation. We base our estimates and assumptions on historical experience and on various other estimates and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.

There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Recently Issued Accounting Standards

Refer to Note 2 to our condensed consolidated financial statements for a discussion of new accounting pronouncements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

We are exposed to fluctuations in interest rates, which impact the amount of interest we must pay on our outstanding debt, and the amount of interest income we earn on our cash equivalents. Our exposure to interest rate risk primarily results from changes in the one-month London Interbank Offered Rate ("LIBOR"), which is the benchmark interest rate for most borrowings under our credit facility. If the one-month LIBOR rate were to double and our outstanding balance remained at $60 million, our interest expense would increase by approximately $0.1 million over the next year.

FOREIGN CURRENCY RISK

We transact business in various foreign countries and are thus subject to exposure from adverse movements in foreign currency exchange rates. This exposure is primarily related to revenue and operating expenses of our foreign subsidiaries, which denominate their transactions primarily in British Pounds and Euros. The effect of foreign currency exchange rate fluctuations for the three-month periods ended March 31, 2014 and 2013 was not material to the consolidated results of operations. In the future, if there were an adverse change of 10% in overall foreign currency exchange rates over an entire year, the result of translations would be an estimated reduction of revenue of approximately $5.0 million, an estimated reduction of income before income taxes of approximately $0.6 million and an estimated reduction of consolidated net assets of approximately $7.0 million.

While we perform certain economic hedging activities related to exposures associated with certain intercompany balances with our foreign subsidiaries, we do not hedge all of the foreign exchange related exposures faced by our operations. Accordingly, we may experience economic loss and a negative impact on earnings, cash flows or equity as a result of foreign currency exchange rate fluctuations. As of March 31, 2014, we had $78.6 million in total current assets, including $60.6 million in cash and cash equivalents, and $10.4 million in total current liabilities denominated in foreign currencies, predominantly British Pounds and Euros.

Our international business is subject to risks typical of an international business, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign currency exchange rate volatility. Accordingly, our future results could be materially and adversely affected by changes in these or other factors.

ITEM 4. CONTROLS AND PROCEDURES


(a)	Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (“Exchange Act”), Rules 13a-15(e) and 15d-15(e)) under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.


(b)	Changes in Internal Control over Financial Reporting

Additionally, our Chief Executive Officer and Chief Financial Officer have determined that there have been no changes to our internal control over financial reporting during the three-month period ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION AND SIGNATURES

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

ITEM 1A. RISK FACTORS

You should carefully consider the following risks before you decide to buy shares of our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties, including those risks set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below, may also adversely impact and impair our business. If any of the following risks actually occur, our business, results of operations or financial condition would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our stock.

This report on Form 10-Q contains forward-looking statements based on the current expectations, assumptions, estimates, and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements as a result of certain factors, as more fully described in this section and elsewhere in this report on Form 10-Q. We undertake 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.

OUR PROFITABILITY MAY NOT REMAIN AT CURRENT LEVELS.

We face risks that could prevent us from achieving our current profitability levels in future periods. These risks include, but are not limited to, our ability to:


•	match our revenue growth with our growth in operating expenses;


•	adapt our products, services and cost structure to changing macroeconomic conditions;


•	maintain and increase our inventory of advertising space on publisher websites, ad exchanges and other sources and acquire such advertising space at prices that allow us to maintain our gross margin profile;


•	maintain and increase the number of advertisers that use our products and services;


•	continue to expand the number of products and services we offer and the capacity of our systems;


•	adapt to changes in digital advertisers' marketing needs and policies, and the technologies used to generate digital advertisements;


•	respond to challenges presented by the large and increasing number of competitors in the industry;


•	respond to challenges presented by the continuing consolidation within our industry;


•	adapt to changes in legislation, taxation or regulation regarding Internet usage, advertising and e-commerce; and


•	adapt to changes in technology related to advertising filtering software.

If we are unsuccessful in addressing these or other risks and uncertainties, our business, results of operations and financial condition could be materially and adversely affected.

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OUR REVENUE COULD DECLINE IF WE FAIL TO EFFECTIVELY MANAGE OUR EXISTING ADVERTISING INVENTORY AND OUR GROWTH COULD BE IMPEDED IF WE FAIL TO ACQUIRE NEW ADVERTISING INVENTORY.

