Avantax Inc (AVTA) 2002 Q3 法說會逐字稿

Please stand by, we're about to begin. Good day everyone and welcome to the InfoSpace third quarter earnings conference call. As a reminder, today's conference is being recorded. And now at this time for opening remarks and introductions, I would like to turn the conference over to Ms. Nicole Knowles, Director of Investor Relations for InfoSpace. Please go ahead ma'am.

Thank you. Good afternoon. We are pleased that you could join us today to review our third quarter 2002 financial results. Our earnings press release crossed the wire at approximately 1:15 p.m. pacific time today. Participating in today's all are InfoSpace's Chairman and CEO, Naveen Jain, Ed Belsheim, our President and Chief Operating Officer, Jan Claesson, our Executive Vice President of Wireless, 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 that 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 costs related to the development of our products and application services, the timing of market acceptance of those products and services, the performance of our system, the effectiveness of the development and implementation of our strategy, the ability to retain customer contracts and key personnel, and the impact of changes and general economic conditions. A more detailed description of certain factors that could affect actual results of operations include, but are not limited to, those discussed in the company's most recent Form 10-Q, 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 this conference call, or to reflect the occurrence of unanticipated events. EPS information during this call will be presented on a pro forma basis, and reflects the one for ten stock split approved by our shareholders on September 12th, 2002. Pro forma results exclude non-cash charges, nonrecurring charges and items unrelated to company's core operations. These results exclude restricted stock compensation expense, amortization and impairment of intangibles, restructuring and other nonrecurring charges, impairment on investments, and the cumulative effect of changes in accounting principles. As you know, we provide both GAAP and pro forma results in our earnings press release, and we also provide a reconciliation between GAAP and pro forma in our press release. We believe the pro forma results provide meaningful supplemental information for our investors. You can view this release, a tabular reconciliation 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 of this call in the investor relations' section until 4:00 p.m. pacific time on Monday, October 28th. Also, in consideration of the SEC regulation FD, or Fair Disclosure, this call will serve as a primary form of communication with analysts 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 third quarter ended September 30, 2002, we reported revenues of 33.6 million. Third quarter revenues exceeded our previous guidance of 31 and a half to 32 million. Pro forma net loss for the quarter was 610,000. This includes 4.7 million of non-cash depreciation expense. EPS for the quarter was a loss of two cents per share post-split, exceeding our guidance of a loss of 20 cents per share post-split. Gross margins were 74 percent for the quarter, exceeding our previous guidance of high 60s to low 70s. We invested 8.4 million in product development in Q3. We are pleased to report our SG&A expenses were 19.6 million for Q3, down 3.1 million from the 22.7 million for Q2, and further down 7.5 million from Q1. This savings is primarily due to reductions in cost of facilities, professional services, revenue share and depreciation expense. Last year at this time we reorganized the company to reflect our decision to align resources along business lines, and focus on the products and services in high-growth areas and where we are a market leader today. This has allowed us to significantly reduce SG&A expenses sequentially. This quarter we were within shouting distance of pro forma profitability, and all three of our business units were profitable on a segment reporting basis. For the quarter two customers, Overture and Verizon Information Services, each accounted for more than ten percent of total revenues. We expect both of these customers each to account for more than ten percent of total revenues in Q4 as well. Both total weighted and basic average shares outstanding for the quarter were 30.9 million. We exited Q3 with an even stronger balance sheet. We ended the quarter with a combination of cash and investments available for sale totaling 275.2 million, an increase of 10.3 million from Q2. And of course our balance sheet continues to remain free of debt. InfoSpace invests its excess cash in high-quality marketable investments, which are rated at least A1P1. These investments include commercial paper, certificates of deposit, money markets and U.S. government securities. Under our investment policy, no investment's final maturity may exceed two years, and the maximum weighted average maturity of the portfolio does not exceed 360 days. On September 30, 2002, we had cash and cash equivalents of 134.2 million, and short-term investments of 141 million, for a combined total of 275.2 million. In addition, we also had investments in private and public securities totaling 24 million, and a payroll tax receivable of 13.2 million. On September 30th, we had $8.90 cash value per share. This compares to $8.60 cash value per share at the end of the second quarter. I am pleased to report that all three business units turned in profitable quarters on a segment basis. For segment basis reporting the company does not allocate certain operating expenses. Wireline reported a profit of 7.3 million on revenues of 12.9 million. Merchant reported a profit of 3.8 million on revenues of 12.2 million, and our Wireless group reported a profit of 1.1 million on revenues of 8.5 million. Please see the statement of operations by business unit included in our third quarter earnings press release for additional details. Now I'd like to turn to the key operating metrics for the quarter. Our Wireline unit represented 39 percent of total revenues for the quarter. In Wireline we continue to focus on search, directory and broadband services. For search and directory we are paid on a per query basis. In broadband we generate revenues on a per subscriber basis. Our Wireline services recorded over 2.9 billion queries for the quarter. A query is defined as a request made to an InfoSpace service. The total number of queries was down slightly in Q3, which is consistent, and in line with the trend of seasonally lower usage of the Internet during summer months. Average revenue per query was .004 consistent with our previous guidance of a range of .003 to .007 per query. The per query rate is a blended rate of all the revenues generated from the Wireline services. Turning to Merchant. Our Merchant business represented 36 percent of total revenues for the quarter. We saw strong growth from the adoption of our merchant payment platform. Total dollars processed grew to more than 1.7 billion, up from the 1.5 billion reported last quarter. We processed more than 22 million transactions, up from the 20 million processed in Q2. Our Merchant business is focused on payments, promotions, shopping and hosting services. We generate revenue in our Merchant business from these four sources. Payments, 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 minimums, we receive additional revenue per transaction. The total number of active merchants this quarter was 71,000, that's active merchants using our payment platform. Promotions, which is primarily our yellow page services, revenues in merchant promotions are generated on a per query basis, and were down slightly in Q3 due to lower usage of the Internet during the summer months. 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 sites. Payments and promotions accounted for more than 80 percent of total Merchant revenues. Now turning to our Wireless business area. Our Wireless business represented 25 percent of total revenues for the quarter. As previously reported, we restructured our Latin America operations, and as a result our Wireless revenues this quarter included a one-time payment of 1.3 million from the termination of an agreement in Brazil. For the third quarter we had 1.45 million average monthly active subscribers. The effective revenue per monthly active subscriber for Q3 was 1.69, $1.69 excluding the one-time restructuring payment of 1.3 million from our Latin American operations. And this $1.69 compares to $1.68 for Q2. To be counted as a monthly active subscriber, a user must use an InfoSpace Wireless service at least once during the month. Our business relationships with our carrier partners are increasingly based on a model of shared risk and shared reward. This model benefits carriers by offering low, upfront expenditures, insures our interests are tightly aligned with those of our partners, and enables us to build a more scalable business around sharing the recurring revenue generated by usage of our services. Overall, we're extremely pleased to report that despite this challenging economy, we turned in a quarter with sequential revenue growth and cost reductions. We have made significant progress on our strategic financial goals. We are pleased that our efforts to monitor costs have again resulted in improved SG&A. Again this quarter we saw growth in both absolute dollars processed, as well as number of transactions processed in our Merchant business unit. We generated net cash from operating activities, and all three business units were profitable on a segment basis. Looking forward, for Q4 we expect revenues to be in the range of 31 to 32 million. We expect a pro forma net loss in the range of 2.5 to 3 million, or a pro forma net loss per share in the range of eight to ten, eight to ten cents. For the fourth quarter of 2002, we expect revenues from our business units to be comprised as follows. Merchant, approximately 37 to 39 percent, Wireline and broadband, approximately 43 to 46 percent, and Wireless approximately 16 to 18 percent. The Wireless guidance reflects the anticipated decline in wireless subscribers and revenues from our Verizon Wireless relationship. Also keep in mind in the third quarter revenue included the one-time revenue from our Brazil partner. We assume basic weighted average shares of 31.2 million for Q4. In Q4 we expect to record an operating charge for the annual evaluation of intangibles under FAS-142. In addition, the company expects to record a restructuring charge of approximately one to 1.5 million in the fourth quarter related to the reduction of workforce announced today. We know exactly what we have to do as we head into 2003. Leverage our strong market position, focus on profitability at every level of the organization, continue to focus on cost, expenses and cash flow, consolidate our leadership position in our focus areas, and then build on our leadership role when the market turns. We will discuss further guidance in our next quarterly conference call in January. Thank you, and now I'd like to turn it over to Naveen, who will review the Merchant and Wireline businesses.

Thank you Tammy. I am pleased to announce that all three of our business units were profitable on a segment reporting basis during the third quarter. InfoSpace's balance sheet remains strong with no debt. We have a cash and short-term investments totaling 275 million at the end of the third quarter, an increase of more than ten million from the second quarter. In addition, the company has investments in private and public securities of $24 million. In addition, we also have federal payroll tax receivables of 13.2 million. Again, I am very pleased with our execution. The Wireline and Merchant business units accounted for 75 percent of revenue in the third quarter, but these two business units have been profitable since we started segment reporting in the first quarter of this year. Turning to Merchant, the Merchant business unit reported a profit of 3.8 million on revenue of 12.2 million. During the third quarter, our payment processing platform Authorize.Net processed more than $1.7 billion, up from 1.5 billion reported in the last quarter. At the same time, the number of transactions grew to more than 22 million, up from 20 million reported in the second quarter. We also added nearly 11,000 new merchants accounts during the third quarter, including leading newspapers like "New York Times", "Boston Globe" as well as University of California. At the end of third quarter, the total number of active merchant accounts totaled 71,000. Also, our reseller channel for selling payment processing services continues to grow. During the third quarter, nearly 100 resellers signed on to sell Authorize.Net to merchants, bringing the total more, the total number of resellers to more than 1,300. Finally a majority of our traction and revenue is actually due to, actually due to all (ph) to payments and promotions. Moving forward, you can expect us to focus further on, further efforts on strengthening our positions within these sectors by investing in developing software and applications around these products. Turning to Wireline, the business reported a profit of 7.3 million on the revenues of 12.9 million. This past quarter Wireline services recorded 2.9 billion queries. As discussed last quarter, Wireline business unit's primarily focus is meta-search. InfoSpace's meta-search technology allows users to search multiple search properties at once. It's returning comprehensive and relevant results fast. InfoSpace is clear market leader in this space. Our search business had an exciting quarter. First, we extended our relationship with Overture until March 2006. This extension replaced an agreement with Overture announced last December, and delivers more favorable economics to InfoSpace more than before. In addition, during the quarter we added Google to our meta-search capabilities. Not only has the addition of Google improved the already comprehensive and relevant results we deliver, but has instantly added a new and lucrative revenue stream to InfoSpace. Recognized as the leading search engine on the Web, Google's award-winning search technology can now be found within our meta-search results, delivered at Excite, Dogpile, WebCrawler and MetaCrawler. Now millions of our users can search the likes of FAST, Overture, About, Ask Jeeves, LookSmart, Inktomi, FindWhat, and Google simultaneously. As we say, why search when you can meta-search, and go try the Dogpile today. In addition to these two important contracts, during the quarter the Wireline search team launched its paid inclusion product, which not only provides Website owners with a compelling, easy to use product and significant new audience for exposure, but it's create a new revenue stream for InfoSpace. The new program provides Website owners with the ability to promote their Website or sites to nearly 20 million potential customers through a paid inclusion program launched by InfoSpace in our meta-search engines. Finally, on the CEO search front, we have had opportunity to meet with and interview a number of strong and qualified candidates. At this point, we have narrowed the pool to a very short list, and both candidates will be meeting with our executive management team in the coming weeks. Stay tuned. In summary, I am pleased with our third quarter results. All three of our business units are profitable on a segment basis, and remember, we added more than ten million to our strong and debt-free balance sheet. I would like to now turn the call over to Jan Claesson, Executive Vice President of Wireless, to give a recap of the Wireless business during the third quarter, and moving forward. As you know, Jan joined InfoSpace a little more than a year ago, his background includes more than 20 years of senior management experience, including 11 years in executive management positions at Microsoft. For further information about Jan's background, see the investor relations' section of our corporate Website at infospaceinc.com. It's now my pleasure to turn the call over to Jan. Jan?

Thank you Naveen. Good afternoon. I am pleased to have the opportunity to provide you with an update on our recent successes, current market conditions and the strategic direction and op objectives of the Wireless business unit at InfoSpace. InfoSpace Wireless remains focused on working closely with carriers to maximize the revenue opportunities presented by wireless data. We work with leading operators around the world, including Cingular, AT&T and T-Mobile in the United States, AT&T Rogers in Canada, Virgin Mobile in the U.K., Iusacell in Mexico and Vodafone in Australia. During the quarter, service usage continued to grow across several of our major carrier partners. We announced the launch of several J2ME applications on Sprint's next generation network, and we are committed to rolling out additional applications with Sprint over the coming months. In Europe we announced that we are, our services are powering an SMS based marketing campaign for McDonalds in the Netherlands. This promotion utilizes SMS to help McDonalds build its brand and drive repeat sales, and generate additional traffic for the major Dutch operators. This announcement is a clear example of how InfoSpace is well positioned to help businesses utilize wireless to interact with customers, and to enable carriers to mine new value from their existing networks and installed base of devices. We're exploring opportunities to deploy similar services in markets outside of Europe, including the United States, and the response from our partners in these markets so far validates the relevance of this initiative. Turning now to a discussion of current market conditions, and their impact on our strategic direction. The wireless data services market remains challenging, yet we are well positioned to weather these conditions, and are confident in our ability to capitalize on the significant growth opportunities we believe this industry presents. Today carriers worldwide are focusing more attention on opportunities to drive incremental revenue over their existing infrastructure as they continue to build-out next generation networks. Every day more data capable devices offering better input, color displays, and connectivity via faster and more reliable networks find their way into the hands of mobile users. As a result more wireless users are looking to their mobile devices for more than just voice communication. As wireless data evolves, Push messaging technology such as SMS and MMS are demonstrating proven revenue generating capabilities, and we are seeing growing interests from mobile operators around the world in our services based on these technologies. We are executing on a number of strategic and operational initiatives designed to capitalize on this. First, we are focusing more development efforts on next generation Push messaging standards, such as MMS and WAP Push. We believe these standards will be key drivers of mobile data usage and adoption moving forward. Multimedia messaging services, or MMS, greatly improves upon the text based presentation of SMS by enabling delivery of media rich services including photos, icons, graphics, charts and maps. With MMS, a traffic alert pushed to a mobile user can include images showing current conditions along the user's most frequently traveled roadways, as well as a map showing alternate routes. We are currently engaging in an MMS trial in Europe, and expect to commercially launch MMS based services by end of this year. WAP Push combines the best attributes of WAP and Push messaging by enabling a link to WAP content to be embedded into a text or multimedia message. This technology overcomes a major usability barrier and capitalizes on the unique requirements of mobile users by making it fast and easy to act on the information that is pushed to a user's device. For example, a WAP Push alert informing a user that their flight has been delayed can also include a link to a variety of relevant WAP based services, enabling the recipient to quickly and easily check other available flights, send an email, or find a hotel nearby. The second initiative designed to capitalize on the growing interest in Push messaging is to help maximize revenues generated from carriers' existing infrastructure by fostering the introduction of more compelling wireless data applications into their marketplace. As device and network proliferation continues, the complexities involved in developing, integrating and managing mobile applications are squeezing capital resources on all side. We believe there is a growing opportunity for InfoSpace to take advantage of this trend by playing a leading role by providing authoring and management tools, enabling carriers as well as third parties to quickly and cost effectively bring new revenue generating wireless data services to the market. And finally, we are exploring new ways for carriers to increase adoption and usage of existing push messaging applications they have deployed to end users. To accomplish this, we are developing new technologies to facilitate mobile application provisioning, making it faster and easier for users to sign up and experience wireless data. An example of this is our innovative pound instant access technology that is currently deployed with Rogers AT&T in Canada. Instant access enables end user's provisioning of information and services from any digital mobile device by simply pressing a few buttons. This not only makes it easier for users to sign up, but it also enables carriers to more effectively market their services because end users can act on the promotion immediately upon being exposed to it. To wrap up, I would like to review the key components of our value proposition and underscore their significance, particularly in light of current market conditions. First, we offer carriers a managed service that minimizes cap ex expenditure, streamlines management, enables a rapid deployment of new services. Second, our contracts provide significant benefits by offering carriers a lower front expenditure. Under these contracts, we expect to get paid based on the amount of usage and revenue our services generate. This tightly aligns our interests with those of our partners, enable us to build a scalable business around the recurring revenue strengths. Third, we are uniquely positioned to utilize the broad base of usage data we collect from around the world as a basis for collaborating with our partners, and successful strategies to maximize usage promotion and adoption of wireless data. Fourth, we offer a suite of applications that can be delivered across the spectrum of current and next generation wireless technologies. This enables carriers to deliver revenue generating services today over their existing network without requiring their subscribers to upgrade to new devices. Fifth, we are well positioned to support carrier's 2.5 and 3G deployments by providing innovative services designed to maximize their infrastructure investment in these next generation technologies. And finally, we have a proven ability to meet the toughest carrier class requirements for reliability, scalability, delivering consistently on stringent service level agreements. In all, the strategies that have established InfoSpace as a market leader in wireless data services are even, are even more relevant today than they were two years ago. We see a tremendous opportunity to continue leveraging our core competencies and take advantage of the trends in the marketplace. We are confident in our ability to maintain our position as a leading provider of the solutions our partners need to take full advantage of the wireless data opportunity. Thank you for your time today, I'll now hand over the call back to Nicole for Q&A.

Thank you Jan. Operator, will you please go over the instructions for asking a question?

Yes ma'am. Today's question and answer session will be conducted electronically. If you would like to ask a question, you may do so by pressing the star followed by the digit one on your touch-tone telephone. We will go in the order that you signal us, and take as many questions as time permits. Once again, if you have a question please press star one at this time. We will pause for a moment to gather our roster. And our first question will come from Jeff Feeler (ph) with Bear Stearns.

Jeff Feeler (ph): Hi, good afternoon.

Hi Jeff.

Hi Jeff.

Jeff Feeler (ph): Got a, got a couple of questions, I missed some data points on the call to start off with. Did you guys say you're going to take an intangibles charge in Q4?

We are Jeff. We are going to do our annual valuation under FAS-142 of our goodwill, our indefinite lived intangibles, which is primarily goodwill. And at this point I don't know what that looks like, I've engaged an outside valuation firm. At this point I don't know what that number will be, although I do expect to take a charge.

Jeff Feeler (ph): And so how does that, how does that compare with the, I think was it $15 million charge this quarter?

Right. The charge this quarter Jeff actually related to what is referred to as definite lived intangibles, and definite lived intangibles are those that continue to be amortized. So remember when we adopted this new accounting standard, FAS-142, you separate out goodwill from other items, and goodwill is no longer amortized, but other intangibles such as core technology and customer contracts are called definite lived intangibles, and you actually put a life to it, and you amortize it over the life. And the 15 million that we took this quarter was related to core technology, customer contracts from some of the acquisitions that we've done in the past, and it was primarily related to core technology where we've upgraded and enhanced, and actually replaced some of the technology that we acquired in those acquisitions.

Jeff Feeler (ph): OK. And then the second number I didn't hear was the number of subscribers on the Wireless side per month that you had this quarter?

1.45 million.

Jeff Feeler (ph): 1.45 ...

Average active monthly subscribers.

Jeff Feeler (ph): OK, and then if I, if I look at your guidance where you take out the 1.3 million, and you basically end up with 16 to 18 percent of, you know, 32 million in revs, it looks like the Wireless revs could work out to be five and a half million in Q4?

That's right. Remember the 1.3 in addition to that, as we've discussed in prior quarters, we are expecting a decline from the Verizon subscribers.

Jeff Feeler (ph): And so can, would I be assuming correctly then that your expenses wouldn't come down commensurately, and it's unlikely that that's, that segment will continue to be profitable in Q4?

We are bringing down our expenses in that area, in conjunction with some of the reduction in force that we announced today. But you are correct, I don't expect that business unit, the segment to be profitable in Q4.

Jeff Feeler (ph): But would it be safe to assume that the majority of the 90 headcount is going to come out of that segment?

Jeff, this is Naveen. It's, Jeff the headcount's actually coming in from couple of, a couple of things. One is we are looking at outsourcing couple of the stuff that we were doing in-house, such as speech applications and a speech platform. In addition to that, we also looking at some of the infrastructure platform services that we are in, doing it in-house, we are bringing more off the shelf things. In addition to that, we have also done more focused approach that Jan talked about, that we are focused more on Push messaging as opposed to doing everything. And that allowed us to realign our resources and so yes, there is a substantial amount of reduction in the Wireless BU as you see it.

Jeff Feeler (ph): OK. One other question. It looked like the majority of the cash flow from operations, roughly, you know, the $10 million came from reductions in accounts receivables. I was wondering if you could kind of talk about where that came from this quarter and where you would expect DSOs to kind of work out over time?

Sure. We made a very aggressive effort this quarter to convert some of our assets to cash, and you're absolutely right. In our operating activities, about 7.1 million of that did come from aggressively managing the balance sheet, and converting accounts receivable and some short-term assets into cash. The balance was from operations. And my expectation, and so DSOs came down significantly, I think by about eight or nine from 68 to about 61 I believe ...

Jeff Feeler (ph): That's right.

... my expectation is that in Q4 we probably won't see a repeat, because the balance sheet is very clean, I expect us to continue to monitor all of our assets, but I don't expect to generate a ton of cash from our assets next quarter. And I expect DSOs to stay about the same.

Jeff Feeler (ph): OK.

Jeff just to add something to it, I mean we did generate the cash and from the operations itself. As you notice that, you know, we lost approximately $600,000. Of that 4.6 million was non-cash depreciation ...

Jeff Feeler (ph): Right.

... so really from the operations we did generate the cash even in this quarter.

Jeff Feeler (ph): No that's fair. I did have just one last question, and then I'll get back in queue so somebody else has to, somebody else doesn't ask the rest of my questions. Is that on the Merchant side you had, you know, a ten percent increase in transactions. You had, you know, merchants went up by, you know, more than 15 percent and yet total merchant revenue was down about four percent sequentially, and it seems a little, a little bit of an anomaly that you could have those, that strong a metrics, but the revenue didn't play out the same way. And I was wondering what's working there?

Jeff, actually the revenue did go up substantially in the payment authorization where you saw the metrics go up. The part of the things, the reason you're not seeing the total merchant revenue increase is because of our YP business. In the yellow pages business it's seasonally normally is not a good time the summer months. So really the decline in the revenue came from yellow pages. We saw a good increase in our payment authorization business. We saw our hosting business grow, and we also saw our business in the shopping also grew from the second quarter.

Jeff Feeler (ph): So would it be safe to kind of infer from that then that the yellow pages business was down maybe 20, 25 percent sequentially?

I'd basic number, but that's probably the, around the ballpark number.

Jeff Feeler (ph): OK, that's great. Thanks.

And our next question will now come from Sopha Rushdie (ph) with Piper Jaffrey.

Go ahead Sopha.

Sopha Rushdie (ph): All our questions were answered, thanks.

Thank you Sopha.

And once again, once again if you do have a question, please press star one at this time. We will now go to Scott Sutherland (ph) with Webb Bush Morgan.

Scott Sutherland (ph): Good afternoon.

Hi Scott.

... Scott.

Scott Sutherland (ph): Just to follow-up on the earlier questions, when I look at the Merchant business, and I'm kind of looking at Q4, it looks like your guidance is to be pretty flat. Give that Q4 is more on a transaction and shopping with the Christmas coming up, are you expecting certain parts to be up and certain parts to be down? And give some more color there?

So Scott, if you look at it still, we expect our payment authorization business to go up. We expect our shopping to go up, and we expect our hosting business to slightly go up or remain flat. We expect our YP business to be more or less flat along with the Q3 numbers. So we should see some increase in the Merchant business in Q4.

Scott Sutherland (ph): OK. When I looked the wireless space, and the guidance going forward, ex of the 1.6 million and the Verizon contract starting to decline, are you looking for growth in your other business?

In the Wireless business, as you noticed that I think we will see a decline in Wireless business unit revenue, both for the reasons that Tammy explained that there was a one-time revenues from the Brazil operation, and the decline in the Verizon revenue. However, we are seeing a significant amount of growth coming in from the other partners, and as you can imagine we can't give you the names of the partners that are doing well, but overall if you take the Verizon out we saw a pretty good usage growth in our, from other partners.

Scott Sutherland (ph): OK. With Wireless you're doing these games over J2ME, you're doing promotions for McDonalds, and it's not such a clean model of revenue per subscriber per month. Is there a better way to think about it, is there a certain percentage of revenue in Wireless that is not on a per sub per month basis?

Actually Scott as Tammy pointed out, more and more, or I will say we are pushing forward and expect most of our revenue to come from the usage. And what I mean by that is it's going to come on a per message basis just like in Europe we get paid today. So we are increasingly seeing the same business model in U.S. where we are getting paid on a per message basis as opposed to a per subscriber basis. And as you can imagine we like it a lot, because that gives us a tremendous incentive to continue to launch innovative services, continue to find services that people want.

In the older model, one of the downside was that as we continued to launch new and innovative services, our costs were going up but not the revenue on a per subscriber basis. By doing a usage based model, we are pretty excited that as we continue to launch new innovative applications and services that we will be rewarded for our innovation.

Scott Sutherland (ph): OK, just a couple more questions. Did you have any broadband contribution in the Wireline segment?

We did, but it was marginal.

Scott Sutherland (ph): OK. And just for Tammy, a few quick questions. You've given a metric in the past how much of the revenue is now of a recurring nature, and kind of non-cash revenue, and do you also have backlog in cap ex?

On the non-cash, it's very small. We had zero barter this quarter, and about $600,000 of warrant type revenue, so very, very small amount. And, let me just look at my committed, my committed backlog, and remember the way we've described that in the past is that is committed contracts, you know, revenue that we expect today from contracts that are committed, assuming renewals, 115 million, that's on a rolling four quarters.

Scott Sutherland (ph): Great, thanks. Pretty good quarter.

Thanks Scott.

Thank you.

Thank you.

And our next question will now come from Mike Crawford with B Riley and Company.

Good afternoon. What were your total wireless subscribers including inactive?

We don't give that number out at this point, but I think the number was over five, 5.5 million.

Over 5.5 million.

Yes.

On the Merchant side, on Authorize.Net, do you continue to see the number of transactions processed grow by two to four million per quarter?

We are seeing a pretty decent growth in our key, and at this point our expectations are in line with the, with the number that you are talking about.

OK. Some, I think these are more for Tammy, what's the corporate expense expect for next quarter, as well as D&A?

We haven't actually provided, let me see, a breakout in that area, at this point Mike.

OK. What's in the, it's been, you know, it's bounced between eight and 14 so I don't - million.

My expectation, my expectation for Q4 is that it will, it will be in absolute dollars less than what it was in Q3.

OK, great. And then I think this is more of a, I don't know, a touchy-feely question but with the 90 staff reductions, how would you characterize the current work environment and morale of the people that remain in the company?

You know, I think, you know, it's hard to say anytime that something good comes out of it when you effect people's lives. So, you know, it's never a good thing, but overall it's very, very positive because people were expecting us to do something about it, that as they saw that our Wireless revenue weren't growing as fast as we had initially expected, and as revenue, you know, obviously we had ramped up the staff to have a much larger revenue, and revenues weren't catching up to the build that we have done, so all we really did was we still have the Wireless as a very large, if not the largest investment and as BU. But nonetheless we have aligned the resources to bring more focus. So I think overall, the morale of the people who are here are high, and for the simple reason because they think we are making, we are being decisive, we are focused and we are executing as opposed to just sitting there and watching it happen.

OK, great. And then of the 24 million in other investments, could you drill down that a little deeper? What exactly do those comprise at this point?

Sure Mike. Those are, those are investments in equities in private and public companies, and it's about 30 percent public companies, 70 percent private companies. And I will tell you that one of my goals is to try to convert some of those into cash in the next few quarters.

And Tammy you can also point out that every quarter we do send the confirmation to each of these private companies to make sure that we mark to market the investment.

Absolutely, Naveen's absolutely right. We take an appropriate accounting approach with these companies for public companies, they are mark to market with the private companies, we get regular financial information from these companies, we are, obviously know if they're doing any type of round of financing, and we get confirmations each quarter from them with regards to our investment.

And this is what shows up on that investment, last line item each quarter? Is that where this comes from?

Yes.

Right. The five million impairment this quarter was from those private investments.

OK, and the final question is what do you intend to do with all of your cash, because it seems like that's more than you need to run your business and fund your growth?

You know, I think we going to use our cash for exactly what we need the cash for, which is to continue to build the business, continue to grow our business, and invest in our future. And I think you'll see us make those decisions whether it is a synergistic acquisitions or whether it's building a certain new business in that we see a great potential on, launching new products and services, and investing in our future. Because I really think at this time, given where we are and where we need to go, I think having so much cash and while you're seeing us generating a cash from our operations, life couldn't be better.

OK, thank you.

Thank you.

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

And we will conclude our conference call for today. Thank you for your participation.