Avantax Inc (AVTA) 2004 Q1 法說會逐字稿

Good day, everyone, welcome to the InfoSpace first quarter earnings conference call. Today's call is being recorded.

At this time, for opening remarks and introduction, I would like to turn the call over to Ms. Nancy Bacchieri, Vice President of Investor Relations for InfoSpace. Please go ahead.

Thank you, Cheri.

Good afternoon, welcome to InfoSpace's first quarter 2004 earnings conference call. As the operator said, I'm Nancy Bacchieri, Vice President of Communications and Investor Relations for InfoSpace. With me on the call today is Jim Voelker, Chairman and CEO, and David Rostov, Chief Financial Officer.

Before we get started, I would like to remind you of two things. First, this is an investor conference call. Accordingly, we will only be taking questions from the investment community.

Second, this conference call contains forward-looking statements relating to the development of the company's products and services, the proposed acquisition of Switchboard and anticipated 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 and costs related to the development of products and services; the timing of market acceptance of those products and services; our 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; the ability to retain key contracts from personnel; and the ability to successfully integrate acquired businesses. A more detailed description of certain factors that could affect actual results of operation is contained in the company's most recent annual report on form 10-K filed with the Securities and Exchange Commission in the section entitled "Factors affecting our Operating Results, Business Prospects and Market Price of Stock". Listeners are cautioned not to rely on these forward-looking statements which speak to the company's prospects only as of the date of this conference call.

The company undertakes no obligation to update publicly any forward-looking statements due to new information, events, or circumstances after the date of the conference call, or to reflect the occurrence of unanticipated events.

Now, I'll turn the call over to Jim. Following his comments, David will review the Q1 financial results and then we'll open up the call to your questions.

Thanks, Nancy, and welcome to our call today.

I'm pleased to report another strong quarter at InfoSpace. Revenue was $48.1 million, up 59% over the first quarter of 2003. We achieved our third consecutive quarter of positive net income, and we ended the quarter with nearly $380 million in cash.

During this first quarter, we announced an agreement to acquire Switchboard, completed the sale of Payment Solutions, and extended our relationship with Google into 2006 on substantially the same economic terms. Extending this contract validates our business model and the value proposition we offer by delivering significant traffic through our owned and operated, and our distribution partnership sites.

In late March, we announced our agreement to acquire Switchboard, which will establish InfoSpace as a leading online directory provider in the U.S. The transaction will dramatically increase our share of local directory traffic and provide us with a strong technology platform. It adds to our already impressive list of supplier and distribution partners with AOL, Yellow Pages, and Bell South, joining existing partners such as Verizon, Yahoo! and Google. Finally, it will favorably impact our Search & Directory segment results. We anticipate closing to take place early in the second half of this year.

In Search & Directory, we posted another strong quarter, growing revenues 63% over the same period last year, and 18% sequentially. Our metasearch engines query, Google, Yahoo!, JEEVES, FindWhat, and numerous others to return the most comprehensive set of results in the industry.

Through metasearch, end-users access the latest technological improvements implemented by the likes of Google, INTOMI (ph) and TIOMA (ph). We cover more of the web, deliver broader advertiser reach, and offer a higher likelihood of returning a paid result than any individual search engine. Continuing the trend of the past few quarters, our distribution efforts drove search and directory revenue growth.

Our unique metasearch product, strong monetization rates, and customization capabilities allow us to offer a compelling product to distribution partners. We signed over 20 new partners in the first quarter adding OneYou (ph), Nasdaq and several others to existing partners such as Web Search, Verizon Online, CableVision and ABC News. We expect this portion of our business to continue to fuel growth throughout 2004 and to contribute to Search & Directory net margins of 40% or better.

Our Mobile unit also posted very strong results in the first quarter, with revenue increasing 142% over the first quarter of 2003, and 60% sequentially due to dramatic growth in media downloads. Downloads grew more than 60% over a seasonably strong fourth quarter.