Our success depends in part on our ability to successfully access advertising inventory available on ad exchanges and through ad network optimization service providers as well as through direct relationships with website publishers and mobile application developers. The partners that we work with to access advertising inventory are not bound by long-term contracts that ensure us a consistent supply of advertising inventory. In addition, our partners can change the amount of inventory they make available to us at any time. If a partner decides not to make advertising inventory available to us, we may not be able to replace this advertising inventory with advertising inventory from other sources that have comparable traffic patterns and user demographics quickly enough to fulfill our advertisers' requests. This would result in lost revenue.

We expect that our advertiser customers' requirements will become more sophisticated as the digital channel continues to mature as an advertising medium. If we fail to manage our existing advertising inventory effectively to meet our advertiser customers' changing requirements, our revenue could decline.

WE MAY FACE INTELLECTUAL PROPERTY ACTIONS THAT ARE COSTLY OR COULD HINDER OR PREVENT OUR ABILITY TO DELIVER OUR PRODUCTS AND SERVICES.

We may be subject to legal actions alleging intellectual property infringement (including patent infringement), unfair competition or similar claims against us. Companies may apply for or be awarded patents or have other intellectual property rights covering aspects of our technologies or businesses. Defending ourselves against intellectual property infringement or similar claims is expensive and diverts management's attention.

OUR COMPANY AND PRODUCT LINE REBRANDING FROM VALUECLICK, INC. TO CONVERSANT, INC. IN THE FIRST QUARTER OF 2014 MAY NOT BE SUCCESSFUL AND COULD NEGATIVELY IMPACT OUR OPERATING RESULTS

In the first quarter of 2014, we rebranded the previous name of the Company, ValueClick, Inc. into Conversant, Inc. We also rebranded the Company's products (including Dotomi, Greystripe, Mediaplex, and ValueClick Media) as Conversant. This corporate and product rebranding may not have the desired impact of increasing market awareness of the Company's product offerings and may result in confusion amongst current and prospective customers and vendors. In addition to the general business risk associated with the rebranding, we incurred significant marketing, legal and IT expenses primarily in the first quarter of 2014. We also expect to maintain a higher level of marketing expenses in the coming quarters as we support the new brand in the marketplace.

IF THE TECHNOLOGY THAT WE CURRENTLY USE TO TARGET THE DELIVERY OF ONLINE ADVERTISEMENTS AND TO PREVENT FRAUD IS RESTRICTED OR BECOMES SUBJECT TO REGULATION, OUR EXPENSES COULD INCREASE AND WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY.

Websites typically place small files of non-personalized (or "anonymous") information, commonly known as cookies, on an Internet user's hard drive. Cookies generally collect information about users on a non-personalized basis to enable websites to provide users with a more customized experience. Cookie information is passed to the website through an Internet user's browser software. We currently use cookies, along with other technologies, as set forth in our privacy policies, for purposes that include, without limitation, improving the experience Web and mobile users have when they see advertisements, advertising campaign reporting, website reporting and to monitor and prevent fraudulent activity. Most currently available Internet browsers allow Internet users to modify their browser settings to prevent cookies from being stored on their hard drive, and some users currently do so. Internet users can also delete cookies from their hard drives at any time. Some Internet commentators and privacy advocates have suggested limiting or eliminating the use of cookies, and legislation has been introduced in some jurisdictions to regulate the use of cookie technology. The effectiveness of our technology could be limited by any reduction or limitation in the use of cookies. If the use or effectiveness of cookies were limited, we expect that we would need to switch to other technologies to gather demographic and behavioral information. While such technologies currently exist, they may be less effective than cookies. We also expect that we would need to develop or acquire other technology to monitor and prevent fraudulent activity. Replacement of cookies could require reengineering time and resources, might not be completed in time to avoid losing customers or advertising inventory, and might not be commercially feasible. Our use of cookie technology or any other technologies designed to collect Internet usage information may subject us to litigation or investigations in the future. Any litigation or government action against us could be costly and time consuming, could require us to change our business practices and could divert management's attention.

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WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM COULD HARM OUR BUSINESS.

Our success depends in part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills, management expertise or key business relationships. We may be unable to retain existing management, finance, engineering, sales, customer support, and operations personnel that are critical to the success of our company, which may result in disruption of operations, loss of key business relationships, information, expertise or know-how, unanticipated additional recruitment and training costs, and diminished anticipated benefits of acquisitions, including loss of revenue and profitability.

