Avantax Inc (AVTA) 2002 Q1 法說會逐字稿

Please stand by. We're about to begin. Good day, everyone. And welcome to the InfoSpace first-quarter earnings conference call. Today's call is being recorded.

At this time, for opening remarks and introduction, I'd like to turn the call over to Nicole Noel, director of investor relations for InfoSpace. Please go ahead.

Good afternoon. We are pleased that you could join us today to review our first-quarter 2002 financial results.

Our earnings press release crossed the wire at approximately 1:15 p.m. Pacific Time today.

Participating in today's call are InfoSpace's chairman and CEO, Naveen Jain; Ed Belsheim, our president and chief operating officer; Prakash Kondepudi, our executive vice president of Merchant; and Tammy Halstead, our chief financial officer.

At the end of our prepared remarks, you will have the opportunity to ask questions. Before we begin, I must advise you, this announcement contains forward-looking statements relating to the development of the company's products and services and future operating results. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected.

Factors that could affect the company's actual results include the progress and costs of the development of our products and application services, the timing of market acceptance of those products and services, the performance of our systems, the effectiveness of the development and implementation of our strategy, the ability to retain customer contracts and key personnel, the adoption of wireless services, and the impact of declines in general economic conditions.

A more detailed description of certain factors that could affect actual results include but are not limited to those discussed in the company's Form 10K filed with the Securities and Exchange Commission in the section entitled "Factors affecting our operating results, business prospects, and market price of stock."

Listeners are cautioned not to rely on these forward-looking statements, which speak to the company's prospects only as of the date of this conference call. The company undertakes no obligation to update publicly any forward-looking statements due to new information, events, or circumstances after the date of the conference call or to reflect the occurrence of unanticipated events.

EPS information during this call will be presented on a pro-forma basis. Pro-forma results exclude non-cash charges, nonrecurring charges, and items unrelated to the company's cooperations. These results exclude restricted stock-compensation expense, amortization, and impairment of intangibles, acquisition-related expenses, restructuring, and other nonrecurring charges, impairment on investments, and the cumulative effect of change in accounting principles.

You can view this release, a tabular reconciliation of our pro- forma results, and other financial information in the investor- relations section of our new corporate Web site at www.infospaceinc.com.

In addition, we are hosting a simultaneous live broadcast of this call on our Web site. Investors may access the replay of this call in the investor-relations section of our Web site until 6:00 p.m. Pacific Time on Monday, April 29th.

Also, in consideration of the SEC regulations, FD, or fair disclosure, this call will serve as the primary form of communication with analysts on billing their financial models rather than reviewing our assumptions in separate discussions.

I would now like to turn the call over to Tammy, our chief financial officer.

Thank you, Nicole. For the first quarter, ended March 31, 2002, we reported revenues of $33.1 million. Pro forma net loss for the quarter was $7.5 million, or a loss of 2 cents per share.

First-quarter revenues exceeded both our initial guidance of $28 million as well as our upwardly revised guidance of $31 million, primarily driven by the strong demand for our Merchant products and application services.

Gross profit margins were 71 percent for the quarter, well ahead of our previous guidance of margins in the low 60's. As we explained last quarter, the majority of our expenses in cost or revenues are largely fixed. And accordingly, we saw improved growth margins as our revenues were higher than expected.

We are also seeing the benefits of the cost-reduction measures implemented in Q3 and Q4 2001.

We invested $9.4 million in product development in Q1. SG and A expenses were $27.1 million for Q1 SG and A for the quarter included approximately $1.5 million of transition-related charges for the GiantBear acquisition and non-cash compensation expenses of approximately $3.5 million related to the restricted stock grant in Q4 2001. And this grant is recognized under an accelerated amortization methodology.

In Q2 we expect charges related to the GiantBear transition to be less than $500,000 and non-cash compensation expenses to be approximately $1.6 million.

DSO's, or day sales outstanding, were 51 for the first quarter. We expect DSO's in the future to continue to be in the range of 45 to 55 days.

For the quarter, two customers, Overture and Verizon, both accounted for more than 10 percent of total revenues. Verizon includes Verizon Information Services, a customer using our Merchant services; Verizon Wireless, a customer using our Wireless services; and Verizon online, a customer using our Broadband services.

On January 1st, 2002, we adopted SFAS 142, the new accounting standard relating to goodwill and other intangible assets. This new accounting standard goes into effect for all companies. And the adoption of the standard does not affect our cash position or operating expenses.

Our Q1 earnings release financials reflect a preliminary, non- cash, non-operating charge for the cumulative effect of adopting this new accounting standard in the amount of $204 million based on the preliminary independent valuation report. This report will be finalized prior to the filing of our Form 10Q. This new standard eliminates the amortization of goodwill. However, certain other intangibles will continue to be amortized.

