Avantax Inc (AVTA) 2005 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for your patience in holding and welcome to the InfoSpace Q1 2005 Earnings Release Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations for InfoSpace, Ms. Nancy Bacchieri. Please go ahead, ma'am.

Thank you, April. Good afternoon, and welcome to our call today. With me is Jim Voelker, Chairman and Chief Executive Officer, 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 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 our 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 and personnel, and the ability to successfully integrate acquired businesses.

A more detailed description of certain factors that could affect actual results of operations 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 this conference call, or to reflect the occurrence of unanticipated events.

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

Thank you, Nancy. Good afternoon, everyone, and welcome to the call today. We are pleased to report another strong quarter at InfoSpace. Revenue for the first quarter was 87 million, up 81% over the first quarter 2004 and 9% over the seasonally strong fourth quarter. Income from continuing operations in the first quarter, excluding the gain from a litigation settlement, was 16.6 million or $0.45 per diluted share, compared to 5.4 million or $0.15 per share in the first quarter of '04.

We continue to generate solid margins and strong cash flow. Adjusted EBITDA was 21.9 million and the margin was 25%. We further strengthened our balance sheet, adding 62 million since the end of last year to finish the quarter with approximately 384 million in cash and no debt. We are pleased with our results and the good start to the year.

Now, a look at each segment. Search and Directory revenue was 48 million, up 44% over the same period last year and the segment income margin remained strong at 45%. During the quarter, we continue to strengthen our Metasearch offering. We signed an agreement with Microsoft's MSN, which allows us to include listings from Microsoft's new search engine, making InfoSpace the only search provider to deliver the results from all the leading search engines including Google, Yahoo, Ask Jeeves and soon, MSN. The increasing value of Metasearch is underscored by the great disparity between the results returned by single search engine sites.

A recent study found that of 10,000 randomly generated queries only about 5% of the first page results were common to Google, Yahoo, and Jeeves. This disparity reinforces Metasearch's advantage in covering more of the web while delivering broader advertiser coverage and better monetization than any individual search engine.

The InfoSpace Metasearch platform leverages the technology of the best algorithmic search engines and in addition we have built a dynamic system called IntelliFind, which program analysis consumer click behavior, self-learns and is responsive to shifts in pop culture and current events.

In short, it finds for the likely intent of the user and feeds that output through Metasearch to deliver the most relevant set of results in the industry.

Since the first implementation of IntelliFind late last summer on Dogpile, we have increased visitors, queries, clicks and revenue an average of 30%. In addition, recent studies have shown that more users click on page one results of Dogpile than of any other search engine and a click of the first page of listings is the best demonstration of relevance, and is critical to strong monetization.

As a leader in online Yellow Pages, InfoSpace continues to improve the directory user experience, adding important relationships and new listings. In the first quarter, we secured new partnerships, which have allowed us to add robust features to our Switchboard site, such as new mapping abilities from Microsoft MapPoint, and enhanced data from MasterCard and Fandango, such as ATM and theater locations, movie listings and online ticket sales.

Recently, we also launched our first Send- to-Mobile capabilities, allowing users to send directory information to their mobile phone. This is the first of a number of important initiatives to take online Search and Directory content and information to mobile users.

Now to our Mobile segment. Our mobile unit posted record results in the first quarter, reporting revenue of 39.1 million, a 163% increase over the first quarter of 2004. Margins improved to 26%. In the first quarter, we deepened our key relationships, broadened our content portfolio, and expanded our games distribution.

At Cingular, we extended our content contract on comparable terms into 2006. We continue to be the carrier's preferred provider, supplying downloadable ringtones and graphics to their subscribers. We also added Cingular to our games distribution. We already provide several games to Cingular's former AT&T subscribers, but this new arrangement will launch new titles across Cingular's entire subscriber base.

We launched several promotions with Cingular, including the recent Coldplay promotion for their new music program. InfoSpace secured the licensing and production arrangements with the artist Coldplay and Capitol Records months before the CD release in order to debut the single on a mobile network prior to it being released to radio or the web.

In addition, we kicked off popular Cross Carrier promotions for Valentine's Day, St. Patrick's Day, Spring Break, and March Madness with carriers such as Cingular, T-Mobile, Verizon, Nextel, Alltel, Virgin and others.