Our future success is substantially dependent on the continued service of our key senior management. Our employment agreements with our key personnel are short-term and on an at-will basis. We do not have key-person insurance on any of our employees. The loss of the services of any member of our senior management team, or of any other key employees, could divert management's time and attention, increase our expenses and adversely affect our ability to conduct our business efficiently. Our future success also depends on our continuing ability to attract, retain and motivate highly skilled employees. We may be unable to retain our key employees or attract, retain and motivate other highly qualified employees in the future. We have experienced difficulty from time to time in attracting or retaining the personnel necessary to support the growth of our business, and may experience similar difficulties in the future.

DELAWARE LAW CONTAINS ANTI-TAKEOVER PROVISIONS THAT COULD DETER TAKEOVER ATTEMPTS THAT COULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of our company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring us, without our board of directors' consent, for at least three years from the date they first hold 15% or more of the voting stock.

SYSTEM FAILURES COULD SIGNIFICANTLY DISRUPT OUR OPERATIONS, WHICH COULD CAUSE US TO LOSE CUSTOMERS OR ADVERTISING INVENTORY.

Our success depends on the continuing and uninterrupted performance of our systems. Sustained or repeated system failures that interrupt our ability to provide services to customers, including failures affecting our ability to deliver advertisements quickly and accurately and to process visitors' responses to advertisements, would reduce significantly the attractiveness of our solutions to advertisers and publishers. Our business, results of operations and financial condition could also be materially and adversely affected by any systems damage or failure that impacts data integrity or interrupts or delays our operations. Our computer systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages and natural disasters. We lease data center space in various locations in northern and southern California; Virginia; Illinois; and Shanghai, China. Therefore, any of the above factors affecting any of these areas could substantially harm our business. Despite the precautions taken, unanticipated problems affecting our systems could cause interruptions in the delivery of our solutions in the future and our ability to provide a record of past transactions. Our data centers and systems incorporate varying degrees of redundancy. All data centers and systems may not automatically switch over to their redundant counterpart. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems.

A BREACH OF OUR SECURITY SYSTEMS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Despite network security measures, our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Accidental or willful security breaches or other unauthorized access by third parties to our facilities or our information systems or the existence of computer viruses in our data or software could expose us to a risk of information loss and misappropriation of proprietary and confidential information. Any theft or misuse of such information could result in, among other things, unfavorable publicity, damage to our reputation, difficulty in marketing our products, allegations by our customers that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business, profitability and financial condition. Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

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IT MAY BE DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE BECAUSE OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.

Our revenue and operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. Our results of operations have fallen below the expectations of market analysts and our own forecasts in the past and may also do so in some future periods. If this happens, the market price of our common stock may fall significantly. The factors that may affect our quarterly operating results include, but are not limited to, the following:


•	macroeconomic conditions in the United States and Europe;


•	fluctuations in demand for our advertising solutions or changes in customer contracts;


•	fluctuations in click, lead, action, impression, and conversion rates;


•	fluctuations in the amount of advertising space we have access to;


•	the timing and amount of sales and marketing expenses incurred to attract new advertisers;


•	fluctuations in sales of different types of advertising; for example, the amount of advertising sold at higher rates rather than lower rates;


•	seasonal patterns in Internet advertisers' spending;


•	fluctuations in our stock price which may impact the amount of stock-based compensation we are required to record;


•	changes in our pricing and publisher compensation policies or changes in the pricing policies for digital advertising generally;


•	changes in the regulatory environment, including regulation of digital advertising, that may negatively impact our marketing practices;


•	possible impairments of the recorded amounts of goodwill, intangible assets, or other long-lived assets;


•	the timing and amount of expenses associated with litigation, regulatory investigations or restructuring activities, including settlement costs and regulatory penalties assessed related to government enforcement actions;


•	the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures;


•	the loss of, or a significant reduction in business from, large customers resulting from, among other factors, the exercise of a cancellation clause within a contract, the non-renewal of a contract or an advertising insertion order, or shifting business to a competitor when the lack of an exclusivity clause exists;


•	fluctuations in levels of professional services fees or the incurrence of non-recurring costs;


•	deterioration in the credit quality of our accounts receivable and an increase in the related provision;


•	changes in tax laws or our interpretation of tax laws, changes in our effective income tax rate or the settlement of certain tax positions with tax authorities as a result of a tax audit; and


•	costs related to acquisitions of technologies or businesses.