Weighted average shares outstanding for the quarter were $308.6 million. There were $309.1 million basic shares outstanding on March 31, 2002.

Our balance sheet continues to be strong and free of debt. We ended the quarter with cash, investments, and a payroll tax receivable for a total of $289 million. InfoSpace invests its excess cash in high-quality, marketable investments which are rated at least A1-P1. These investments are classified on the balance sheet in three captions: cash and cash equivalents, short-term investments, and long-term investments, based on their relative maturity dates.

Investments that have a maturity date of zero to 90 days are classified as cash and cash equivalents. Investments that have a maturity date of 91 to 365 days are classified as short-term investments. And investments that have a maturity date of one to two years are classified as long-term investments.

On March 31, 2002, we had cash and cash equivalents of $96.2 million. We had short-term investments of $113.5 million, long- term investments of $65.7 million, and a payroll tax receivable of $13.2 million, for a total of $289 million. In addition, we also have investments in private and public securities of $31 million.

This quarter we used $13 million of our cash in Operations. We primarily used our cash this quarter to acquire the assets of eCash, GiantBear transition costs, reduction of accounts payable, prepayment of annual insurance premiums, and our final payment for the purchase of certain assets of Excite.

Our strong balance sheet helps us take advantage of low-cost acquisition opportunities such as our acquisition of eCash in February, which Prakash will discuss in further detail later in the call.

As we have previously stated, we will continue to be opportunistic and look for strategic investments in technologies and products that will help us grow our business for the long term.

Now I would like to turn to the key operating Metrix from the quarter. Once again, we are pleased to report our Merchant business unit turned in strong growth for the quarter. We saw significant growth from the adoption of our Merchant platform. Our Merchant business represented 36 percent of total revenues for the quarter. Total dollars processed grew to more than $1.3 billion, up from the $1 billion reported last quarter. We processed more than 16 million transactions, up from the 12 million processed in Q4.

Our Merchant business is focused on payments, promotions, shopping, and hosting. Let me remind you of how we derive revenues in our Merchant business. We generate revenue in our Merchant business from four sources.

The first is payment. In payment authorization, we earn revenue from our merchants on a monthly subscription fee, which includes a certain number of transactions. As merchants exceed their minimum, we receive additional revenue per transaction.

The second is promotions, which is primarily our Yellow Pages services. Revenue in Merchant promotions is generated on a per- query basis.

The third is shopping. For shopping we receive a percentage of the total dollars processed or a percentage of loyalty points redeemed.

And finally hosting -- hosting revenues are generated on a monthly basis from subscriptions and monetization of the users to the Merchant's Web site. We use a blended rate of the revenues generated from our payment transaction services to model this business. We earn in the range of .7 to 1.1 percent of the dollars processed through our commerce platform.

The remaining revenues from our Merchant services consist of fixed, recurring monthly licensing fees and guaranteed minimums. These fees range between $3 to $5 million per quarter.

Now, turning to our wireless business area, our wireless business represented 20 percent of total revenues for the quarter. We are pleased to report we had 2.5 million active users in Q1, an increase from the quarterly active users reported for Q4. To be counted as an active user for the quarter, a subscriber must use an InfoSpace Wireless service at least once during the quarter.

Our Wireless group is focused on three principal areas: one, community and entertainment; two, information and productivity; and, three, communication and messaging. We generate revenue generally on a per-subscriber or per-message fee basis.

As we sign new agreements and renew existing carrier agreements, we generally receive revenues on a monthly subscriber basis. On a go-forward basis each quarter, we will provide the average monthly active subscribers and the effective revenue per average monthly active subscriber. We feel this is a more accurate reflection of how our revenues are currently generated under our Wireless agreement. To be counted as a monthly active subscriber, a user must use an InfoSpace Wireless service at least once during the month.

For the first quarter, we had 1.38 million average monthly active subscribers, an increase of 70,000 average monthly active subscribers from Q4 2001. The effective revenue per monthly active subscriber for Q1 was $1.58.

As discussed in the fourth quarter, we sold certain assets related to the Enterprise portion of our Speech Solutions. And in addition we restructured our relationship with our Brazilian partner. Excluding these revenues, the effective revenue per monthly active subscriber for Q4 was $1.56.

Now turning to Wireline, Wireline represented 44 percent of total revenues for the quarter. In Wireline we are focused on search, directory and broadband. In search and directory we are paid on a per-query basis. In broadband we are focused on providing a rich set of services that take advantage of the higher bandwidth networks.

Our Wireline services recorded over 3.7 billion queries for the quarter, up from the 3.6 billion recorded for Q4. A query is defined as a request made to an InfoSpace service. We were very pleased to turn in growth of 100 million queries. Average revenue per query was in the range of .003 to .007, consistent with our previous guidance. The per-query rate is a blended rate of all the revenues generated from the Wireline services.

