Avantax Inc (AVTA) 2002 Q2 法說會逐字稿

Please stand by. Good day, everyone and welcome to the InfoSpace second quarter earnings conference call. Today's conference is being recorded. At this time for opening remarks and introduction, I would like to turn the call over to [Nicole Knor], Director of Investor Relations for InfoSpace. Please, go ahead ma'am.

[NICOLE KNOR]: Thank you. Good afternoon. We are pleased that you could join us today to review our second quarter 2002 financial results. Our earnings press release crossed the wire at approximately 1.15 PM Pacific time today. Participating in today's call are InfoSpace Chairman and CEO, Naveen Jain, Ed Belsheim, our President and Chief Operating Officer, York Baur, our Executive Vice President of Wireline 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, a message [for] 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 of operations include the progress and cost related to the development of our products and application services, the timing of market acceptance of this product and services, the performance of our system, the effectiveness of the development and implementation of our strategy, the ability to retain customer contacts and key personnel and the impact of changes and general economic conditions.

A more detailed description of uncertain factors that could affect actual results of operations include but are not limited to, those discussed in the company's form 10-K filed with the Securities and Exchange Commission under the section entitled "Factors Affecting Our Operating Results, Business Prospects, and Market Prices Stock". Listeners are cautioned not to allow these forward-looking statements, which speaks of the company's prospects only as of the date of this conference call. The company undertakes no obligation to update publically any forward-looking statements due to new information, events, or circumstances after the date of this conference call or to reflect the concept of unanticipated events. EPS information during this call will be presented on a proforma basis. Proforma results exclude non-cash charges, nonrecurrent charges, and items unrelated to the company's corporation. These results exclude restricted stock compensation expense, amortization, [INAUDIBLE] of intangibles, acquisition-related expenses, restructuring and other non-recurring charges, return on investments, and a cumulative effect of changes in accounting principles. You can view this release [INAUDIBLE] of our results and other financial information in the Investor Relations section of our corporate website at www.infospaceinc.com. In addition, we are hosting a simultaneous live broadcast of this call on our website. Investors may access a replay by calling the Investor Relations section of our website until 6 pm Pacific time on Friday, July 26. Also, in consideration of the SEC regulation, [ST] a fair disclosure, this call is served as a primary form of communication with [INAUDIBLE] on building their financial models. I would now like to turn the call over to Tammy Halstead, our Chief Financial Officer.

Thank you, [Nicole]. For the second quarter ended June 30, 2002 we reported revenues of 33.5 million. Second quarter revenues exceeded our guidance of 31 million. Proforma net loss for the quarter was 5.2 million. Of this amount 5.14 million was non-cash depreciation. The second quarter proforma net loss improved by 1.7 million from the 7.5 million reported last quarter. EPS for the quarter was a loss of $.0.02 per share. Gross profit margin was 71% for the quarter consistent with the high end of our previous guidance of high 60s to low 70s. As we explained last quarter, the majority of our expenses in cost of revenues are largely fixed and accordingly we saw improved gross margins of our revenues were higher than expected. We invested 9.5 million in product development in Q2, up 100,000 from Q1 primarily due to additional engineering resources from the acquisition at eCash in February. SG&A expenses were 22.7 million for Q2, down from 27.1 million in Q1, a decrease of 4.4 million. We continue to see the benefits of our ongoing cost reduction measures. The decrease this quarter was primarily due to reduction in [INAUDIBLE] and other professional services, which were 4.2 million in Q1 compared to 3.4 million in Q2. We also had reduced transition cost for [INAUDIBLE] and lower carriage and revenue share expenses. SG&A for the quarter included approximately $500,000 related the [jointware] transition and this amount will be further reduced in Q3.

For the quarter, two customers Overture and Verizon both accounted for more than 10% of total revenue. 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, with the majority of revenue coming from Verizon information services. We expect both Overture and Verizon each to account for more than 10% of total revenue for the remainder of the year. Total weighted average shares outstanding for the quarter was 309 million. There were 308.8 million basic shares outstanding on June 30, 2002. Our balance sheet continues to be strong and free of debt. We ended the quarter with a combination of cash, investments available for sale, and a payroll tax receivable totalling 278.8 million. InfoSpace invests its excess cash in high quality marketable investments, which are rated at least A1 P1. These investments include commercial paper, certificates of deposits, money markets, and US government securities. These investments are classified on our balance sheet in the following three captions based on their relative maturity dates: Cash and cash equivalents, short-term investments, and long-term investments. Under our investment policy, no investment final maturity may exceed two years and the maximum weighted average maturity of the portfolio does not exceed 360 days. On June 30, 2002, we had cash and cash equivalents of 94.7 million; we had short-term investments of 119.1 million; long-term investments of 51.1 million; a payroll tax receivable of 13.9 million for a combined total of 278.8 million. In addition, we had investments in private and public securities totalling 29 million. This quarter, net cash used in operating actually was 9 million. We primarily used our cash this quarter in operations and for a one-time buyout of a lease for 4.35 million, which had approximately 9.3 million of [future lease costs] thereby reducing our [future lease] expense by nearly $5 million.