Expenditures by advertisers also tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. Any decline in the economic prospects of advertisers or the economy generally may alter advertisers' current or prospective spending priorities, or may increase the time it takes us to close sales with advertisers, and could materially and adversely affect our business, results of operations, cash flows and financial condition.

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OUR INTERNATIONAL OPERATIONS SUBJECT US TO ADDITIONAL RISKS AND UNCERTAINTIES AND WE MAY NOT BE SUCCESSFUL WITH OUR STRATEGY TO EXPAND SUCH OPERATIONS.

We have initiated operations, through wholly-owned subsidiaries or divisions, in various countries within Europe and Asia. Our international operations present challenges and risks to our company and require management attention. Compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions and could interfere with our ability to offer our products and services to one or more countries or expose us or our employees to fines and penalties. These laws and regulations include, but are not limited to, content requirements, tax laws, data privacy and filtering requirements, U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials, such as the U.K. Bribery Act. Violations of these laws and regulations could result in monetary damages, criminal sanctions against us, our officers, or our employees, and prohibitions on the conduct of our business. Our international operations also subject us to additional foreign currency exchange rate risks. Our international operations and expansion subject us to other inherent risks, including, but not limited to:


•	the impact of recessions in economies outside of the United States;


•	changes in and differences between regulatory requirements between countries;


•	U.S. and foreign export restrictions, including export controls relating to encryption technologies;


•	reduced protection for and enforcement of intellectual property rights in some countries;


•	potentially adverse income tax or Value Added Tax consequences;


•	difficulties and costs of staffing and managing foreign operations;


•	political and economic instability;


•	tariffs and other trade barriers; and


•	seasonal reductions in business activity.

Our failure to address these risks adequately could materially and adversely affect our business, revenue, results of operations, cash flows and financial condition.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY FROM UNAUTHORIZED USE, WHICH COULD DIMINISH THE VALUE OF OUR PRODUCTS AND SERVICES, WEAKEN OUR COMPETITIVE POSITION AND REDUCE OUR REVENUE.

Our success depends in large part on our proprietary technologies. In addition, we believe that our trademarks are key to identifying and differentiating our products and services from those of our competitors. We may be required to spend significant resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, the value of our products and services could be diminished and our competitive position may suffer.

We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. Third-party software providers could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently, which may infringe upon our proprietary rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technologies or develop competing technologies. Intellectual property protection may also be unavailable or limited in some foreign countries.

We generally enter into confidentiality or license agreements with our employees, consultants, vendors, customers, and corporate partners, and generally control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, unauthorized parties may attempt to disclose, obtain or use our products and services or technologies. Our precautions may not prevent misappropriation of our products, services or technologies, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

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GOVERNMENT ENFORCEMENT ACTIONS, CHANGES IN GOVERNMENT REGULATION, TECHNICAL PROPOSALS AND INDUSTRY STANDARDS, INCLUDING, BUT NOT LIMITED TO, SPYWARE, PRIVACY AND EMAIL MATTERS, COULD DECREASE DEMAND FOR OUR PRODUCTS AND SERVICES AND INCREASE OUR COSTS OF DOING BUSINESS.

Laws and regulations that apply to Internet communications, commerce and advertising are becoming more prevalent. These regulations could affect the costs of communicating on the Web and could adversely affect the demand for our advertising solutions or otherwise harm our business, results of operations and financial condition. The United States Congress has enacted Internet legislation regarding children's privacy, copyrights, sending of commercial email (e.g., the Federal CAN-SPAM Act of 2003), and taxation. The United States Congress has passed legislation regarding spyware (i.e., H.R. 964, the "Spy Act of 2007") and the New York Attorney General's office has also pursued enforcement actions against companies in this industry. In addition, on December 1, 2010, the FTC issued its staff report criticizing industry self-regulatory efforts as too slow and lacking adequate protections for consumers and emphasizing a need for simplified notice, choice and transparency to the consumer of the collection, use and sharing of their data. The FTC suggests various methods and measures, including an implementation of a "Do Not Track" ("DNT") mechanism - likely a persistent setting on consumers' browsers-that consumers can choose whether to allow the tracking of their online searching and browsing activities. As a result of the report, some of the browser makers have been working on their own do-not-track technical solutions, notably Microsoft Internet Explorer, Mozilla Firefox, Apple Safari and Google Chrome. Microsoft's Internet Explorer 9 offers a tracking protection feature that doesn't allow for tracking by allowing Internet users to download tracking protection block lists which consequently block any third-party domain included in such block lists from serving content. Microsoft's Internet Explorer 10 and 11 offer DNT by default. In addition, Mozilla Firefox has announced a plan to block third-party cookies by default. These features offered or planned by Microsoft and Mozilla, if widely deployed and adopted, may adversely affect our ability to grow our company, maintain our current revenues and profitability, serve and monetize content, and utilize our behavioral targeting platform. Legislatively on the federal and state level, there have been a number of bills that have been introduced addressing online privacy. In addition to proposed legislation, members of Congress have repeatedly called for the online advertising industry to adopt DNT. These bills and self-regulatory actions, if passed, could hinder growth in the use of the Web generally and adversely affect our business. Other laws and regulations have been adopted and may be adopted in the future, and may address issues such as user privacy, spyware, "do not email" lists, pricing, intellectual property ownership and infringement, copyright, trademark, trade secret, export of encryption technology, acceptable content, search terms, lead generation, behavioral targeting, taxation, and quality of products and services. Such measures could decrease the acceptance of the Web as a communications, commercial and advertising medium. We have policies to prohibit abusive Internet behavior, including prohibiting the use of spam and spyware by our Web publisher partners.

WE COULD BE SUBJECT TO LEGAL CLAIMS, GOVERNMENT ENFORCEMENT ACTIONS AND DAMAGE TO OUR REPUTATION AND HELD LIABLE FOR OUR OR OUR CUSTOMERS' FAILURE TO COMPLY WITH FEDERAL, STATE AND FOREIGN LAWS, REGULATIONS OR POLICIES GOVERNING CONSUMER PRIVACY, WHICH COULD MATERIALLY HARM OUR BUSINESS.

Recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal, state and foreign scrutiny and legislative and regulatory activity concerning data collection and use practices. The United States Congress and the State of California currently have pending legislation regarding privacy and data security measures, as detailed in the above previous paragraph. Any failure by us to comply with applicable federal, state and foreign laws and the requirements of regulatory authorities may result in, among other things, indemnification liability to our customers and the advertising agencies we work with, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability. Recently, class action lawsuits have been filed alleging violations of privacy laws by ISPs. The European Union's directive addressing data privacy limits our ability to collect and use information regarding Internet users. In addition, there is a new European Union Data Protection Regulation scheduled to take effect in the Spring of 2014 that may further inhibit the Company's ability to collect consumer information and target users based on this data. These restrictions may limit our ability to target advertising in most European countries. Our failure to comply with these or other federal, state or foreign laws could result in liability and materially harm our business.

In addition to government activity, privacy advocacy groups and the technology and direct marketing industries are considering various new, additional or different self-regulatory standards. This focus, and any legislation, regulations or standards promulgated, may impact us adversely. Governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including consumer privacy laws, affecting our customers and us. Since many of the proposed laws or regulations are just being developed, and a consensus on privacy and data usage has not been reached, we cannot yet determine the impact these proposed laws or regulations may have on our business. However, if the gathering of profiling information were to be curtailed, Internet advertising would be less effective, which would reduce demand for Internet advertising and harm our business.

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Third parties may bring class action lawsuits against us relating to online privacy and data collection. We disclose our information collection and dissemination policies, and we may be subject to claims if we act or are perceived to act inconsistently with these published policies. Any claims or inquiries could be costly and divert management's attention, and the outcome of such claims could harm our reputation and our business.

Our customers are also subject to various federal and state laws concerning the collection and use of information regarding individuals. These laws include the Children's Online Privacy Protection Act, the Federal Drivers Privacy Protection Act of 1994, the privacy provisions of the Gramm-Leach-Bliley Act, the Federal CAN-SPAM Act of 2003, as well as other laws that govern the collection and use of consumer credit information. We cannot assure you that our customers are currently in compliance, or will remain in compliance, with these laws and their own privacy policies. We may be held liable if our customers use our technologies in a manner that is not in compliance with these laws or their own stated privacy policies.

OUR STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DROP UNEXPECTEDLY.

Our common stock has been publicly traded since March 30, 2000. The market price of our common stock has been subject to significant fluctuations since the date of our initial public offering. The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices of securities, particularly securities of technology and Internet-based companies. As a result, the market price of our common stock may materially decline, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. We are currently involved in this type of litigation. Litigation of this type is often expensive and diverts management's attention and resources.

SEVERAL STATES HAVE IMPLEMENTED OR PROPOSED REGULATIONS THAT IMPOSE SALES TAX ON CERTAIN E-COMMERCE TRANSACTIONS INVOLVING THE USE OF AFFILIATE MARKETING PROGRAMS.

In 2008, the state of New York implemented regulations that require advertisers to collect and remit sales taxes on sales made to residents of New York if the affiliate/publisher that facilitated that sale is a New York-based entity. Since 2011, eleven states, including California, Georgia, and Pennsylvania, have also passed similar regulations. In addition, several other states have proposed similar regulations. Since their inception, these tax regulations have not had a material impact on the revenue generated by our Affiliate Marketing segment. We are unable to determine the impact if additional states or the federal government adopt similar requirements.

WE MAY BE REQUIRED TO RECORD A SIGNIFICANT CHARGE TO EARNINGS IF OUR GOODWILL OR AMORTIZABLE INTANGIBLE ASSETS BECOME IMPAIRED.

As of March 31, 2014, we have $402.3 million and $51.8 million of goodwill and amortizable intangible assets, respectively. We perform our annual impairment analysis of goodwill as of December 31 of each year, or sooner if we determine there are indicators of impairment, in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Under GAAP, the impairment analysis of goodwill must be based on estimated fair values. The determination of fair values requires assumptions and estimates of many critical factors, including, but not limited to: expected operating results; macroeconomic conditions; our stock price; earnings multiples implied in acquisitions in the online marketing industry; industry analyst expectations; and the discount rates used in the discounted cash flow analysis. We are required to perform our next goodwill impairment analysis at December 31, 2014. If our business performance deteriorates due to macroeconomic conditions or company-specific issues, or our stock price experiences significant declines, we may be required to record additional impairment charges in the future.

We are also required under GAAP to review our amortizable intangible assets for impairment whenever events and circumstances indicate that the carrying value of such assets may not be recoverable. We may be required to record a significant charge to earnings in a period in which any impairment of our goodwill or amortizable intangible assets is determined.

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WE MAY INCUR LIABILITIES TO TAX AUTHORITIES IN EXCESS OF AMOUNTS THAT HAVE BEEN ACCRUED WHICH MAY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

As more fully described in Note 11 to our consolidated financial statements, we have recorded significant income tax liabilities. The preparation of our condensed consolidated financial statements requires estimates of the amount of income tax that will become payable in each of the jurisdictions in which we operate, as well as in jurisdictions in which we do not operate but may have tax nexus given the complexities associated with various state tax regulations. We may be challenged by the taxing authorities in these various jurisdictions and, in the event that we are not able to successfully defend our position, we may incur significant additional income tax or Value Added Tax liabilities and related interest and penalties which may have an adverse impact on our results of operations and financial condition. In addition, if income tax regulations in the United States were to change such that we were no longer able to defer taxation of our international income, our income tax expense and financial position would be adversely impacted.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD AND OUR BUSINESS MAY BE HARMED AND OUR STOCK PRICE MAY BE ADVERSELY IMPACTED.

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. We determined that our internal control over financial reporting was effective as of December 31, 2013. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) Purchases of Equity Securities — The table below summarizes the Company’s repurchases of common stock during the three months ended March 31, 2014.



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2014 through January 31, 2014	—	$	—	—	$	100.0	million

February 1, 2014 through February 28, 2014	—	$	—	—	$	100.0	million

March 1, 2014 through March 31, 2014	758,401	$	24.60	758,401	$	81.3	million

Total	758,401	$	24.60	758,401	$	81.3	million

____________________

(1)

Repurchases have been funded from available working capital and borrowings under the Company's credit facility and all shares have been retired subsequent to their repurchase. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management or the Company’s board of directors determines additional repurchases are not warranted. The amounts authorized by the Company’s board of directors exclude broker commissions.

(2) Includes commissions paid.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

(a) Exhibits:



Exhibit Number		Exhibit Description

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*	XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		CONVERSANT, INC. (Registrant)


		By:	/s/ JOHN PITSTICK
			John Pitstick
			Chief Financial Officer
			(Principal Financial and Accounting Officer)
Dated:	May 9, 2014

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Conversant Inactive 10-Q2014 Q1 Quarterly report

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