Overall we are extremely pleased to report that in this challenging economy we have experienced growth in all Metrix for each of our business units. In Merchant we saw growth in both the dollars processed and number of transactions processed, in Wireless, growth in the number of average monthly active subscribers; and in Wireline, growth in the number of queries.

Now let's discuss our guidance going forward. We are very pleased to be upwardly increasing revenue guidance for the second quarter and for the full year. We are improving guidance for the full year and now expect revenues to be approximately $126 million, compared to our previous guidance of $116 to $119 million.

The guidance assumes non-renewal of our current contract with Verizon Wireless. We expect our relationship with Verizon Wireless to continue, but it may not be in its current form. Our current committed revenues for the next four quarters is more than $110 million. Committed revenue is expected revenue from signed contracts, assuming renewal.

We are also improving EPS guidance for the full year 2002, and we now expect a pro-forma net loss of 6 cents per share. This is an improvement from the 7 to 8 cents per share previously guided. For Q2 we are increasing guidance and expect revenues to be $31 million. We expect a pro-forma net loss per share of 2 cents in the second quarter.

For the second quarter we expect revenues from our business units to be comprised as follows. As we continue to see traction in our Merchant business, we are increasing our guidance to 35 to 40 percent, up from our previous guidance of 30 to 35 percent. Wireless is expected to be approximately 20 percent, and Wireline and Broadband 40 to 45 percent.

We are also improving guidance for gross profit margins. We now expect gross margins to be in the high $60's to low $70's throughout the remainder of the year. We expect to incur taxes related to our European subsidiaries in the amount of approximately $200,000 per quarter for the remainder of 2002. We assume basic shares of $309.5 million for the second quarter and basic shares of $310.2 million for the full year.

We continue to expect to see the benefits of cost-reduction initiatives implemented in Q3 and Q4 of 2001 throughout the remainder of 2002. We are focused on profitability at every level of the organization. We will continue to closely monitor the economic conditions and fill our decisions to focus on high- growth areas. Our proven business model, our strong balance sheet, and our leadership position in the market and our continuing focus on investing for the future will help keep us strong going forward.

Thank you. And now I would like to turn it over to Naveen, who will review the business and current initiatives for the remainder of the year.

Thank you, Tammy. I am very pleased with our performance this quarter. We realized first-quarter revenues of $33.1 million, exceeding our upwardly-revised guidance of $31 million and our original guidance of $28 million.

Each of our business units is performing well, with all three experiencing growth in key operating Metrix during the quarter. First I will review our Wireless and Wireline business, and then I will turn the call over to Prakash, who runs our Merchant business, who will discuss Merchant.

I will start with a discussion of wireless services. What differentiates our wireless services from those offered by other companies is, number one, we offer an end-to-end solution that enables carriers to quickly and easily deploy a full suite of entertainment, information, and communication applications and services under their own brand.

Number two, our multi-modal approach to Wireless data offers carriers the flexibility to deploy services or almost any combination of current and next-generation technologies.

Let me focus for a moment on the multi-modal approach. As carriers upgrade their infrastructure, they are demanding services that can run over multiple networks and devices. This allows carriers to monetize both their existing and next- generation infrastructure and provides a clear path to gradually migrate subscriber to more advanced data services.

InfoSpace services and applications can be provisioned and accessed over a variety of networks and devices, including two- way SMS services, as many of our carrier partners in Europe and in Australia are currently using and we will launch shortly with Iusacell in Mexico; one-way SMS alerts that we provide to most of our carrier partners and recently launched with T-Mobile in UK; WAP services with most of our U.S. carrier partners as well as Virgin Mobile in UK; our speech technologies, such as our voice provision SMS Alert that will be launching shortly with Iusacell; our S7 signaling technologies through our innovative pound pound instant info services that were launched by Rogers AT&T Wireless in Canada this week; and finally, a smart phone such as the phones built on Blue and G2ME for which we are developing and plan to rule out applications with leading carrier partners as these advanced devices begin to hit the market later this year.

Let me go into a little bit more detail on the applications and services currently being developed and delivered by our wireless business unit. As Tammy pointed out, our wireless applications fall into three general categories: community and entertainment; number two, information and productivity; and, number three, communication and messaging.

Recently our development efforts have been focused in primarily two areas. Number one, we are leveraging our speech solutions technology to develop range of youth-oriented entertainment application. These speech-enabled applications can be deployed quickly and easily by carriers and very fun and interactive to use.

The services include a voice-activated, on-demand juke box, ring- tone browsing, and exchange service, wake-up call. We are also working on other applications such as wireless check, celebrity sightings, movie guides, and other entertainment-oriented applications designed to drive more wireless data usage.

We expect to make announcement of carrier agreements for these innovative services in the coming months.

Second, we are focused on providing the underlying tools and framework necessary for carriers to deploy seamless and multi- modal wireless data services that can be packaged and targeted directly to user groups such as teens, enterprise users, and other users.