In the first quarter, we reported that the company's Merchant and Wireline business units were both profitable on a proforma basis, including all direct and allocated indirect expenses, while the wireless business continues to represent an area of strong potential growth. I am pleased to report that again this quarter that the Merchant and Wireline business units turned in profitable quarters on a proforma basis. Wireline reported a proforma profit of 5.6 million on revenues of 13.4 million. Merchant reported a proforma profit of 3.2 million on revenues of 12.6 million. Please see the statement of operation by business units included in our second quarter earnings press release for additional detail. Now, I would like to turn to the key-operating matrix for the quarter. Wireline represented 40% of total revenues for the quarter. In Wireline, we are focused on Search, Directory, and broadband services. For Search and Directory, we are paid on a per query basis and broadband, we generate revenues on a per subscriber basis. Our Wireline services recorded over 3 billion queries for the quarter. A query is defined as a request made to an InfoSpace service. Average revenue per query was 0.0045 up from 0.0039 in Q1 and consistent with our previous guidance of a range of 0.003 to 0.007 per query. The per query rate is a blended rate of all the revenues generated from the Wireline services. York Baur will be providing a more detailed description of the Wireline business later in the call.

Turning to Merchant, once again we are pleased to report that our Merchant business units turned in strong growth for the quarter. We saw significant growth from the adoption of our Merchant platform. Our Merchant business represented 38% of total revenues for the quarter. Total dollars processed is greater than 1.5 billion up from 1.3 billion reported last quarter. We processed more than 20 million transactions up from 16 million processed in Q1. Our merchant business is focused on payments, promotions, shopping, and hosting services. We generate revenue in our Merchant business from four sources. First payments. In payment authorization, we earn revenue from our Merchant on monthly subscription fee, which includes a certain number of transactions. As Merchant exceeds their minimum, we receive additional revenue per transaction. Promotions, which are primarily a [well] paid services, the revenues in Merchant promotion are generated on a per query basis. Shopping. For shopping, we receive a percentage of the total dollars processed or a percentage of loyalty points redeemed. And hosting. Our hosting revenues are generated on a monthly basis from subscriptions and monetization of the users to the Merchant website. Payments and promotions accounted for more than 80% of total Merchant revenues during the second quarter. We used the blended rate of the revenues generated from our Merchant services to model this business. We earned between 0.7% and 1.1% of the total dollars processed through our commerce platform. Now, turning to the wireless business area. Our wireless business represented 22% of total revenues for the quarter. We are pleased to report for the second quarter that we had 1.49 million average monthly active subscribers, an increase of over 100,000 average monthly active subscribers from Q1. The effective revenue per active subscriber for Q2 was $1.68 compared to $1.58 for Q1.

To be counted as a monthly active subscriber, a user must use an InfoSpace wireless service at least once during the month. In wireless, we are focused on the following areas: 1. Mobile application services, which provide the underlying software infrastructure necessary for carriers to deploy and manage wireless data offerings. 2. Mobile applications that touch the enduser such as community and entertainment, information and productivity and messaging.

Today, we generate revenue on a per subscriber or per message fee basis. Overall, we are extremely pleased to report that despite this challenging economy, we have experienced growth in both absolute dollars processed as well as the number of transactions processed in our Merchant business unit. We saw growth in a number of average monthly active subscribers using our wireless products and application services. But the true measurement for me, two of our three business units are adding to the bottom-line. And those two business units generated 78% of our total revenue providing us the financial wherewithal to continue to invest in the wireless opportunity. Now, let's discuss our guidance for the remainder of the year. We are improving guidance for Q3 and now expect revenues to be in the range of 31.5 to 32 million compared to our previous guidance of 31 million. We are also improving guidance for the full year and now expect revenues to be approximately 129 million, an increase from our previous guidance of 126 million. We are reconfirming that we expect a proforma net loss per share of $0.02 in the third quarter. For the full year, we expect a proforma net loss per share of $0.08. For the third quarter, we expect revenues from our business units to be comprised as follows:

Merchant will be approximately 37-39% of total revenues, wireless 20-22% of total revenues, and Wireline approximately 39-41%. For the fourth quarter, we expect revenues from our business units to be comprised as follows: Merchant approximately 39-41% of total revenues, wireless approximately 16-18%, and Wireline approximately 40-43% of total revenues. We assume basically at average shares of 310.5 million for Q3 and 311.5 for Q4. We are very pleased that our efforts to monitor costs have resulted in reduced SG&A costs in spite of an ongoing challenging economy. We continue to exercise financial discipline and we are focused on profitability at every level of the organization. We saw improvement business model, our strong cash position, our strong balance sheet, and our continuing focus on investing for the future are the strengths that will provide us with staying power for the future. Thank you, and now I would like to turn the call over to Naveen who will review the Merchant and wireless businesses.

Thank you, Tammy. I am pleased to announce the results of another strong quarter for InfoSpace. Revenues for the second quarter came in at 33.5 million exceeding our previous guidance of 31 million. Our wireline and Merchant business units are both profitable on a proforma basis and together they accounted for 78% of the second quarter revenue. First, I will review the performance of Merchant and wireless during the second quarter. Afterwards, York Baur, Executive Vice President of Wireline will discuss the results from our wireline business in lot more detail. Turning to Merchant, I am very pleased to report that our Merchant business unit turned in another fantastic quarter. InfoSpace Merchant business unit continues to be proforma profitable. During the second quarter, our payment-processing platform authorized at net, processed more than $1.5 billion up from 1.3 billion reported in the last quarter. At the same time, the number of transactions grew to more than 20 million up from 16 million reported in the first quarter. We also added more than 10,000 new Merchants during the second quarter. And our channel for reselling our payment services grew to more than 1200 resellers. Our payment solutions continued to exceed our expectations. To ensure our continuous success our R&D team had been working on a new technology architecture for our payment platform. This new architecture is designed to deliver the next generation of electronic payments including eCheck, eDebit, and store value technologies to Merchant service providers and financial institutions.

This effort is just an example of our commitment to provide the best payment solutions to our Merchant and partners. Finally, the last quarter, we provided further information on our asset acquisition of eCash technologies. Through this acquisition, the Merchant business unit added significant technology and intellectual property to our platform including eDebit and store value transaction technologies. Today, I am pleased to tell you briefly about our first deployment utilizing these technologies. During the second quarter, InfoSpace delivered its first suite of universal store value solutions. Further details including the financial institutions utilizing our solutions are planned to be announced sometime during the current quarter, so stay tuned. At this time, though, I can tell you that the deliver suite includes three initial products: Gift card, Teen card, and a Payroll card. Each stored value product or a prepaid card works in a similar fashion. Consumer utilize a web interface to create and load value to the branded credit cards such as Visa and MasterCard that can be used at point-of-sale in both the physical and virtual world. Consumers are also able to utilize the web to check balances and statement information as well as add additional funds to their cards. Turning to wireless. Despite the current turmoil in today's telecommunication markets, we believe wireless services continue to represent a significant growth of opportunities and we will continue to invest and execute in this area. InfoSpace's value proposition remains unchanged: to provide carrier with a suite of mobile applications and services enabling them to effectively deploy and manage [seamless] and differentiated wireless data offerings over current and next generation network and devices.

Carriers continue to respond favorably to our strategy of providing multimodal wireless solutions that enable deployment of services over almost any combination of current and next generation technologies. These innovative solutions allow carriers to monetize their existing infrastructure while laying the groundwork for more advanced services. These services also have carriers to prime the subscriber-based for 3G by showing them first hand how wireless data can improve their lives. We continue to see growth in both numbers of subscribers and usage from our services from our leading partners such as Singular, AT&T, [Altel], and [VoiceStreet]. Global SMS traffic grew by 20% from the first quarter of this year. During the quarter, we launched new services under previously announced contract with several carriers including Rogers AT&T in Canada, Iusacell in Mexico, and Leste, Brazil and Verizon wireless in Puerto Rico. Also, during the quarter, we launched our wireless application manager or Wam! product with one of our largest carrier customers. Wam!'s robust desk management tool offers carriers a high degree of control over their desks, content links, and production releases. Wam! is a key component of InfoSpace's mobile application services framework which provides underlying technologies necessary for carriers to deploy multimodal wireless data services that can be packaged and targeted directly to user groups such as teens and enterprise users. In addition, we supported the famous launch of the new [Shoutout] portal designed to attract and retain youth and teen subscribers. InfoSpace is [forwarding] a range of innovative and fun applications for [Shoutout], including our recently developed SMS kids application. SMS kids allows a user to send a kid's message via SMS to another individual. The recipient must then guess who the sender is. If the user gets this correctly, both participants can receive a message prompting them to call one another.

These simple, yet fun, and addictive community applications are essentials to clearly demonstrate the value of wireless data to consumers today. Only as consumers begin to view voice and data convergence in this light, will they embrace advanced devices and services that carriers are investing so heavily in bringing to market. As new network and devices optimize and voice and data convergence become widely available in 2003, we expect wireless adoption based in North America and Europe to finally begin catching up with those that we are seeing in Asia. As carriers continue laying the groundwork for the successful launch of these services, InfoSpace is committed to staying ahead of the curve in supporting these efforts. For example, we have optimized several of our most popular applications to take advantage of the new functionality made possible by new client site technology such as [Bru and J2Me]. These new technologies are already starting to hit the market in limited deployments around the country. And as they say, stay tuned for more announcements in this area. I would like to turn the call over to York Baur, Executive Vice President of Wireline to give a recap of Wireline business during the second quarter. York joined InfoSpace last summer. His background includes more than 15 years of executive sales and marketing experience from companies such as Microsoft and [Walldata], amongst others. For further information about York's background, see the investor relations section of our corporate website at www.infospaceinc.com. It is now my pleasure to turn the call over to York. York?

Thanks, Naveen. And it is my pleasure to update you on the strategy of our Wireline business unit. InfoSpace's Wireline business unit is focused on developing and delivering broad and narrowband Internet applications and services to broadband service providers such as cable modem [DSL] and satellite companies and websites such as Excite, NBC, AOL, MSN, and [INAUDIBLE] among others after the customers are [brought] away of compelling private labeling services including many next generation applications. This past quarter, Wireline recorded more 3 billion queries to our services. The business reported a proforma profit of $5.6 million and revenue of 13.4 million. The Wireline business unit is focused in three core areas. Web search, directory, and broadband. Our ability to monetize this traffic utilizing our core Internet services whether it is on our own sites or partner sites continues to improve existing revenue efficiency and reducing costs. Now, let me expand on Meta-search, which is the largest component of the Wireline business units' revenues. InfoSpace's Meta-search technology allows the user to search the multiple search properties at once requiring the most comprehensive and relevant results fast. InfoSpace is the market leader in Meta-search on the web with 10.6 million users in the most recent month searching the web with our properties. So, how do we do this? We partnered with the web's leading search engine directories and pay for performance providers among other search databases. We then integrate those within our proprietary search technologies and in turn offer comprehensive search experience to partners and users. In the end, we rapidly return the best results and combine them into one and if you haven't tried it already, I suggest you do so at [www.docpile.com] and check it out for yourself.

In the most recent quarter, we struck new or expanded search agreements with Fast, FindWhat, and LookSmart and of course we are all in discussions with the current and potential partners to improve on our business model and deliver the most comprehensive and relative results what [INAUDIBLE] are looking for. At early quarter, we also launched our next generation Meta-Search products. The new Meta-Search products can be accessed to both www.excite.com and www.webcrawler.com and soon at www.Metacrawler.com among others and again I encourage you to try those out. As you recall, InfoSpace purchased certain media assets including the www.excite.com and www.webcrawler.com domain names from Excited home in November of last year. This was a solid acquisition. The cost of this purchase was recovered by the end of the second quarter, so not only we have already recovered our investment, we have also significantly increased InfoSpace's position in the search and directory markets. So, we are excited about that. InfoSpace is next generation Meta-Search product is designed to do something different that is to identify the intent of a user search through a sophisticated query routing technology. Because various search engines return better results for different types of queries, InfoSpace is proprietary Meta-Search algorithm source the results for a search query accordingly and then displace the blended mix of highly relevant commercial and noncommercial results for a given search.

So for example, if someone types in a word flowers in one of our engines, it is more than likely that person is looking to purchase flowers and that being the case, our engine will provide more commercial, but noncommercial results. Now, if you are looking for roses and aphids for example, that purpose is more likely conducting a research and so more noncommercial results will be delivered. The new InfoSpace Meta-Search product highlights the strengths of the many search engines that we partner with. For example, FAST, Overture, About, Ask, Jeeves, FindWhat, LookSmart, Open Directory, and Inktomi and we will keep you updated of course as we continued to enhance our product and the partner relationships that support it. So, in summary InfoSpace is really in a strong and unique position to web search. Our Meta-Search technology is extremely flexible making us possible for us seamless integrate multiple search products in to one. And this provides us a winning combination from both the product and the business perspective. The Internet user wins is that they receive a comprehensive solution to search the web or multiple search engines in one website. A search partner is when as they have approved business model that generates long-term recurring revenue, distribution, and exposure to a large audience. Finally, of course, we win as we provide a unique and comprehensive offering to consumers and business partners, as well as a strong business model, which delivers significant revenue to the InfoSpace bottom-line. So, thanks very much for the opportunity to discuss the wireline business with you, and I look forward to speaking with you in the future and of course don't forget to try our products out one final mention of [www.docpile.com] another great to try these technologies. I would now like to turn the call over to Edmund Belsheim, our President and Chief Operating Officer.

Thank you, York. Yesterday, we announced that our board of directors has adopted the stockholders rights planned also known as a [poison pill]. Given the date of the market and based on the advise of our investment bankers and attorneys, we thought it would be prudent to provide this additional protection to our stockholders in the event of [cost] takeover attempt. The plan does not prevent the sale of the company. The plan allows our board to assess any offer, to explore alternatives, and to maximize shareholder value. We joined over 3500 other public companies that have adopted such a plan. The plan was not adopted in response to any known threat or offer to acquire the company. Our board is evaluating alternatives to address the notice from NASDAQ regarding our stock price that we recently received and disclosed. We have not until October 1 to address these issues. We expect further announcement on this subject during the coming days. During the last conference call, we highlighted for you our merchant business. Today, we highlighted our wireline business. During the next conference call, we will highlight our wireless business. We find comfort and strategic value in having three businesses with separate and diverse revenue streams and at different stages of development. Our success is not dependent upon the success of a single business or market. Our diversified portfolio if you will particularly under current market conditions with this strength. We find additional comfort and strategic value in the synergies of among the businesses. These synergies help to differentiate us in the marketplace and provide a competitive advantage. To sum up, we are pleased with our second quarter results. Our merchant and wireless businesses increased revenues quarter-over-quarter and achieved growth in each of their respected key operating metrics. Our wireline business launched a new Meta-Search product that will enhance its core product offering and we reduced operating expenses which improved our bottom-line, also we have an exceptional group of customers. Our balance sheet remained strong with no debt which provides us staying power and allows us to execute against our business plans even in the difficult market circumstances that we [face with] and we have a talented and dedicated team of employees on whom our success depends. Let me remind you that we are hosting an investor conference tomorrow July 24, 2002 beginning at 3:00 PM Pacific Standard Time in which we will have a virtual webcast including executive's presentations and slides. We will provide an in-depth over view of the company, as well as outlined strategies for each of our three business units. To accept the webcast, go to www.infospaceinc.com in the investor relation section and click on the investor conference link. I now turn the call over for question and answer.

[NICOLE KNOR]: Thank you, Ed. Operator, can you please repeat the instructions for asking a question.

Yes, I will. Our question and answer session will be conducted electronically. For those of you would have a question today, please press the *key, followed by the digit 1 on your touchtone telephone at this time. We will proceed in the order that you signal us and take as many questions as time permits.

Again, if you do have a question, please press *1 at this time. We will pause a moment to assemble the roster.

Once again that is *1 on your touchtone telephone to ask a question.

And our first question will come from [Victor Anthony] with Bear Stearns.

[VICTOR ANTHONY]: Hi, good afternoon. I am asked to represent Jeff Fieler with Bear Stearns. I just have a quick question. I want to know when you guys expect to return the profitability, if you can give me a timeframe on that?

[Victor], we have forecasted on profitability and that's our number one goal; and at this point, we hope to get it as soon as possible.

[VICTOR ANTHONY]: Okay. Thanks.

And as a reminder, if you do have a question, please press *1 at this time.

Operator, if there are no more questions we will conclude the call...

There are no questions at this time.

Thank you very much. Bye, bye.

That does conclude today's conference. We thank you all for your participation.