During the quarter, we launched TrueTones, true audio versions of popular songs featuring Universal Music Groups Artists. We remain optimistic about the growth in Mobile media market and believe our extensive content library, now consisting of thousands of ring tones, graphics and games, as well as a broad range of basic content, such as news, weather, sports and horoscopes, positions us well to continue capitalizing on this growing opportunity. Mobile devices are rapidly improving, network capabilities are expanding and media downloads are becoming increasingly popular.

We continue to expect the volume of (INAUDIBLE) mobile data users to grow as the adoption of download capable hand-sets increases, and industry data indicates the adoption rate is rapidly accelerating. The Zealous Group estimated that about 20% of phones in the U.S., or approximately 30 million handsets, were download capable in 2003, but are predicting that number to double this year alone. That said, this is still a nascent industry with little history to help us forecast future trends. It's difficult to predict price trends, content costs, or the next wave of popular products to emerge in the market.

For the remainder of 2004, we will strive to expand our product and content sweeps, extend our geographic reach and broaden our carrier relationships. We have solid relationships with carriers reaching nearly 85% of the wireless subscribers in North America and are working to expand our customer base, and provide a broader range of services and content to existing customers. With our strong balance sheet, experienced Mobile team, proven technology, and extensive relationships with both carriers and content providers, we believe we're well positioned to grow within this blossoming industry.

To summarize, we had a very strong first quarter and are excited about the future. We're well positioned in growing markets, and our continued strong financial performance reflects industry dynamics, as well as the strength of our employees.

With that, I'll hand the call over to David who can provide you with more detail on our financial results. David?

Thank you, Jim, and welcome, everyone, to the call today.

We're pleased to report our third consecutive quarter of positive net income. Before discussing the details, however, I would like to clarify a few items. First, as Jim mentioned, we sold our Payment Solutions business in March. As a result, for this quarter and all prior quarters, Payment Solutions is treated as a discontinued operation.

You will see Payment Solutions operating results as one line-item called income from discontinued operations on our P&L, for this period, as well as all past periods. The revenues from this business unit will no longer appear in this quarter or any past quarters. However, had Payment Solutions remained part of our continuing operations this quarter, it would have contributed $8.4 million in revenue and $2.8 million in segment income. For purposes of this call, the comparisons that I provide will exclude Payment Solutions unless indicated otherwise.

You will also notice that, effective this quarter, we have changed a few of our key operating expense line items. Attached, as an exhibit to our press release, is the P&L byte corridor for 2003 based on this new format. As our business evolved and we look to the future, we think this P&L format better reflects key trends and provides you with better measures with which to evaluate our business. In particular, we have separated content and distribution costs, important variable costs relative to revenue growth. All comparisons provided on this call will relate to this new format. To help you compare this quarter's results with your models, our press release also includes first quarter results based on the prior format.

I'll take a few minutes now to walk you through the P&L on this new format. Let me start with the review of our income statement for the first quarter. Our revenues for the first quarter were $48.1 million dollars, an increase of $17.8 million or 59% from first quarter 2003, driven by growth Across our businesses. Content and distribution costs for the first quarter were $16.9 million or 35% of revenues. Content cost is primarily the cost of licensing mobile content for our media download products. Distribution cost is primarily the cost we have paid our Search & Directory distribution partners for the search results at their sites. The significant increase in this cost item is due to the strong growth coming from search distribution year-over-year and the addition of the mobile media download business. Content and distribution expense will continue to grow as revenues grow.

Systems and Network Operations encompasses the cost to deliver, support, and maintain our infrastructure. For the first quarter, Systems and Network Operations were $3.2 million. This represents a decrease of $200,000 or 6% from the prior-year first quarter. Product development for the quarter was $4.4 million, representing a decrease of $1.6 million or 26% from the first quarter of 2003. These decreases were due mainly to a reduction in the size of the workforce.

Sales and marketing for the first quarter was $5.5 million, representing an increase of $900,000 or 20% from the first quarter of 2003. The increase was primarily due to increased advertising spending and market research in our Search & Directory segment. As a percent of revenues, sales and marketing decreased from 15% to 11%.