For example, InfoSpace's technology enables Cingular Wireless to offer differentiated wireless dealer services, packages, that address three different groups. Cingular currently offers our services to teens, Spanish speakers, and general users. During the new-user registration processes, a single subscriber selects a service package that best addresses their unique needs. This allows Cingular to target markets and service initiatives at a specific user segment and to evolve their offerings to address subscribers' needs at different points in the lifetime.

I will now give an overview of the wireless business unit's accomplishment and performance during the quarter. During Q1 we continued to sign new carrier partners around the globe and grow our base of wireless subscribers. Today we announced that we have added mobile shopping to the services that we already offer on AT&T mMode wireless data service.

These services allow mMode subscribers to shop from over 50 merchants quickly and easily directly from their mobile phones. For example, with a simple click a user can order flowers or a gift directly from their wireless phones.

Earlier this week we also launched our innovative pound pound instant info SMS service with Rogers AT&T Wireless in Canada. These services offer Rogers AT&T subscribers the ability to quickly access personalized information and services from any digital wireless phone through utilizing the SS7 signaling network as an input mechanism.

For example, a user need only press pound pound 1 and then send to get the latest traffic reports, scores from their local sports team, or a realtime stock quote for their favorite stocks.

In addition, we recently began powering the SMS service for Team Mobile in UK. In February we announced the second-largest carrier in Mexico, Iusacell, selected InfoSpace for the rollout of their SMS and WAP services, including our two-way SMS and a speech-enabled SMS Alert solution.

Also during the quarter we deployed an innovative solution with Cincinnati Bell that enabled their subscribers to instantly sign up for March Madness Alert by simply pressing pound mm on their mobile handset. This allowed Cincinnati Bell to launch highly effective marketing campaign over the radio and in retail stores. This campaign achieved significantly higher pull-through than previous efforts, because customers were able to sign up for these services on the spot after hearing an advertisement or visiting a local retail store.

Finally, as a leader on the forefront of defining the future of wireless dealer services, we are pleased to be playing a leading role in the newly formed CTIA Wireless Internet Caucus Leadership Council and Action Committee.

InfoSpace is currently chairing or co-chairing several of these groups, including messaging, downloadable content, location, and presence and billing. These influential leadership councils include the top six U.S. wireless carriers and key wireless infrastructure providers. Our leading role on these committees demonstrates InfoSpace's influence and recognition within the wireless data industry.

Watch for InfoSpace to maintain and grow our leadership position within the wireless service industry, to continue to align ourselves with leading companies, and industry forums moving forward.

We continue to be optimistic about opportunities for the wireless data and are seeing evidence that industry is moving closer to a period of faster growth in usage of advance data services.

As we have stated in the past, there are four things that need to happen before we will see widespread adoption of these services. These four things are faster speed, better usability, aggressive marketing by wireless carriers, and more innovative applications that will keep users active.

This quarter we are pleased to see more deployment of technologies. For example, last month we witnessed the initial launch of Blue phones in San Diego, and we expect to see announcement of G2ME deployments by other major carriers this summer.

These developments are very encouraging, and we are ready to support our carrier partners as they rule out Blue and G2ME Smart Phones by optimizing our existing applications and developing new innovative applications to leverage the benefits of these new Smart Phones.

In addition to smarter, more user-friendly devices, we have seen the continued build-out of nationwide networks such as GSMGPRS and CDME1XRGT. These new networks not only increase the amount of data that can be sent to mobile devices but also offer enhanced billing and eventually always-on connectivity.

Turning to our Wireline and Broadband business units, our team continues to focus on providing highly skillable wired Internet services such as Web search, directory, and comprehensive platform of dynamic content and cutting-edge broadband applications to DSL and cable model Internet service providers like Verizon Online and destination Web site such as NBC, AOL, MSN, Lycos, among others.

During the quarter we announced an expanded relationship with Virgin of the UK. InfoSpace was selected by Virgin.Net, one of the UK's largest ISP, to host and power a wide range of new wireline services for Virgin.Net. Some of the more compelling wireline services InfoSpace is powering for Virgin.Net include personalization and customization tools, integrated personal information manager applications, including calendar, address book, and to-do list and a comprehensive set of directory services and information channels.

InfoSpace's wireline business unit provides its platform and applications to Virgin Mobile and its existing brand of Virgin Extra's value-added services.

In addition, our Wireline Broadband team is focused on developing new and enhancing our current offerings. We are very excited about these efforts. We are working on a next-generation product which leverages our unique search technologies. Just yesterday we announced a relationship with Fast to integrate their high- quality search results into our meta-search offerings. Fast provides our product end users with one of the best search technologies available today.

The goal of new meta-search product is to deliver the right result at the right time by identifying what a searcher is looking for and then returning a blended mix of results weighted with the commercial and noncommercial results, depending on the intent. Stay tuned for more about this within the next month.

