Tuesday, May 15, 2012

Velti Crushes Earnings Numbers

For a stock that has been crushed over the the month of May, Velti (VELT) reported earnings numbers that crushed estimates suggesting the whole drop was bogus. The stock dropped from $12.50 to below $8.50 yesterday.

The company reported revenue of nearly $52M against estimates of $46M and earnings were basically in line with estimates. Worth noting though that Q1 is the weak period for mobile advertising so the company basically shoots for breakeven results. More importantly though the company grew revenue by 75% or 100% with the main SAAS revenue.

So while all the revenue and earnings numbers suggest a much, much higher stock price, the street remains concerned about cash flow and outstanding receivables. The company spent a considerable amount of time addressing the AR issue with three main takeaways.

  • Combined trade and accrued contract receivables are high at around $189M, but only $10M exceeds 150 days.
  • Company has a history of customers paying with only $1M written off in the past. 
  • With the company turning cash flow positive by Q412, it has no plans to raise equity. It will close on a $15M line of credit for backup purposes. 
Questions will remain regarding the receivables, but once these are cleared up this stock should trade similar to all the other hot stocks trading at higher revenue multiples. In fact, most of those stocks such as Splunk (SPLK), Jive Software (JIVE), or Millennial Media (MM) don't even have profits. This places Velti in the great situation of having very fast, profitable growth. 

Just to show how strong the sector is growing, European revenue grew nearly 70% with the UK more than doubling. What European slowdown?

Americas revenues jumped to $13.3M up from $8.2M. The continued increase in the US revenue will help with DSOs going forward as this country has quicker collection cycles. 

Highlights from the earnings report:

Q1 2012 Financial Highlights
  • Revenue of $51.8 million, an increase of 75% from Q1 2011, with improving margins;
  • Revenue less 3rd party costs of $34.9 million, an increase of 85% from Q1 2011, and resultant margin of 67% as percentage of revenue, in comparison to 64% in Q1 2011;
  • Adjusted EBITDA of $4.6 million, compared with $1.3 million in Q1 2011, an increase of 260%;
  • GAAP net loss attributable to Velti of $8.8 million and EPS of $(0.14) compared with a net loss of $15.9 million and EPS of $(0.34) for Q1 2011; and
  • Adjusted net loss of $1.1 million and adjusted EPS of $(0.02) compared with an adjusted net loss of $5.2 million and adjusted EPS of $(0.11) for Q1 2011.
Mobile Advertising and Marketing Revenues, Margins and Cash Flow
  • Mobile advertising revenue of $11.2 million and mobile advertising 3rd party costs of $8.8 million; resultant mobile advertising revenue less 3rd party costs of $2.5 million (22% as a percentage of revenue);
  • Mobile marketing revenue of $40.6 million, an increase of 76% from Q1 2011 and mobile marketing 3rd party costs of $8.1 million; resultant mobile marketing revenue less 3rd party costs of $32.5 million (80% as a percentage of revenue), an increase of 82% from Q1 2011;
  • Velti's margins across both mobile marketing and advertising continue to increase year-on-year.
Business Outlook
Velti is increasing Fiscal Year 2012 revenue and adjusted EBITDA guidance and announcing guidance for the second quarter ending June 30th as follows:
($ in millions) Quarter Ending June 30th Fiscal Year Ending December 31st

Low High Low High
Revenue $55.0 $59.0 $283.0 $296.0
Adjusted EBITDA $4.5 $7.0 $81.0 $88.0

The current market just isn't rewarding new concepts. If the stock wasn't a beloved stock prior to the first of April, it just won't rally. Even after a 30%+ decline, Velti isn't getting much love in the after hours as the stock only trades up fractionally. The stock might end up rallying strong with some analysts backing it before the opening. If not, rational investors could pick up the next big winner on the cheap. 

100% growth in your 90% product line should equate to more than a 10 forward PE. 


Disclosure: Long VELT. Please review the disclaimer page for more details. 





1 comment:

Mark Holder said...

Crushed 33% today. Didn't see that coming after such a strong report. Understand the concern over the AR balances, but to suggest that the company has some sort of operations impacting issue is unwarranted.

Management gets another chance to set the record straight at the JPM conf tomorrow before the market opens. Hopefully they can instill some confidence in the market.