G&A for the first quarter was $9.5 million, up $2 million or 27% from the prior-year first quarter. The increase in G&A was due to an increase in salaries as we completed the hiring of our senior management team, the addition of our mobile media business, and an increase in professional services. Even so, as a percent of revenues, G&A decreased from 25% in the first quarter 2003, to just under 20% this quarter.

Depreciation and amortization of intangible assets for the first quarter was $3.5 million, down $1.4 million or 28% from the prior-year first quarter. The main reason for the decrease was that some investment and property and equipment in earlier years reached the end of their estimated depreciable lives. You will note depreciation expense is now broken out as a separate line item on our P&L. In prior periods, it had been included within each operating expense line category.

During the quarter, we recorded restructuring charges and other items of $1 million. This is our third consecutive quarter of positive net income. We generated $5.4 million of income from continuing operations for the first quarter, versus a loss of $1.9 million in the first quarter of 2003.

Earnings per share from continuing operations for the first quarter of 2004 was positive 15 cents per diluted share versus a loss of 6 cents per share for the prior year first quarter.

In the quarter, we had income from discontinued operations, net of taxes, associated with payment solutions of $2.3 million. In addition, we recorded a gain on sale of Payment Solutions of $29 million representing proceeds of $82 million, less the net book value of the assets sold and other transaction-related costs.

GAAP net income for the first quarter was $36.7 million, or $1.03 per diluted share verses a net loss of $1.3 million or 4 cents per diluted share in the first quarter of 2003. Weighed average fully diluted shares outstanding was 35.7 million shares for the first quarter of 2004. And as of March 31 of this year, and post the sale of Payment Solutions, we had approximately 350 employees.

Now, let me turn to our segments starting with Search & Directory. In the first quarter of 2004, Search & Directory revenues were $33.3 million, up $12.9 million or 63% from the first quarter of 2003. Including both our Search & Directory businesses in North America, we generated approximately 173 million paid searches during the quarter. Up 12% from 155 million searches in the fourth quarter of 2003. An average revenue for paid search was 16 cents.

Overall, Search & Directory rates remain fairly flat on a sequential quarterly basis. However, because paid searches made up the greater percent of total searches, our blended average rate increased slightly. Segment income was $13.8 million, up $1.6 million or 13% from the first quarter of 2003. Search & Directory segment margin was 41.5%.

In the first quarter, we continued to see strong growth in Search coming from our search distribution channel and relatively flat performance in our own sites. As a result, first quarter Search / Distribution revenues accounted for over 55% of the portion of Search & Directory revenue coming from Search.

Now turning to the Mobile business. Revenues for the first quarter were $14.8 million dollars, an increase of $8.7 million or 142% from the first quarter of 2003 and a 60% sequential increase. The increase in revenue is the result of growth in mobile media downloads. Mobile segment income totaled $3.8 million for the quarter, a $3.1 million increase from the first quarter of 2003, and the segment margin was 25.5%.

Regarding the balance sheet, the company ended the quarter with approximately $380 million in cash and marketable investments, an increase of $84 million from year-end 2003. The sequential increase is due primarily to the $82 million from the sale of Payment Solutions, as well as cash generated from operations.

You will notice that the assets and liabilities associated with Payments Solutions have now been broken out separately in our year-end balance sheet. Also, keep in mind our balance sheet will decline when we close the purchase of Switchboard.

Finally, let me comment on our outlook for the second quarter and full-year 2004. In Search & Directory, we have seen strong growth in our distribution business and we expect this channel to continue to drive search revenue growth in 2004. We also expect to continue spending modestly and experimenting in marketing to increase traffic to our own sites. We believe that in the short-term, the industry price for paid search will stay relatively flat. We continue to believe that Search & Directory margins will remain at or above 40% for the next few quarters.

On the Mobile front, we have been very pleased with the strength of our download business. We expect Mobile growth to continue in '04, but it could be partially offset by price pressure. The Mobile business and business models are still in their infancy and evolving. It's our intent to continue to invest in being a market leader in this industry. Therefore, we expect to invest a portion of our incremental cash flows into further product development and marketing. As a result of these various factors, we expect the Mobile segment margin to be in the 20 to 25% range during the next few quarters.

Given our limited operating history and expected seasonality heading into summer, for the second quarter of 2004, we expect revenue to be between $46 and $49 million. Excluding any one-time gains or losses, we expect to generate income from continuing operations of $4 to $6 million.

For the full-year 2004, based on the strength of our business in the first quarter and our improved outlook, we are raising our guidance. We now expect total revenue to be between $195 and $205 million. This represents an increase of over $30 million relative to our prior guidance. Of this amount, we expect Search & Directory revenues to be between $135 and $140 million, up $15 million from prior guidance. And Mobile revenues to be between $60 and $65 million, up over $15 million. We expect income from continuing operations for the full-year 2004 to be between $23 and $27 million.

As we indicated at the time we announced our intent to acquire Switchboard, assuming the Switchboard acquisition closes around July 1st, we expect Switchboard to contribute an additional $10 to $12 million of revenue and $4 to $5 million of segment income for the second half of 2004. We are not providing Switchboard net income guidance at this time.

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.

At this time, if you have do a question, please press the star key followed by the digit 1 on your telephone keypad. If you're on a speaker phone, please remember to pick up your handset before pressing the star 1. And once again, it is star 1 if you have a question or comment for today. and we'll pause for just a moment to assemble our roster. We go to Imran Khan from Fulcrum Global.

Hi, guys, how are you doing? Looking at our stock trade, David, can you help us to understand what was your guidance at the end of Q4? I think you have got it to $44 to $47 million revenue that had the Payment Solutions. And if my math is right, if I add the Payment Solutions , you did $56 million revenue. Is that correct?

That would be correct.

Yeah.

And the EPS would have been 22 cents if we take the $2.3 million of net income from Payment Solutions.

I think your math is right.

Okay. You did excel at your guidance. I just want to make sure because the stock is acting a little strange.

Secondly, going back to the guidance, you know, when you look at the $23 to $27 million net income guidance for 2004, if we added, like - How much net income assumptions did you have from Payment Solutions when you did the guidance at the end of Q4?

Well, Imran, we didn't exactly break out net income from the Payment Solutions Group, but we did break out the revenue piece at that time. And as we said at the end of the fourth quarter, we said that we expected Payment Solutions, I'm sorry, to do between $32 and $34 million of revenue.

Okay.

For the year. You know, they did close to $7 million in segment income in 2003, so I think from that, you can get a pretty good -- in that, that was -- then on a revenue basis, it was $27 million in revenue. So I think can you get a good feel for the -- kind of the impact that PayNet would have had on our projections.

Okay, and a couple of follow-up questions. When you gave that $23 to $27 million guidance for the full-year, does that have numbers from Switchboard? Like do you take that account, Switchboard contribution?

Yeah, Imran, it's a good question.

So in our guidance, hopefully we tried to be as clear as possible on this, is it's two separate things. So, the increase in the guidance and the specific guidance- elated InfoSpace is just for InfoSpace.

Okay.

And then separate, and on top of that, I guess, what you would do is take the Switchboard guidance and add it to those numbers if you wanted to. We didn't add them within our guidance.

Okay, so that $195 to $205 and $23 to $27 does not have Switchboard numbers.

That's correct.

Okay, so just to make sure.

And you know, Jim, if we talk about the Mobile business. Could you talk a little bit about, you know, what is really driving the growth in the Mobile business? And, you know, like it seems like the numbers are very, very strong there. Thanks.

Well, it was -- thank you Imran. It was a strong quarter. It's media downloads.

And just as I talked about there, you know, it appears to us it's just really following the adoption curve of downloadable handsets, and -- and color handsets and the like, basically. Improved -- improved device out there and that's just driving consumers and, frankly, it's marketing efforts on the parts of the carriers to, you know, to educate people on download and other kinds of wireless data. And that's really what we're seeing and it's -- it is, you know, it's up, as we said, 60%. Downloads are up quarter-to-quarter 60%, and fourth quarter should be seasonably strong as a lot of promotional work is done there to sell new handsets.

Okay. Thank you very much, I appreciate that. Good quarter.

Thank you, Imran.

Thank you.

Our next question comes from Richard Fetyko from Merriman and Company.

Hi. Thank you. Congrats on the quarter, guys.

Thanks, Richard.

Just quickly, you answered a lot of questions, just some housekeeping questions.

What type of amortization of intangibles off the Switchboard acquisition should we anticipate?

I think as I indicated on the call, Richard, we haven't provided that guidance yet. We're still working on purchase price allocation, and so that is something that we'll need to complete and we haven't done that yet. Unfortunately, I can't provide your guidance on that.

Okay and if I look at the margins on the Mobile business, they were, you know, down sequentially. And also if I look at the absolute dollar value of the segment income for that business, you know, the revenues grew rapidly. The income didn't grow as rapidly incrementally, only at like 8%, incremental margin. I was wondering if there is something in the fourth quarter that inflated that segment income perhaps, or how should I explain that?

Yeah, Richard, keep in mind that, you know, 2003, and fourth quarter, in particular, had a number of, kind of, you know, what I would call more unique and one-time events. In particular, a fairly significant restructuring of the businesses during the course of the year. With regard to Mobile specifically, in the fourth quarter, we recognized professional service revenue that was somewhat one-time in nature. Some of our professional service work that we do for customers is lumpy in the sense that it will happen in a quarter and then you won't see some for a while. And so, in fourth quarter, we had pretty significant, what I would call credits or positives there. They make the sequential comparison look not as good as it otherwise was. And so what, I would encourage you to do, or to think about, is to look at first quarter with the Mobile Group where we had the whole three months worth of our Mobile media download business as well, another thing making the comparisons more complicated. Look at that as a more normalized, more normalized set of numbers.

Okay. And could you break down the MOVISA versus the Legacy business for us this quarter for the last time.

We actually haven't broken it out separately in this call. The reason, Richard, is we're now - the business is integrated in, we're running it as a combined business and so we don't intend to break yet out separately. I would say, and as Jim commented on, the growth sequentially and year-over-year came from the media download business, so, I think that might help you in your thinking about that.

Okay, and then lastly, you mentioned your potential pricing pressures. Could you sort of comment on that, whether you're seeing those, the pricing pressures or are you being cautious about the business? And what is the competitive landscape on that side of the business?

Well, Richard, this is Jim. It's more from -- it's more really just caution from our side; as I said, this is -- it's a very nascent and new industry.

And, you know, the media -- I mean with the acceleration we have seen in media downloads, you know, you want to be very cautious about not taking that kind of quarter-to-quarter growth, or even what we have seen, frankly, over the last few quarters and extrapolating that out across a decade's worth of time, and we're just cautious about it. We know it's new. And once with something like this where you see a lot of growth, you, you know, you're likely to see others who want to get into this business or have a desire to play. And so you're likely to see price pressure but, you know, right now, you know, we don't have anything specific to talk to, but, you know, we're -- we're, by nature, conservative and cautious here. And that's really, you know, our stance we take when we look at our numbers.

Okay. Thank you very much.

You're welcome.

We go next to Safa Rashtchy from Piper Jaffray.

Good afternoon, guys. Good quarter.

I just want to make sure that it we all understand that the change that you have made to your model in terms of the revenue lines given the discontinuation of Payment Services. This quarter, obviously, you would have beaten the numbers significantly based on the comparable model what we have had, and on the income line. And your guidance, obviously, is going, increasing compared to the previous guidance on the top-line.

Can you talk about how your new guidance for the net income compares with what would have been comparable in your last guidance? And I have a follow-up.

Yeah, hi, Safa.

Regarding the impact on the Payment Solutions, the guidance, if you look at, again, as I said earlier on the Payment Solutions that they did a little -- they did about $7 million in segment income in 2003. And, you know, we're expecting sort of 18% to 20% growth year-over-year in terms of our guidance. So I think you can, you know with that number and some growth there, I think can you back out. And from that, what can you see is that our net income guidance on an InfoSpace, this is up significantly from prior guidance on an apples-to-apples basis.

Okay, what I wanted to make sure we understand is that, given your comments that you're taking a conservative approach and the Mobile margins will decline a little bit as you invest more in the content and prices may decline. And then the Search market, I'm trying to understand and be certain that the profitability of the business is not changing substantially.

Well, to clarify there, Safa, actually what we said is that we expect that the Mobile margins will maintain what they're at today across the next few quarters, but, you know, beyond that, we're cautious. But, you know, your basic point here of if you -- you have to adjust these numbers and the prior guidance and the guidance, prior guidance, if you will, by the -- subtraction of Payment Solutions and you'll see that we, to your point, pretty dramatically we beat guidance this quarter, and are raising our guidance significant, or beat consensus this quarter, and are raising our guidance significantly.

Okay, good. And a follow-up on the Search business.

You mentioned that you expect the current charges to remain constant, yet what we see in the industry is ultimately healthy increase. In Q1, our estimate was they increased it by 30% year-over-year. Sequentially, kind of flat, as you had indicated in your results. What gives you the more cautious offlook on the click charges compared to what we're seeing out there?

Safa, I think really a couple of things. One, we saw, I mean fourth quarter, as you know, last year was a strong quarter. And first quarter, although our results from first quarter were reasonably flat compared to fourth quarter, that's you know, from a strong fourth quarter, and so we felt that that was pretty reasonable. What we're seeing from the industry and what we're seeing ourselves is that bright price per click is -- is likely to remain fairly flat for the -- going into the summer period. In large part because the key aggregators of merchants seem to be embarking on a strategy of increasing the breadth of advertisers out there. And so chasing more advertisers rather than focusing as much on driving just the price per search up. Now that is not necessarily a bad thing. In fact, I would argue it's a positive thing in the sense that they're bringing more advertisers to bear in this industry, and that's why you're seeing the volume growth.

That should mean your revenue per search would still increase because you will be having a wider coverage.

Well, the number of search, paid searches would increase, Safa, and our thinking is that average rate per search may stay roughly flat for a little bit here. And, again, that's based on, you know, our view and what we're hearing from our industry sources and looking at some of the trends that we're seeing.

Okay. Great. Thanks. Good quarter.

Thank you.

Thank you.

Our next question is from Pete (INAUDIBLE) from Delafield Hambrecht.

Hey, guys, congrats.

Thank you, Pete.

You had mentioned, I may have missed something during the call, but you had mentioned the $29 million net cash gain from Payment Solutions. Can you just recap what that was? I may have missed the details.

Pete, the $29 million reflects, we sold Payment Solutions for $82 million, on our books we had approximately $50 million of goodwill associated with that business unit. And then there are transaction costs related to that and other costs related to the sale of the business. And that's how you get to the $29 million of GAAP contribution.

Okay.

As opposed to the cash contribution, which, again, to be clear is the $82 million of cash that we received.

Okay. Great. Thanks.

Sure.

My other question is, based on what you're seeing, do you have anymore clarity just based on what you feel to be is your operating model for a mix between Search & Directory and Mobile? Do you have foresight into that as you, you know, as you move through a quarter, how things are playing out and how you want your business to run?

Well, let me try and answer that, Pete. We provided our guidance, can you get a feel for the size of both businesses, so on the Search side, the Search & Directory side, we see that business, you know, for 2004 being $135 to $140 million business, and on the Mobile side, we see the Mobile business being a $60 to $65 million business. Hopefully that will give you a feel for the size of the businesses and kind of, you know, how they stack up just on a revenue basis, anyway.

Okay, I'm curious if, you know, you are putting more resources towards one or the other? You know, whether you see one or the other being more advantageous to pursue in the future, or whether you're comfortable with those ratios as it stands now?

I think, Pete, we're not concerned about ratios, we're concerned about growth rates in both the businesses. You know, if they both continue to grow at the rates they do, you know, one won't catch the other, but that will be fine, right?

And in terms of our resources, no, we think, you know, we think we're very fortunate. We're in two businesses that are both in growing markets where, you know, where the market is growing and we're growing and, you know, the margins are healthy.

And so, you know, we're continuing -- and we're in a position with our balance sheet, and the fact that we generate free, you know, generating cash flow here, we're in a position to give plenty of resources to both of these businesses. We don't favor one child over another here, Pete.

Okay. Fair enough. Thanks very much.

Thank you.

We go to Jeff Porter from Wedbush Morgan.

Yeah, hi. Thanks. First a few questions.

First, what is your strategy for penetrating other regions for Mobile media download, especially Europe? And also, what other types of media are you looking at expanding into?

Jeff, this is Jim. You know, I'll take the second one first there. You know, we're looking now.

We had, you know, we're doing very well on the music side, if you will, on the ring tone side. Graphics is also playing there. You know, I would just say that generally speaking the things that interest us are the gaming industry, you know. Playing games on line or playing games on the phones. And the other thing is probably what I would call, you know, personalized, anything in the personalization space and probably location-based information as time goes on. I think that's going to be, you know, popular and critical place for us to play as well.

In terms of, you know, the expansion, right now we -- I think last year we did about 25% of our revenue in Europe. You know, but we would like to expand geographically there where we have, obviously, organic efforts going on there. And, you know, we are, as we've said before, we're always looking for the right acquisition that would give us geographic expansion.

Okay.

Secondly, we have heard that you have a key patent for localized search. What value do you believe that this provides as the localized search market heats up?

You know, I don't know that that's anything we're really focused on. I mean we're focused on localized search, obviously, that's what our directory business is about. But in terms of some key patent, or whatever, I've really, you know, we have a patent in that space. I'm not sure how important it is.

Okay.

Lastly in terms of Switchboard. What is your strategy for ramping from $3.8 million revenue last quarter to around I think the $5.5 million quarterly run rate you've got it to?

Jeff, well, obviously our first and foremost strategy in this area is to close the acquisition and we're working on that. That hasn't closed yet. So, we won't be able to provide a lot more color on the future as, you know, a joint company until that happens. As we indicated earlier when we purchased or announced the purchase of Switchboard, our plan is to use our existing relationships as well as their relationships to better monetize the business.

Okay. Thanks a lot.

Thank you.

Our next question comes from Chris Lord from Criterion.

Hi, Chris.

Hi. Good afternoon, gentlemen. A quick question. You just did about 15million, just shy of $15 million in Mobile revenues, is that correct?

That's right.

And your guidance for the year is $60 million?

60 to 65. That's correct.

Okay. So you just grew that segment 65% sequentially, 60% sequentially, is that right?

That's true.

Okay. So I'm curious about the logic behind flat revenues for the rest of the year when you just grew that 60% sequentially?

I think the first, the main point there is the sequential comparison is a little bit misleading in the sense that we had a full quarter worth of our company we acquired in the Mobile media download business. If you compare that with fourth quarter, there is only one month worth. So if you look at it on a percent basis, it looks like a bigger percent because of that. What's the true? What is it, to more apples-to-apples then.

Well, in the fourth quarter as we said earlier, they had done -- and that acquisition contributed a little over $2 million in revenue.

Okay.

So I think the important part here, we're really pleased with the results from the Mobile Group. To put the Mobile Group in its proper context, they did almost $15 million in revenue in the first quarter.

Right.

In the last three years, they averaged about $30 million a year in revenues for the whole year.

Right.

So obviously it's a dramatic change for them, and you know, we're looking at this and we're thinking that we need to be cautious here about kind of outlook and projections until we get a little more history. One quarter, obviously is not enough history for us to make significant future forecasts on that.

Okay.

And second question is if, you know, eyeballing a, an EBITDA number, if you will, for the year. Have you all provided any guidance there? Or if I kind of look back at the envelope, I'd kind of come out with a number of, you know, kind of well north of -- on a, even if I fully tax this EBITDA number, excuse me, don't tax, EBITDA, I come out with a number, you know, well over $45 million. Is that a -- am I doing my math right there?

I think I will have to leave that one to you, Chris.

We provided, obviously, net income guidance, we've provided revenue guidance. Given that it's not GAAP, I'd prefer not to comment on that. But if you look at our list, I would say if you look at our last earnings call, we did try to provide more guidance on some of these, sort of, below-the-line-items as well.

Right.

And so I kind of encourage you to take a look at those pieces and, you know, leave it to you on the math side.

Can you tell me quickly what you said in the last call about those?

Mostly what I would call the nonoperating items like depreciation amortization being reasonably in line with where we ended the year. Or, for that matter, where we ended the year being similar for the rest of the year.

Right.

That was probably the key one there.

Amortization expenses.

We don't provide guidance on any sort of potential one-time items or lack of one-time items, you know, you're all set to think about that as well.

Okay. Thank you.

Thanks to you.

Our next question comes from Michael Porburg (ph) from Clovis Capital.

Hi, guys, I have a few questions. The first on the TrueTones.

Could you go over what the price point on the TrueTones? And do you make more money on TrueTones than ring tones?

Hi, Michael.

On TrueTones, the price point, the main carrier who is doing it today is Cingular. I'm pretty sure the retail price, and again, each carrier and many of them have different price points depending on the service plans you're on. It's about $2.50 and that compares to, you know, somewhere in the, call it, $1.50 to $2 range for a comparable polyphonic ring tone with back carrier.

In terms of kind of profitability by product and by segment like that, we don't break that out, obviously, for competitive reasons. And so I would prefer not to comment on that.

I'm going back to your conservative stance on pricing and that -- that wouldn't include mix here. Obviously the mix is as you move toward the TrueTones, your mix is going to get higher. Therefore, your price per download will go up.

Well, again, it depends on how the carriers choose to -- carriers choose to do that. You know, and choose to price those things. But right now, you're right, you know. True tones are priced a little higher than a polyphonic tone.

Keep in mind, Michael, I think you know this, but true tones were launched by Cingular, I want to say in mid-February time frame.

Right.

So very early, very, very early in that. And we're pleased with kind of, you know, how it's performed so far, but it's just really, really early in that whole area and some of the other carriers haven't launched those yet.

The other variable is how many phones or devices are out there that can handle TrueTones versus polyphonics, so.

How many are out there that you think can have the TrueTones now?

Off the top of my head I don't have the number.

Okay.

The next question I have is can you go over what specifically you invested in or will invest in over the next three or four quarters in MOVISO? Are you trying to develop games yourself internally? Just talk a little bit about where the capital is being spent.

Well, we are, you know, we're always, you know, looking at ways to improve our content library, et cetera, but I don't believe you will see us actually developing games in-house. There is a very robust and healthy development community out there that is very capable of developing games for you. What we need to be able to do is improve our capability to merchandise and market those games. And to, you know, to have an environment and a platform that people will be able to write to in terms of those games.

You know, our investment is, again, we're looking at making sure that we continue our leadership role in the ring tone business, and that we want to be able to extend our content around that area. Those are the kinds of things we're investing in and, you know, the kinds of systems and capabilities that can continue to serve the carriers.

One thing we have seen here over the last couple of quarters is that, as this business gets more important to carriers, the types of vendors using be more important to them. In other words, the kind of quality of service can you deliver. You know, carrier grade, if you will is now really, really important. Whereas, frankly, a year ago, there was not enough revenue going through the carriers business on this type of thing to be all that important. So we're making sure, that you know, we maintain our leadership position in that space.

Okay. Thanks very much.

Thank you.

Sure.

And once again, it's star 1 if you do have a question. We go to a follow-up question from Pete Speer.

Yeah, just a quick follow-up question. I know you extended your agreement with Google. Can you just speak to the other distribution partner? And, obviously, I'm sure you're pursuing the same with them. What is the status of those and can you give a status on how those contractual agreements are going?

Well, in the distribution partner side, you know, we entered that business last year so most of our agreements are, you know, a-year-old or less. Generally those agreements are two and three-year types of agreements. So, to give you a rough idea there.

Okay. Thanks.

Thank you.

Operator, with that, I think we're about out of time. So we would like to thank everybody for joining us on the call today. And please don't hesitate to give us a call us if you have any follow up questions.

Thank you, that does conclude today's conference, have a great day.