Mobile gaming is now the fastest-growing category in mobile content. And in the first quarter we began integrating our games properties from the Atlas, IOMO, Elkware studios in the InfoSpace games, which develops, publishes, and powers our unified portfolio of more than 100 games.

In Q1, we were successful in selling several game tittles to carriers both in the US and Europe. In the US, we launched Ms. Pac-Man, Wheel of Fortune and Boulderdash for Prizes and Pamela Anderson Exposed to carriers, including Verizon, Cingular, Alltel, Western Wireless and US Cellular.

In Europe we launched Tomb Raider, Miami Vice, Pub Fight and Backgammon with Orange, O2 and 3 and also a For Prizes tournament series with Vodafone.

Diversifying our portfolio is an important focus for us. And, in the first quarter we added two new content categories. We signed an agreement with Universal Studios to create ScreenTones, new audio and video content that will bring cinematic moments to mobile, by drawing from Universal's extensive film and TV library. We also signed an exclusive agreement with LaffLink to offer audio and video clips as stand-up comedy from hundreds of comedian such as Adam Sandler, Chris Rock and Jerry Seinfeld.

Recently, we completed a content agreement with Nextel that expands distribution of our core personalization products that includes our new ScreenTones and LaffTones product lines.

InfoSpace continues to play an increasingly valuable role across the content and delivery supply chain, licensing the largest content library, merchandising and delivering downloads to hundreds of unique handset models and different networks. Our strategy of assembling a broad and deep content catalog coupled with leading storefront technology and efficient and reliable delivery have made InfoSpace a trusted partner and have allowed us to deepen our relationships and to increase our reach to nearly all North American subscribers.

A substantial opportunity is evident in terms of increasing penetration and positive consumer trends. Recent data put the number of North American mobile subscribers of 180 million, but only about 12% of subscribers have downloaded ring tones and graphics. Western European handset penetration is much greater with about 40% downloading content such as ring tones, games and graphics. As mobile continues to emerge as one of the most valuable and dynamic new communications and entertainment mediums, InfoSpace serves as a critical link in sourcing and delivering that content to mobile devices.

Once again, InfoSpace had a very strong first quarter. Our owned and operated search queries grew 14% sequentially. Our mobile revenue grew 20% sequentially. Our margins remained strong across the board, and we have added several important content partners on both the online and mobile sites.

As we move forward, we are focused on diversifying our content portfolios, improving the user experiences and growing our distribution. While we are anticipating seasonality in the second quarter, we are maintaining our strong outlook and are confident in both of our businesses.

With that, I will hand the call over to David to provide you with more detail on our quarterly financial results and the outlook.

Thank you, Jim. And thank you for joining our call today. First quarter represents another great quarter for InfoSpace with continuing revenue growth and healthy margins. We are especially proud of these results since they come on the heels of a seasonably strong second half of '04. Our revenues for the first quarter were $87 million, an increase of $38.9 million or 81% from the first quarter '04 or 9% sequentially. Operating income was $16.1 million versus $4 million in the prior year first quarter.

In late March, we received $83 million in cash proceeds from the settlement of the derivative law suite and other litigation. After deducting certain legal expenses and taxes, we recorded a net gain from this litigation of $77.3 million or $2.07 per share fully diluted.

Net income for the quarter was $93.9 million or $2.52 per share versus $36.7 million or $1.03 per share in the first quarter of '04. As you may recall, the first quarter of '04 included a $31.3 million gain from the sale of our Payment Solutions business.

Weighted average fully diluted shares was 37.3 million for the first quarter of '05. Excluding the net gain from the litigation settlement, we had another strong quarter of profits, generating income from continuing operations of $16.6 million or $0.45 per share for the quarter, an increase of $11.1 million or 206% from the first quarter '04.

And, as of March 31 of this year, we got approximately 530 employees. For the first quarter, adjusted EBITDA was $21.9 million and the margin for the quarter was 25.2%.

Now, I will review our segments, starting with Search and Directory. In the first quarter of '05, Search and Directory revenues were $48 million, up $14.7 million or 44% from the first quarter of '04. During the quarter, total paid searches in North America for both Search and Directory were approximately 207 million, an increase of 20% from the prior year first quarter. Average revenue per paid search was approximately $0.18, an increase of 13% over the prior year first quarter. Sequentially, we saw a decrease in prices of 2%. This was partially offset by a 1% increase in paid volumes.

On the Search side, we experienced double-digit growth in queries, which was offset by a normal seasonal decline in the click through rates relative to fourth quarter. Segment income was $21.7 million, up $7.9 million or 57% from the first quarter of '04. The segment margin remained very strong at 45%.

In the first quarter, search distribution revenues in North America continued to account for over 60% of the portion of Search and Directory revenue coming from Search.

Now turning to the mobile business. Revenues for the first quarter were $39.1 million, an increase of $24.2 million or 163% from the first quarter of '04, and up 20% sequentially. The increase in revenue is the result of growth in mobile media downloads and the contribution of a full quarter of the European games acquisitions.

For the quarter, the games acquisitions contributed over $2 million in incremental revenues relative to fourth quarter. Our games business now represents over 5% of our mobile business. Mobile segment income totaled $10.2 million for the quarter, up $6.4 million or 170% from the same period last year and the segment margin was 26%.

Regarding the balance sheet, the company ended the quarter with approximately $384 million in cash and marketable investments, up $62 million from fourth quarter. We received $83 million in the quarter from the litigation settlement. This was partially offset by the $26 million acquisition of Elkware. Historically, the first quarter tends to be a lower cash generating quarter as a result of the fact that certain of our annual expenses are paid up front.

Now, let me turn to our 2005 outlook. I will start with our second quarter guidance. We expect revenue to be between 83 and $85 million. Adjusted EBITDA to be between 17.5 and $19 million and net income to be between 13.5 and $15 million. Fully diluted earnings per share is projected to be between $0.36 and $0.39. This assumes 38 million fully diluted shares in the second quarter.

Overall, our second quarter guidance reflects normal seasonal trends. Second quarter has historically been the slowest search quarter due to decreased Internet usage going into the summer months, reduced advertising spending, and reduced retail spending.

On the mobile side, we are seeing anticipated seasonality in this business. This seasonality is driven by a number of factors. In particular, a normal slowdown in the new phone sales relative to fourth quarter, a lack of top-selling music kits with an 11% decline in music sales for the industry year-to-date, and limited promotional activity by the carriers.

As we have said many times, this is a very new industry and our longer-term visibility is limited. We believe that the second half of '05 will show continued growth as it is a seasonally strong period for new phone sales, new music sales, and Internet usage.

For the full year of 2005, we expect total revenue to be between 375 and $395 million. Of this amount, we expect our Search & Directory segment to contribute between $200 million and $210 million in revenue. We expect our Mobil segment to contribute between 175 and $185 million. On the margin side, I would like to reiterate what we've been saying for the last three quarters. On Search & Directory, we continue to expect that the segment margin will be in the low 40% range. On Mobile, we expect segment margins will be in the mid 20% range. We expect adjusted EBITDA for the full year 2005 to be between 92 and $100 million.

We expect the income from continuing operations, excluding the gain from the litigation settlement, to be between 67 and $75 million. We expect fully diluted earnings per share to be between $1.75 and a $1.95. This assumes 38.5 million fully diluted shares outstanding.

Our adjusted EBITDA guidance and our net income guidance excludes the impact of any onetime gains or losses, any litigation settlements, and the cost of expensing stock options. 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.

Our first question this afternoon will come from Gordon Hodge with Thomas Weisel.

Good afternoon. Couple of things, one just on the seasonality you're seeing in Q2. I was just wondering if you could just comment specifically. Are you seeing the volumes on the mobile side decelerate now or is that something that you are anticipating? I think you said it was anticipate in seasonality and also, if you look at the sequential change -- would it be Search & Directory that slows more than the Mobile business? That's the first question and also, I had a question on the tax rate in the first quarter on the Search side. Thanks.

So -- let me go ahead with that.

Yes, go ahead.

I think your first question Gordon was on the Search & Directory versus mobile in terms of our guidance and we don't break it out on a quarterly basis. Obviously, I broke it out for the full year so that will give you an indication of what we see happening and I think both businesses will be subject to some seasonality in the period we're talking about in the second quarter. In terms of the cap rate, I guess, I didn't - catch your question.

obviously I'm just wondering if there's a discernible shift in the tax rate from the Q4?

No, not really. Gordon, this is Jim. I don't think in fact I think really over the last year we've seen the cap rates be very stable. And we do not anticipate any significant shifts going forward, at least not for the remainder of the year.

Okay. Thanks.

Thank you.

Moving on we'll hear from Safa Rashtchy from Piper Jaffray.

Hi it's Erin Kasa for Safa. Couple of quick questions, first I wonder if you went through that seasonality in Search in Q1. Could you just explain what happened? In the industry we received about 10% gross sequentially but there is roughly flat or sequential basis. That is my first question and one follow up after that.

Sure. On the Search side, I think two things really as you saw from our comments we saw volume growth in particular if you look at just the Search side of our business. We saw what I would characterize is kind of mid single digit paid volume growth. Significantly higher query growth volume. I mean, what we've seen year-over-year at the same time first quarter is the query growth, strong query growth but partially offset by slightly lower click through rates just because in fourth quarter people are much more kind of commercially focused on Searches versus the first quarter timeframe.

And so we saw healthy volume on the query side and pretty good volume on the Search side. On the Directory side, we actually we've been in the process of working on improving the products that which we've been doing for the last number of quarters and also working on better ways to monetize that traffic.

And so we have made that kind of a shorter-term tactical decision to continue to look for the best way to monetize that traffic overtime, and we're putting in place a number of steps that I think you'll see the benefit of put into the second half of the year. So if you kind of break those two up separately, I think that will help you better understand, first quarter.

Great. And then what is your feeling from marketing actually wireless services and it seems when the competitors do that and how successful they have been, but and is there something you see yourself doing...

This is a question around ...

In marketing your mobile services to the online is?

Well, this is Jim. Remember, we really serve mainly as a white label player behind other people's brands. We have not gone out to try and create our own brand, yet. Again we like the model that we have.

We think it's the most long-term and most profitable model is to use the marketing and where we spent marketing dollars, you may not see our name, but it is behind Cingular or its behind Verizon or it is behind T-Mobil, one of our partners in terms of doing promotions and things like that. We think that those we can add incremental dollars to their already name, which is much more efficient and profitable in the long run than trying to create our own brand at least at this point.

Great. Thank you.

Thank you.

Thank you.

Our next question this afternoon will come from Imran Khan with JP Morgan.

Yes, hi guys. I want to go back to the guidance question. I understand the seasonal idea but if you look did you see your mobile growth -- revenue growth like was declining from February through March?

Because it seems to my understanding over the last 12 months mobile revenue has been growing month-over-month or at least remaining relatively flat. So what is pointing out such a -- like revenue guidance declined quarter-over-quarter? Thanks.

Well, I think, Imran, what we've seen and what we anticipate is that you are going to have our growth kind of correlate with handset particularly consumer handset sales. So, we're just anticipating that - and we know this to be true -- there is a significant drop-off in handset sales from the Q4 to Q1. Generally speaking, across Western Europe and here it's about 20% drop in those handset sales because a lot of our new users come from somebody who bought a new handset. We would anticipate that we would see some seasonality in this business. We would also - we would see the benefit of that frankly in Q1 where you see we had a very strong quarter.

And, that was the benefit of a lot of handset sales at the very, very end of Christmas in Q4. So this is because we're dealing strictly with consumers and not enterprises, maybe that 20% is even little bit exacerbated, but it is something that we would anticipate all along.

So, Jim, let me ask you a question different way like in terms of -- so far in the quarter, have you seen a deceleration? Or, like the like its not deceleration we're guiding basically a sequential decline in the growth over like last January or February?

I think, Imran, it's hard to obviously, we do not provide weekly or monthly metrics on how we have the businesses going. And in particular, each week and each month have their own nuances around them in each carrier has their own initiatives out there.

What I would tell you is, as Jim indicated, the first quarter was significantly higher as you can see from the numbers in fourth quarter so we are up significantly. And when we look into the second quarter, we think there's going to be some softness there.

And, that's reflected in the guidance number that you're seeing coming off of a very strong second half of last year and a strong first quarter. And, I point you back to our revenue guidance to give you a feel for our views on where revenue as a whole for the company will go in the second quarter.

But the business is behaving the way we would anticipate that to behave.

Okay. Thanks.

Your next question this afternoon will come from Jordan Rohan with RBC Capital Markets.

I think I hate to beat a dead horse on this, but am I trying to understand now that in the wireless business, we could even though you have the games platform building up in Europe, we still would see down sequential ringtone downloads?

And doesn't that imply that you're losing share with the major carriers because your competitors are actually seeing growth quarter-over-quarter? Thank you.

Well, I don't know that Jordan, this is Jim. I don't know there's anybody reported second quarter yet?

No, obviously not. But the guidance will be very ...

Well, I think in terms of implying we're losing share, I don't know where that is coming from. I think if you heard our comments, we'd really in fact have anything strengthened our position with our major carrier customers. And we talked specifically about Cingular here, but that is not a Cingular example no unintended pun that.

We have extended our agreements with Nextel and others. So its - we're doing fine within the market that we have been in. We're not of course extending it outside of that market B to C is, again, we are in about earlier so again we are a conservative group here. And we anticipate that handset sales will have an effect and music sales do have an effect on our trends, too. And so we are guiding accordingly.

Let me ask an easier question. I apologize, if my tone is rough on the last one. The click through rate, which is something I focused on, doesn't it go up in 2Q for Search sequentially -- or we didn't to expect it go up 2Q versus first quarter?

Specifically, the click rates are not necessarily. I mean, I don't know that is to change dramatically. I mean, what we are comparing in to my comments were really in reference to fourth quarter and just that kind of the incredible commercial nature of the fourth quarter especially on the retail side.

I think it is too early to tell on 2Q as you know 2Q generally speaking at a slower Internet usage time and I think that's a more important variable as we look out.

Of course. Were there any losses of major distribution partners on the Search side in the quarter, or is there any other additional reason why volume may only have been up 1% sequentially other than the directories side being reformat it?

Really, the key issue there was around Directory. As I mentioned and really making sure, we can preserve the maximum value from that traffic overtime.

Okay. Thank you for your answers.

And I would also say I think that if there's one place that we are not participating in as well as, we could at this point, it is international. And many of Google and Yahoo in particular are doing very well internationally.

We still have a relatively nascent international effort going on. We've taken some strong steps there in terms of hiring, in terms of deploying some physical resources that will allow us to compete better in those markets. But we are not yet sharing in that growth with that market is -- which is above US growth at this point.

Thank you very much, guys.

Thank you.

Moving on, we'll hear from Stewart Barry with ThinkEquity.

Thank you. My question has actually to do with the international revenue in Search & Directory. Are you generating any revenue at all there, and do you plan on making investments and sort of internationalizing your wholly own sites, because you are right Jim, that's where the growth has been in Search this quarter for Yahoo and Google?

I'm sorry, it's David. The answer to your both questions is yes. We do some business today in Europe. I would characterize it as relatively modest. We have a few of our own sites that are fairly small.

We have a few distribution partners that also I would characterize this fairly small. In terms of on a scale of other parts of InfoSpace kind of you know, as you can see from some of the other companies you mentioned there has been significant growth happening in Europe, and it is an area that we hope to put more and plan to put more effort around.

Okay. And the mobile side, you know, the nature of the download, and I guess you are guiding toward the sequential decline are being flat. Is there not -- are you suggesting that there is not a repeat usage of the download or of these games and ring tones?

Go ahead, Jim.

Not at all. In fact, the (inaudible) there is lots of repeat usage. But we do you know, if someone who doesn't have a phone that is download capable can't download.

And, so certainly, in this stage of the marketplace, which is again relatively nascent. In this stage of the marketplace a lot of driver comes from someone who gets a phone and then gets the opportunity to download. And we just you know, this is going to follow, as we get to be a larger base, it's going to follow, the curve of what those handset sales looks like.

Okay. Thank you.

Thank you.

Moving onto Scott Sutherland with Wedbush Morgan Securities.

Great. Thank you. