Avantax Inc (AVTA) 2003 Q4 法說會逐字稿

Please stand by. Good day everyone and welcome to this InfoSpace Q4 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Nancy Bacchieri, Director of Investor Relation for InfoSpace. Please go ahead.

Thank you. Good afternoon and welcome to InfoSpace's Fourth Quarter and Year-End 2003 Earnings Conference Call. I am Nancy Bacchieri, Vice President of Communications and investor relations for InfoSpace. With me on the call today is James Voelker, Chairman and CEO and David Rostov, Chief Financial Officer. Before we get started I want to remind you of two things, first this is an investor conference call, the call is open to the press, however, we will only be taking questions from the investment community. Second I must advice you that this conference call may contain forward-looking statements relating to the development of the Company's products and services, the proceed of strategic alternatives for our payment solutions business 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, but are not limited to the progress in cost related to the development of our products and application services, the trending of market acceptance of those products and services, or dependence on companies to distribute our products and services, the performance of our systems, the effectiveness of the development and implementation of our strategy, possible changes to that strategy, and the ability to retain customer contract and key personnel.

A more detailed description of certain factors that could affect actual results of operations is discussed in the Company’s most recent quarterly report on Form 10 Q filed with the Securities and Exchange Commission in the section entitled, factors affecting our operating results and business prospects and market prices 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 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. Now, we'll turn over to Jim, following his comments David will review the Q4 and year-end financial results and then we will open up the call to your questions.

Thank you Nancy and welcome everyone to the call today. 2003 was a year of significant change for InfoSpace. I am very proud of our fourth quarter and full year 2003 financial results and believe they are indicative of the progress we are making. We strengthen our management team, note our strategic focus, improved our products and services, increased revenues, reduced costs, and improved our overall financial results. Our strong performance reflects the dedication and hard work of our employees as well as the fundamental strength of our businesses.

Search and Directory had an outstanding 2003 growing revenue 37? year-over-year. Key focuses for the year included improving the products and services, learning about our customers, and building a compelling private label offering. On the products side, we launched new user interfaces for our meta-search sites as well as for our flagship directory site infospace.com. We added new features such as clustering and introduced an award winning tool bar. I am proud of Search and Directory products and pleased that others are beginning to take notice. Recently PC World named our Dogpile Toolbar, best browser toolbar or plug in and ranked Dogpile search engine first runner up in the search engine categories just behind google.

In 2003, we also received favorable reviews by the Washington Post and the Boston Globe as well as by search industry analysts at search engine watch. Now that we are confident in the competitiveness of our products we are focusing on learning about our users and how to drive traffic to our sites. In Q4 we began to spend modestly in marketing and advertising by experimenting with several small campaigns to determine the most effective form of promotion. It's still a little too early to have a full understanding of the results of these campaigns but we were cautiously optimistic.

Distribution in which we private label our Search and Directory capabilities for others to offer our known websites, was the area of strongest growth in 2003. Our unique meta-search product, strong monetization rates, and customization abilities allow us to create a compelling product for our distribution partners. This business generated most of the 37% year-over-year growth we saw in the Search and Directory business. At the end of 2002, only a small percentage of our search revenue came from distribution. In Q4 of 2003, over half of the search portion of our Search and Directory revenue came from distribution. We expect this portion of our business to continue to fuel growth throughout 2004, generating total Search and Directory margins in excess of 40%. The remainder of our strong annual growth came from favorable increases in rates or the revenue we received per paid search. We didn't begin reporting this statistic until the second quarter of '03, but our rate has increased 15% since then from approximately 13 cents per paid search in the second quarter of '03 to approximately 15 cents per paid search in Q4.

We were extremely pleased with our Search and Directory results through the year. The team deserves credit for their ability year to post such strong results and impressive margins during the year of significant change. Of all of our accomplishments in '03, repositioning our Mobile Business was one of the most significant. Many of you are aware of the false starts in the mobile data space when the industry height exceeded the near-term potential. Despite the challenges industry progress has been steady. Networks have improved, devices are rapidly evolving, and adoption rates are increasing, more specifically relatively recent device innovation such as large color screens, integrated cameras and photo-messaging capabilities are driving increasing growth. Last week Nokia announced that 2003 was record year for the mobile handset industry, with volume growth of 16% over 470m units and further growth to come. Half of Nokia's Q4 phones sales were color screen phones and Motorola announced a very similar result. In fact, 18 of their 21 new handsets in Q4 included color displays and/or integrated cameras. As phones become more capable and consumers increasingly more attached to their phones as entertainment and information devices, opportunities for InfoSpace's as a mobile content aggregator increased dramatically. With our experienced mobile team, extensive product offerings, proven technology, and strong relationships with both carriers and content providers we’re well positioned in this marketplace. Today, our mobile product offerings are organized into two categories - mobile content marketed under the Moviso brand name and the infrastructure. On the content side, the acquisition of Moviso substantially increased our offerings specifically Moviso's content propels us into mobile media, one of the fastest growing segments of the wireless data market. During Christmas week alone we saw over 1m media downloads inline with Moviso's average monthly downloads for the first quarter of 2003. Our extensive mobile content library now consists of thousands of ring tones, graphics, video and games, as well as, a broad range of basic content such as news, weather, sports, and horoscopes.

One of the most challenging problems in delivering wireless data applications today is cost effectively rendering content to multiple networks and carriers and the hundreds of different devices in the market. Our delivery platform simplifies this problem and makes it easier for branded content providers and carriers to deliver compelling content and promotions to a broader array of wireless subscribers. With the addition of Moviso's technology platform, we can now deliver mobile content and applications to well over 300 types of devices with more added each week. Furthermore, our impressive list of carrier partners reaches nearly 85% of wireless subscribers in North America and as adoption rates increased in highly handsets penetrate the subscriber base, we are well positioned to offer content to this growing market. Combining the relationships and technologies to offer content across multiple carriers and devices is a significant step forward in opening the [multiple] data market.

Our Payment Solutions division also contributed strong fourth quarter and full year results, with fourth quarter 2003 revenues growing 33% over the similar period in 2002. The team continued grow the merchant base and transaction volume through the holiday shopping season and they also successfully earned the VISA card holder information security program certification just one of the number of important initiatives. As you all know, we have significantly narrowed our focus in 2003. We divested all of our smaller non-core services and as we announced last quarter, are continuing to pursue strategic alternatives for our Payment Solutions business. Although Payment Solutions is a growing profitable business, we believe it is in the best interest of our shareholders, customers and employees to focus our resources on fewer opportunities. Given the performance and growth potential of this business. We’ve been pleased with the interest seen so far. However, since this is an ongoing process, we will not be making any further comments as to timing, price or likelihood of outcome.

Turning to the consolidate financial results. We generated strong revenue growth of 18% overall in 2003. Revenue increased to a $160m from a $136m in '02 despite the divestiture of non-core services that I mentioned earlier. During the year, we also made significant process in aligning our costs with our revenue base. We reduced headcount, consolidated our office space, renegotiated certain large cost contracts and resolved outstanding litigation issues. Overall, we lowered total operating expenses by approximately 38% during the year, which translated into tens of millions of dollar. in cost savings. Not surprisingly by increasing our revenue base and decreasing our expenses, we dramatically improved our financial results for '03. We achieved profitability in the third quarter of this year for the first time since 1999 and substantially increased that profit to a record $9.9m in the fourth quarter. We also required Moviso and resolved certain legal matters while still increasing our cash balance by $24m during the year from $276m at year-end '02 to $300m at year-end '03. Although we had an impressive 2003, we still have much work to do heading into 2004. Key priorities in the New Year include growing our search business, exploring growth opportunities in the directory business, cementing our position as a leader in mobile content aggregation and delivery, and pursuing potential synergies between our business units. Although, we don’t expect to benefit from synergies in the short-term, over time it is easy to imagine search and directory content flow into wireless devices allowing us to leverage our online assets in the mobile and become uniquely capable in the mobile advertising arena. In general, 2004 is a year to expand our businesses both organically and through acquisition, aggressively see quality in our products and services and strive to continue to deliver strong financial results for our shareholders. With that I will hand the call over to David to provide you with more detail on our financial results.

Thank you, Jim. Let me start with review of our income statement for fourth quarter. As reported today our revenues for the fourth quarter were $46.9m, an increase of $10.7m or 30% from the fourth quarter of 2002. This increase was due to growth in all three of our segments. Cost of revenues for the fourth quarter was $7.3m. This represents the decrease of $1.4m or 16% from the prior year fourth quarter. Product development for the fourth quarter was $5.6m representing a decrease of $2.3m or 29% from the fourth quarter of 2002. The decreases were due mainly to a reduction in size of the workforce and lower depreciation expense. SG&A for the fourth quarter was $24.8m, up $4.6m or 23% from the prior year fourth quarter.

Savings and salaries, professional services, and facilities were offset by an increase in marketing costs and a changing revenue mix in our Search business. In the fourth quarter, the main increase in SG&A came from an increase in the revenue share costs paid to our distribution partners in both Search and Directory and commissions paid to resellers in Payment Solutions. These costs totaled $10.9m in the fourth quarter, up $7.4m from the prior year fourth quarter. Taken together, these three expense lines totaled $37.8m for the fourth quarter of 2003, an increase of approximately $1m or 3% from the fourth quarter of 2002. Included in the $37.8m of expenses for the quarter was a total of $2.3m in depreciation expense.

During the quarter, we recorded a gain of $3.8m primarily comprised of $2.4m from the sale of certain non-core services and $1m tax credit. This gain was partially offset by a restructuring charge of $1.2m. As Jim indicated, in 2003 we disposed off all of our non-core services. Therefore, you will not see any revenues or costs from these services in 2004.

As a result of favorable operating performance and the net gain just described, we generated $9.9m of GAAP net income for the fourth quarter versus a loss of $64.4m in the fourth quarter of 2002. This was the second consecutive quarter of net income for the Company.

Earnings per share for the fourth quarter of 2003, was positive 31 cents per basic and 29 cents per diluted share versus the loss of $2.09 for the prior year fourth quarter. Weighted average fully diluted shares outstanding in the quarter was 34.7m shares, the per share numbers for both periods reflect the 1-for-10 reverse stock split that took effect on September 13, 2002. As of January 1 of this year we had a total of approximately 480 employees.

Now let me turn to our segments starting with Search and Directory. In the fourth quarter of 2003 Search and Directory revenues were $28.3m, up $9.2m or 48% from the fourth quarter of 2002. This was due primarily to an increase in the number of paid searches coming from our distribution partners, as well as, increase in rates. Including both our Search and Directory businesses in North America we generated approximately 155m total paid searches during the quarter, up from a 140m in the third quarter of 2003. And average revenue per paid search was 15 cents, up from 14 cents in the third quarter of 2003.

Segment income was $12.5m, up $1.1m or 10% from the fourth quarter of 2002. Search and Directory segment margin was 44%. As discussed in past earnings calls, we are experiencing a shift in the mix of our Search and Directory business resulting in a lower overall margin percent. Throughout 2003, we saw strong search growth from our distribution partners. Both form the addition of new partners and the success of existing ones. This was partially offset by slight decline in our own sites. As the result, of the over all growth, Q4 distribution revenue accounted for a little over 50% of the portion of our Search and Directory revenue coming from search. In 2004, we will continue to focus on growing our distribution business as well as investing in marketing and product enhancements to grow our own sites.

Now turning to the Mobile business, revenue for the fourth quarter were $9.3m, an increase of $2.6m or 40% from the fourth quarter of 2002. The increase in revenue is primarily result of the revenue from Moviso. We closed the acquisition on November 22, 2003. Moviso contributed over $2m in revenue for the month of December and positive cash flow. Mobile segment income totaled $3.3m for the quarter and the segment margin was 36%.

Finally turning to Payment Solutions, in the fourth quarter, revenue for Payment Solutions were $7.8m, an increase of $1.9m or 33% from the fourth quarter of 2002. The revenue growth is due to a growing overall merchant base and higher average revenue per merchant as a result of increase transaction volumes, due in part to the holiday shopping season. At the end of fourth quarter, Payment Solutions had approximately 91,000 merchants using authorized dot nets credit card gateway. For the quarter, these merchants generated average monthly revenue of approximately $24.30. Payments Solutions segments income was $2.8mup $2.1m from the fourth quarter of 2002 resulting in a margin of 35?.

Regarding the balance sheet, the Company ended the quarter with $300.5m in cash and marketable investments. This represents an increase of $24.3m from the year-end 2002 but a decrease of $16.9m from the third quarter 2003. The sequential decrease is due to primarily for the $25m acquisition of Moviso partially offset by cash generated from operations. Finally let me comment on our outlook for first quarter and full year 2004. It is important to stress that we have a limited history in which to predict future trends. In the case of Moviso, we have just over one month of actual experience running the business. Additionally, as I mentioned earlier in the fourth quarter of 2003 we completed the sale of all our non-core services. As a result in 2004 you will not see any revenues for operating profits from the services. Our 2004 outlook however, does include payment solutions. We are continuing to explore strategic alternatives for payment solutions business but the process is ongoing and the timing and outcome are uncertain.

In Search and Directory we have seen strong growth in our distribution business. We expect that this part of our business will continue to make up a large and growing percentage of our revenues in 2004. We also expect to continue spending modestly in marketing and advertising to increase traffic to our own sites. On the mobile front, we have been pleased with the strength of Moviso download business in 2003. We expect growth to continue in this area in 2004 but it will be partially offset by price pressure from our other mobile services. We expect payment solutions to show continued growth in 2004. On the corporate front, corporate expenses and amortization of intangibles will remain at a level inline with 2003 annual expense. Depreciation expense will decline slightly from Q4 levels, and capital expenditures in 2004, will increase by a few million dollars as we invest in enhancing our systems. As a result of these various factors for the first quarter of 2004, we expect revenue including Payment Solution to be between $44-47m excluding any one-time gains or losses we expect to have net profits on the first quarter of $3-5m. For the full year of 2004, we expect total revenues including Payment Solutions to be between a $195-205m. Of this amount we expect Search and Directory revenues to be between $120-125m. Mobile revenues could be between $43-46m and Payment Solutions revenue to be between $32-34m. We expect net income for the full year 2004 to be between $21-26m. This concludes our prepared remarks, I will now turn the call over to the operator and we would be happy to take your questions

Thank you. Today the question-and-answer session will be conducted electronically today. If you do have a question please press "*" "1" on your touchtone telephone. We will proceed in the order that you signal and we will take as many questions as time permits. Once again that's "*", "1" to ask a question and we will pause for just a moment. And our first question will come from Scott Sutherland with Wedbush Morgan.

Good afternoon Jim and David.

Good afternoon, Scott.

Hi, Scott.

Good quarter.

Thank you.

Couple of questions. On Moviso, can you talk a little bit more about the revenue contribution? Was it about -- I mean the revenue contribution from your other mobile services it looked like that increased at about 1.6m, so do you see any positive trends their or new customers?

What were you, -- Scott, what were you comparing that too? The prior quarter or year ago, I am just not sure of that comparison?

Prior quarter amounting to numbers to that significant prior quarter and sequentially you know that has been a tough segment, it looks like this quarter you had a positive increase excluding Moviso, so wondering what that was attributable to?

I think, remember we acquired Moviso just a little before the end of November. So there is a little more than the December results in there. Couple of days extra but also you know each of our kind of contracts and our relationships, you know, remained in place and performed well on the fourth quarter relative to third quarter.

So, is this contract renewals and more usage of wireless data?

Not even so much contract renewals just, you know, the kind of the business is usual and you know, some continued -- some growth there over the period of the quarter and no price pressure in that period of time as well.

Okay, yes because you had a $1m sequential increase outside of Moviso. Can you also talk about Moviso? I know you have some carrier relationships out in Europe, is there any intentions to leverage that acquisition on the European market?

Scott, this is Jim. Certainly when we are looking at mobile business the things that we are interested in and in terms of expansion or growing is to grow our product line if you will, that was a lot about what Moviso was about to get, you know, some strong content there, so we’d look to expand the cross content and certainly we’d like to expand the reach we have in terms of how many users we can reiterate. Now we have a you know, I call it a [inaudible] in Western Europe, minimal presence there, it's interesting to us to try and leverage both our content and perhaps our balance sheet to grow faster in Europe.

Okay and just my question is on the mobile segment. As you move forward to Moviso, are you seeing a pretty steady revenue share from the media downloads and secondly with your balance sheet and seems like you are so shaping your mobile segment going forward? Are there any other plans for acquisitions in that segment or you continue to shape it going in to 2004?

Scott, its David, I'll take the first part of your question. The way the Moviso content relationships work they tend to be a fixed percent of the revenue that’s generated, so to answer your question B, as a percent of revenue it tends to be fairly steady from period-to-period.

Normally, on the other side I think, its kind of what I just said before, I mean its interesting to us. We want to expand, acquisitions could be a part of that or just leveraging our capabilities now that we you know, we feel that from a capability side, kind of what Moviso had and what we had, is one-and-one makes three, makes us a much better end-to-end operating and broader offering that we’ve had precarious and so it will be both in organic and then perhaps -- it’ll be certainly in organic and then perhaps another way to grow is through acquisitions.

Great, Great thank you.

Thank you.

And next we'll hear from Stuart Berry (ph.) with Dollaph Field Hambrackt (ph.).

Congratulation guys.

Thanks [Stuart].

I want to ask you a few questions about your Search and Directory business and I am -- actually asked this quarter, what was the driver of the increase in price was it stronger revenue sharing agreements, fresh bargaining power or was it advertising demand or was a combination both?

[Stuart] on the price per [correct], the main driver was just you know, the advertisers are paying more.

Okay.

We are getting the benefit of that.

And if you actually look at the year-to-year comparison wholly on websites looks like they’re revenue contribution, well their revenue contributions actually declined. But the actually gross revenues also declining. So that’s something that concerning you, it appears that maybe you are losing some market share. Or am I reading that wrong?

As I indicated in the call, we've seen some -- what I would characterize as modest declines in our owned and operated sites. In terms of market share, you know, there is a lot of different statistics out there from lots of different sources on that, obviously [I had pointed there] some of the media metrics. Its not clear that the market share has changed dramatically in the last couple of quarters or really has changed much if anything if you will on that front, so hopefully that answers your question.

Okay an din terms of private label service is that something that -- I mean long-term you could see as almost cannibalize here on the websites. I mean, it's far though if you will be able to you know, have that product and technology at hand?

Well, I think this is Jim, [Stuart]. You know, it's -- in our market share which is you know, it is depended, of course depended on the sources somewhere between 1.5% and 3% or 4% depending on which kind of I think is indicative of maybe the market share statistics that are out there. But in our market size, there is not a heck of lot to cannibalize. I mean we see what we really found this year is that the capability that we have to monetize because of our Meta Search capability and we searched so much of the web on every query and as we have gotten better at query matching and understanding, you know how to really work the relevance a little bit better within our own engine and we deliver so much better monetization than anybody. This is just something we can leverage and what we -- we are looking for as high traffic sites where the traffic is already established to bring them through our system. You know the down side of that is, it is a lower margin business than if someone comes directly to our site but it's still a plus 40% net margin business and you know it's as evidenced by our numbers it is growing very rapidly, so we are not only concerned about that we are really -- our real concern is getting more searches whether they come direct or indirect through our platform and to the advertisers and you know, growing our absolute dollars of profit.

Okay, and are you seeing a pick-up in local search, how is that business doing as part of the overall search and directory segment?

I think what you are referring to really is more our Directory business --

Your Directory business, sure.

Then local search, you know it is a still a steady kind of solid business for us, but we you know, and as we said we look forward in this year to really some new initiatives to improve both traffic flow and monetization, but it's a -- it is not just an InfoSpace issue, it is a -- there is a lot going on in the industry to try and really the result that end user gets through and therefore the attractiveness to local merchants. We have several initiatives on the forefront this year for Directory and you know, we are excited and again believe we are in a pretty good position. We’ve certainly like what’s happened with InfoSpace.com in terms of the improvement of the interface, and you know we are working hard at it, but it is a -- this is a longer-term project.

Okay and this is the last question. Dogpile still sort of at the forefront of your marketing efforts and for product development efforts?

Well, the product development, actually that’s one of our strengths is our product development, no matter what it looks like when it finally faces consumer whether it looks like Dogpile or MetaCrawler or InfoSpace.com or ABC news or any number of Cable Vision, Verizon, any number of other things that product development efforts can get leveraged across all of our -- all of the sites that are out there. So that’s a positive thing for us. In terms of -- yes driving in the advertising and driving front of drive users we have been focused on the [inaudible]. It’s our largest site and it had most the recognition to start with and so that was a logical place to began.

Okay, thank you very much for your time.

You are welcome.

Sure.

We will now hear from Richard Delco (ph.) with [inaudible] & Company.

Thanks. Congrats on the quarter guys. On the Search and Directory side could you just go over that again with me please? You said 50% of the revenues were distribution related in the quarter?

Richard, it's David, of the Search and Directory revenues there is a portion of our Search -- a significant portion of our Search and Directory revenues are search and then obviously the other portion is directory.

Right.

And so within that of the search portion of our revenues 50% of our search business is now coming from distribution.

Good, and would it be fair to say that on the sequential increase in that division's revenues majority of that came from the distribution side?

That’s correct. I mean you have two positive factors going on over the course of the last quarter and really the last bunch of quarters to be fair. One, we have grown the distribution traffic significantly and secondly we have seen positive uptake in the rates that were getting paid by advertisers. So, we are getting the benefit of both of those and not -- that’s contributing to, I think, our overall business.

And the portion that you payout appears in the sales in general and administrative SG&A line, correct?

Correct, yes.

If that -- would it be -- okay. A majority of the 2004 [growth rate] would also seem would [majority] -- the major part came, come from the distribution portion of your Search and Directory business, in which case I would have expect the sales on SG&A to grow sort of in line. Is that what we should expect I suppose?

Yeah, remember, I mean, obviously every dollar of revenue doesn’t equal a dollar cost, as long as you remember that, but the fact I think -- as long as the growth comes from distribution there should be you know kind of proportion that if you will growth and a cost of getting that distribution. Again you think of that as the variable cost versus variable revenue, not a fixed cost, which is one of the reasons we like it and one of the reasons why the trend, you know, we like to grow because it generates positive incremental contribution.

Absolutely, right. So on the total operating expense side and you mentioned that we should expect it to be sort of in line with all three -- is that because there is this other areas that we're going to see cost dropout.

Yeah, may be let clarify that, I was speaking on that comment specifically about what we’ve broken out in the segment side as kind of a corporate operating expenses. So, if you look at the detailed page that we have with the segment, there is one that is called Corporate, which essentially everything excluding the segment and my comment Richard really referred to looking at the annual expense in '03 for that and that you should expect the similar annual expense in '04 and not --.

Okay.

It wasn’t a comment related to the segment.

Okay.

So, [inaudible] cause any confusion.

Great. On the Moviso that really surprised me at least in terms of their contribution, particularly in the month of December. Is that typically the strongest month or what we should expect going forward from this Moviso acquisition? I mean you probably --

Yeah, Richard this is Jim I think [inaudible] typically in the ring tone business, [yeah] it is little early. So, we don’t know, certainly if we look back across the year, its been a pretty steady growth for Moviso and here is as you’d expect a lot of cell phones get, you know, get bought and given as Christmas presents, in fact we've been commenting here and unlike in the other business, any of us have been in Christmas Day was actually a big day for us. So, a lot of activity and but you know, we think that really is following more just the adoption curve of the new phones. And as those new phones get sold, with new capabilities, people try them and you know that [enters] into to our benefit.

What type of margins with Moviso acquisition do you think you can achieve in '04 and 05 or in the long term on the segment basis.

Aren’t you talking about mobile now, Richard?

Yes, in the mobile.

I think it's a little early to tell and we are still working on that we just, you know, as Jim indicated we just closed the acquisition about a month ago. We are in the process of kind of integrating the efforts, integrating our offerings to carriers and really thinking about '04 and, you know, late '04 and 05 is still probably a little early in terms of a long term sustainable margins. And you know, the industry is still evolving in terms of price plans and pricing structure and all that. So, what we are -- you know, we are trying to kind of evolve with the industry.

Okay. Very well. Thanks.

Thanks Richard.

Thanks Richard.

We’ll now hear from Noah Ekles (ph.) with Clovis (ph.) Capital.

Can you talk if on Moviso you have been

Hi [Noah]

Hello –

Hi.

Your business in December can you talk about how much was ring tones versus games versus other?

For the vast – the bulk of the business today it is really focused on the ring tone area and so and although the company has quite a few other content offerings and is offering quite a few on that content offering, the bulk of the revenue today or historically I should say is in the ring tone area. And that was really the Company's first, you know, sort of caution initiative into the mobile media download business and you know, we are working on expanding that but that has been part of the historic focus of the company.

And can you guys talk about who the big customers are current in the ringtone market for you guys?

Well it is -- we are the leader that -- we are the leader in the North America really for ringtones and you know, it is the carriers that carry relationships with T-Mobile, with Singular, with Verizon and others that really constitute the bulk of the downloads.

And then for David, what is the tax rate assumption for '04. We know you get the bigger one and in your guidance what tax rate are you assuming?

Yeah, basically the only real tax we are paying or accruing for, you know, on an going forward is, we have some -- a small amount of taxes we pay in our European operations and a little bit of alternative minimum tax though I would encourage you to look at the kind of the annual tax expense accrued in '03 and particularly in the earlier part of the year and I think that is reasonably indicative plus or minus a little bit, again not big numbers.

Great thanks.

And now we will hear from Safa Rashtchy with Piper Jaffray.

Hey guys, this is actually Jason calling in for Safa. First congratulations on a great quarter.

Thanks Jason.

Just wanted to hit you up again on the Search and Directory business. Now it looks like the incremental revenue increases about $4.5m Q4 over Q3, and the incremental expense increases about 4.4m so almost zero incremental EBITDA on the margin, which you would expect it to be much higher considering the organic or traffic. We drop at about a 100% and you are saying that the distribution will be dropped at the operating line at about a 40%. Now I know there was some marketing expenses in there but what should we think about it in terms of incremental operating margin on the Search and Directory business going forward.

I think as Jim indicated Jason you should expect to see -- and our expectation is that margins will be in the 40 plus % range. So I am not, not terribly dissimilar at where we ended fourth quarter. Remember we did increase revenues in large part from distribution. We also did, [inaudible] was really the first we also did -- and fourth quarter was really the first time we spend some money, not a lot of money, but some money investing in marketing experiments. And so that’s part of the reason why you don’t see all of those dollars flowing, you know the net dollars flowing to bottom line and will this some of that on a going forward basis as well to continue to try and -- I mean we learn about our customers and try to drive traffic to our sites.

Okay.

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

Operator, if there aren't any further questions, we'd just like to thank everybody for joining us on the call today and please don’t hesitate to call us if you have any follow-up questions.

And that does conclude today's conference call. Thank you for your participation.

Thank you everyone.