Within Broadband our team is currently developing a new offering which will broaden the concept of personalization from an individual to a family or, for example, this strategy is focused on the future and the growing number of always-on broadband connections to the home.

Turning to our Merchant services, to address this line of business in further detail, I'd like to turn the call over to Prakash, who runs our Merchant business. Prakash joined InfoSpace in April 2000. Prior to joining us, he spent more than five years at VeriFone. For further information on Prakash's background, see the investor relation section of our new corporate Web site which launched recently at www.infospaceinc.com.

It's now my pleasure to turn the call over to Prakash. Prakash?

Thank you, Naveen. I'm very pleased to have the opportunity today to update you on the strong results we are seeing from our Merchant business unit. InfoSpace Merchant business unit is focused on developing solutions to help merchants fully leverage Internet and wireless technologies to grow their business. These solutions include payments, promotions, shopping, and hosting.

During the quarter, we saw better-than-expected growth along all areas of Merchant business. Let me start with payments. Our payments business continues to turn in record results. During the quarter, our payment-processing platform processed more than $1.3 billion, up from $1 billion reported in the last quarter. At the same time, the number of transactions grew to more than $16 million, up from $12 million we reported in the fourth quarter of last year.

We also added more than 10,000 new merchant accounts during this quarter, and 200 new resellers signed up to sell our payment service brand in authorize dot net. Our payment solutions continue to exceed our expectations, and we believe these numbers will continue to grow in the future.

Within the payments business, we announced the launch of AirPay, which is an end-to-end payment service that makes it possible for any small and medium-sized business or large retail business to accept credit-card or electronic-check payment wirelessly any time, anywhere. AirPay extends our payment gateway platform into the physical world. InfoSpace is uniquely positioned to extend its expertise in wireless and commerce technologies to deliver innovative solutions to any physical-world merchant.

The market for mobile-payment solutions is significant. For example, in the U.S. alone there are nearly about 8 million SMB's, small to medium-sized businesses. And many of them deliver a service using a mobile sales force. Now, working remotely limits a salesperson's ability to accept payment. The merchant can either not accept the sale or assume the risk of handling the cash, potentially bounced checks, or pay higher fee for voice authorization of the credit card.

Now, merchants with mobile workers are very familiar with the infield challenges of accepting payment, which makes them more willing to embrace new technologies, which is where AirPay comes in.

In the large retail or brick-and-mortar physical world, for example, AirPay can bring together cash registers, credit-card terminals, computers, and literally put these tools into the hands of sales or support teams. Instead of being tethered to a counter or desk, a merchant's team can physically interact with customers, helping them locate products, gather information, receive coupons, and make a purchase. This allows retailers to turn their sales clerks into mobile checkout counters at any time.

The service is easy to use, scalable, and targeted toward mobile retail and service business and large brick-and-mortar retailers. AirPay is available on both Palm operating systems and Microsoft Pocket PC operating-system-enabled devices such as PDA's or Smart Phones.

Now, this is an exciting step for InfoSpace's merchant business, as AirPay takes our infrastructure, software, and application to the real-world brick-and-mortar market and entering present world for the first time. We are focused not only in building the innovative technology solutions. But we are also building a strong channel that continues to sell our solutions.

Our channel, which includes an extensive network of more than 1,000 resellers, including some of the industry leaders such as Wells Fargo Bank, Union Bank of California, US Merchant Services, and Dynacomp, a pioneering developing mail-order work-flow management software.

This channel continues to grow. These resellers, also called ISO's or independent sales organizations, are excited about the new solutions we are providing them with.

During the quarter, Merchant business unit added significant technologies and intellectual property to our platform this quarter through the acquisition from eCash Technologies. This acquisition brings electronic debit and stored-value transaction technologies to InfoSpace. Offering stored value and electronic debit services to our merchant base increases our offering and provides merchants with a payment offering that costs them significantly lower basis points compared to accepting credit cards for payment.

There are market segments such as groceries, multi-lane retailers where debit-card acceptance has grown significantly over the years. We believe electronic debit will grow in a similar fashion in the coming years.

In addition to an increased offering to merchants, we expect that the eCash Technologies we acquired will give us access to a broader financial services market, primarily through the open- loop stored-value and Visa 3-D secured programs. Most of the stored-value programs in the market today are closed loop or proprietary stored-value programs that are specific to a single merchant.

The open-loop method of payment leverages existing payment infrastructure and allows for a stored-value card to be accepted at any merchant location.

Examples of an open-loop stored-value solution include Visa Bucks, a prepaid Visa card for teens where money can be transferred from a credit or checking account for usage by the teens. Teens can use the card everywhere Visa is accepted for everyday needs, travel, or emergencies.

Examples of closed-loop stored-value payment solutions include Blockbuster gift card or Starbucks cards. We are very excited about the possibilities and synergies involved here and look forward to telling you more about efforts in this space in future.

Turning to shopping, we're very excited about this business. During the quarter, with a new and expanded shopping relationship with American Express for their Shop AmEx program, our shopping technology builds customer loyalty that allows customers to purchase and redeem reward points for more than one million products from brand-name merchants such as Saks Fifth Avenue, Barnes and Noble, KayBee Toys, Ritz Camera, among many numerous others.

American Express exemplifies our success in expanding our relationships with large, stable blue-chip companies which in turn facilities more profitable and more predictable growth. Our promotions business, which is primarily our Yellow Pages, had an outstanding quarter. Our success in this area can be directly tied to our previously announced five-year strategic relationship with Verizon Information Services, the world's largest directory publisher.

Our goal in partnering with Verizon Information Services was to create the most comprehensive offering for merchants in the marketplace. We are able to create an expanded offering for Verizon's sales force and our reseller channel. We are successfully executing upon that vision as we continue to create innovative promotion solutions for this channel.

As I mentioned, the merchant business is just beginning to flourish, and we believe that the outlook is very positive. Thank you very much for the opportunity to discuss in greater detail our merchant business effort. I look forward to speaking with you in future.

I would like to now turn the call over to Ed Belsheim, president and COO of our InfoSpace. Ed? Ed: Thank you, Prakash. Overall we are pleased with the first quarter. Let me recap the results.

We reported revenues of $33.1 million. Pro-forma net loss for the quarter was 2 cents per share. First-quarter revenues exceeded our guidance. Strong growth in our merchant business primarily drove these results.

We are increasing revenue and EPS guidance for the full year. We now expect revenues to be approximately $126 million, compared to our previous guidance of $116 to $119 million. We expect a pro- forma net loss of 6 cents per share for 2002.

For the second quarter, we increased both revenue and EPS guidance and now expect revenues to be $31 million and a pro- forma net loss per share of 2 cents.

Our Merchant business had solid growth. We processed more than $1.3 billion in transactions for the quarter, up from $1 billion reported last quarter. The number of transactions processed grew to more than 16 million, up from 12 million reported last quarter.

We expanded our existing relationship with AT&T Wireless and signed new wireless customers, such as Rogers AT&T Wireless, T- Mobile in the UK and Iusacell.

Our Wireline business performed well. We recorded 3.7 billion queries for the quarter, up 100 million from Q4. Despite a challenging environment, revenues increased as well. Our balance sheet remains strong with no debt. We have cash, investment- grade securities, and a federal payroll-tax receivable totaling $289 million. In addition, we have investments in private and public securities of $31 million.

Again, we are pleased with our performance this quarter. Our results provide further evidence that we are moving in the right strategic direction. We are focused on markets with significant growth potential that will generate recurring revenue streams.

Most importantly, we have a superb team of dedicated employees who drive the success of this company. Thank you for joining us today. I would now like to turn the call back over to Nicole for Q and A. Nicole?

Operator, can you please repeat the instructions for asking questions?

At this time, if you would like to ask a question, please press the star key followed by the digit 1. We'll take as many questions as time permits, and we'll proceed in the order that you've signaled. If you find that your question has been asked and answered, you may remove yourself from the queue by pressing the pound key. Again, it's star 1 to ask the question.

Our first question will come from David with Morgan Stanley.

Hi, Ed. This is actually Robert Blin calling for David Razor. I wanted to follow up with you guys specifically on your Wireless unit.

And I think you stated in the past, in the prior quarter, when you had a dollar-per-user price that that was sort of the floor. And I recognize that you guys mentioned a few comments on the call regarding how you were going to be reporting that on a quarterly average basis going forward.

And I guess I wanted you to clarify that, because, if in the prior quarter you still had, I think, a buck fifty, according to my analysis -- hold on one moment. In December I had you guys at $1.05, and you rectified that on this call to a buck fifty. I guess I just wanted to walk through what the components of that were.

Yes, Robert. There are two parts to the thing. And I think Tammy will take the second part here. One thing is that, as Tammy pointed out, InfoSpace gets revenue from the wireless customers on an active-users-per-month basis. In the past that you saw, some of the numbers we were reporting were active-users- per-quarter basis. Now that we are giving you the active monthly users, because most of our contracts now are on the monthly basis, not on the quarterly basis, on that basis our revenue for this quarter on the active revenue per user per month has gone up from -- Tammy, you take it from here.

Sure. Robert, and we felt that again, as Naveen just pointed out, that based on the contract renewals and the new agreements that we're getting into, we really are generating our revenue based on whether a subscriber comes in and uses a service during the month.

So the way we calculate the number is to add up the each month active subscribers for that month, obviously divide by three, and come up with the average monthly active subscribers, divide that into the revenue and come up with the revenue per average monthly active subscriber.

And we feel this is a more accurate reflection of how our revenues are generated. So just to go through those numbers again, in Q1 we had 1.38 million average active monthly subscribers; and that generated revenue per average monthly active subscriber of $1.58.

That compares to Q4. Going back and doing the same analysis, we had 1.31 million average active monthly subscribers in Q4; and they generated $1.56 per average monthly active subscriber.

So when you referenced the dollar floor prior, would these $1.58 figures be comparable to that? Or since it does appear that a dollar in the fourth quarter of last year equated to a buck fifty-six, is it more reasonable for something like a buck fifty per average subscriber?

As seen in the past, Robert, that our floor has always been on a monthly active user per month per subscriber, and that was between one and two. And that's a number that in fact has gone up. And the reason it goes up is based on how many new carriers that we sign up. And there is a monthly minimum included there. So essentially those numbers will fluctuate between $1 to $2 per month per subscriber.

Okay. The only other question I have is regarding in the past you had mentioned that you were planning on ramping down revenue from customer groups that were, I guess, deemed higher risk and that that revenue was going to be zeroed out in this quarter. You didn't mention that in the call. I just wanted to follow through and see if that was the case.

Tammy?

Sure. Let me just tell you, barter revenue this quarter was minimal, $123,000, so very small amount. And, yes, that is precisely our plan. We have a few legacy contracts, but barter revenues will continue to decline.

And warrants are included in that number? Tammy: Warrant revenue this quarter was $752,000, again substantially down from Q4.

And the last one is, I believe you guys have already eliminated related-party revenue. I just wanted to confirm that.

That is correct.

Okay, excellent. Thank you very much.

And our next question will come from with Bear Stearns.

Hi, guys. Starting off, I was hoping maybe Naveen could comment a little bit on the Verizon Wireless comment in terms of, you know, what happened there, what were you either not able to bring to the table or what were they able to find from the outside that is threatening that relationship?

I'm sorry; I did not get the question right. Are you talking about the wireless carrier relationship with Verizon, for that matter?

Yeah, with Verizon Wireless.

Nothing actually received that. Most of the carriers currently are in the transition period. And that means as a contract comes up for renewal, we look to see what their next path is going to be, where they are going to be in terms of working with us on application side, looking to work with some of the consumer portals and with platform or applications. And this is just a regular modus operandi with wireless carriers, that as contracts come up for renewal, they would normally send you a termination notice or renewal. And then you negotiate a new contract with them.

So essentially our expectations with Verizon is that we will continue to have a good ongoing relationship with them. What is it going to be is yet to be decided.

We don't expect the existing contract to be renewed in its present form.

Okay. And then I guess I'll transition that into the question about your guidance. You know, obviously with both the consumer and the merchant businesses we'd expect to see sequential revenue increases rather than declines. You know, at four times your run rate this quarter, you come out with, you know, $132 million worth of revenue. So where is the expected decline in revenue?

Well, some of the things are obviously it's better to under-promise, over-deliver than to over-promise and under- deliver. And our part has always been that, not knowing the current state of the economy, is to essentially continue to be extremely conservative and cautious in terms of our guidance.

And there is nothing specifically to believe that revenue would decline, other than the fact that, you know, in the wireless area our biggest worry is that as more and more carriers are launching this new network and they're talking about this wonderful thing that's coming. And the sense that this new, wonderful thing is not in most people's hometown yet, they may be taking a wait-and- see attitude, so not really realizing how people are going to be reacting to this new stuff, because general reaction from a consumer perspective is always, "If there is a new, wonderful thing coming, let me just wait and see what it is and if it's launched in my town or not. And unless that comes, I'm not going to buy anything at this point."

So being cautious and really not looking at where the things are going to be, we expected that it's possible there could be some decline in the revenue from Wireless. How will we still expect our Merchant and Wireline to continue to grow?

And then just one last question on the wireless side on your new Metrix, the 1.38 million average monthly users -- could you give me a geographic breakdown on those in terms of U.S. versus outside U.S.? Jain: Yes. I think at this point we don't have the number that we have broken down. We do have that thing. You know, Tammy can give it to you in detail later. We don't have the broken-down numbers in terms of the U.S. versus Europe at this time.

Okay, that's great. Thanks, guys.

Let me just make one clarification. Robert Blin asked the question with regard to related-party revenue. We did actually have related-party revenue this quarter. I just want to clarify that included in related party is a portion of the warrant revenue. So we had related-party revenue of approximately $800,000, but included in that was over $500,000 of warrant revenue which was already provided. So that number gets double counted. Our next question?

And if you would like to ask a question, please press the star key followed by the digit 1. Next we'll go to Scott Sutherland with Wedbush Morgan Securities.

Hi, Guys.

Hi, Scott.

Congratulations for Prakash for the Merchant business.

Thank you.

Just a couple of questions on Wireless, just to kind of get back to this average subs per month, when I remedy the 2.5 down to the 1.3, it appears like, if I'm assuming correctly, that subscribers might be only using the service once a quarter and be counted some months and not other months?

That is correct.

Can you talk about with the new launch of the AT&T Wireless mMode service and kind of taking a approach and going more open like the iMode service, kind of how your core infrastructure plays within that?

Well, actually, as I said, our relationship with AT&T is identical to what it was before the mMode launch. In fact mMode launch is really nothing but the old Pocketnet service with more user interface on top of that. So as more and more carriers, you know, look at ways of making their services easy to use, you will continue to find whether it is true launching Smart Phones based on G2ME or the services that are launched through, you know, mMode which really is a WAP in a new dress, I really think that there continues to be greater to reduce the for the wireless carriers by us providing them more and more innovative platforms and allowing our carriers' partners to monetize those things.

For example, we are launching a billing-even service that can be used by almost any other application provider, not just our applications. Only that allows people to essentially bill for this service. It could be billed on a download basis, billed on a per-message basis. It could be billed on . Once it reaches level three, then you can bill again to be at levels, 4, 5, and 6.

So almost any event that can happen we provide the infrastructure for other application providers including InfoSpace's applications to bill for those things.

So we're really excited as we are moving more and more towards finding ways to improve data usage, more active users, and easy way for people to subscribe to our services. And I think as Tammy pointed out and I think in my call I pointed out, we've done some very innovative things.

To give an example, Scott, on the March Madness thing with Cincinnati Bell, we tried the same March Madness with two different carriers. One had a typical provisioning thing. You go to the Web and provision for the March Madness. And other carriers said all you have to do is just press pound mm, and then you can leave the name of the team. And you start to get the alert from the March Madness.

The company that took a simple pound mm approach had a substantial, a three-, four-, sevenfold increase in the number of subscribers. And it was directly correlated. After they would put an ad on the radio stations, you can see it peak. The people essentially start to subscribe to the services.

Similarly, if you start to look at the same type of things that we are planning to use on the entertainment side, you'll be very pleased, because I really think the growth is going to come from the youth and teen market. We are launching the youth teams services with our partner at Cingular. And there's some new partners that we are going to be launching those services with. And I think you'll be very pleased at how we are doing it in terms of how youth market is going to evolve, whether it is simply interactive juke box and you sit down and say, "Look, I want to listen to pop." And it comes over the top, five pop songs. And you can listen to the songs.

You can, you know, listen to the ring tones. You can exchange the ring tones just like Napster. You can get a wake-up call. You can get a whole bunch of celebrity sightings. You can get pictures. You can get, you know, some good entertainment stuff that I think is going to work well.

Can you talk about the commerce, the shopping deal with AT&T Wireless? Is there any cross leverage there where your Merchant service is getting a piece of the transaction? Or how do we get paid for that?

There are a couple of things here, Scott. Number one thing is it's a completely leveraging or existing shopping technology that you saw at Shop AmEx. So Shop AmEx -- as you saw, they are a multiple merchant. And what we are able to do is with a single click on the wireline side, you are able to buy items from multiple vendors.

The same technology now is available to the wireless devices. That means while you're sitting in a particular place, you can in fact with a single click order the flowers, order the chocolate, order anything. And that not only leverages our existing merchant service; it also leverages our existing merchant relationship. So when you buy those flowers, we get paid through these merchants directly.

And just a couple of housecleaning questions for our Tammy -- do you still have registered subscribers?

We reported that number at the end of last year and have decided that the monthly active subscriber is a much better number and reflects the way our revenue contracts are set up.

And number was higher than , in case you're wondering.

Okay, so higher than last quarter?

Yes.

And any advertising revenue in this, or is that pretty much eliminated?

Oh, we continue to monetize users coming in, absolutely, Scott. I mean, we wouldn't walk away from that revenue. But it is certainly not material. Our wireline business is focused on search, directory, and broadband.

Okay. And my last question -- over the last few quarters, you've focused on kind of renewing revenue. When you look at this quarter, what kind of percentage would you say is renewable revenue versus one-time revenue?

I think, Tammy, you pointed out in terms of our committed revenue backlog of over $110 million. And that essentially tells you that out of our revenue of the next four quarters how much is renewable revenue.

That's right. And that goes back to the earlier question on barter, which was, you know, just $120-some thousand, small amounts of warrant revenue. And those again are just, you know, contracts that are running out.

So the answer to your question is that we have continued to enter into long-term contracts that provide recurring revenue streams. And that's why we saw our committed revenue number go up. But we reported the $100 million at the end of Q4, and it's up to $110 now.

Great. Thank you.

Thank you, Scott. And with that I'd like to thank everyone for joining us today.

That does conclude today's conference call. You may disconnect at this time.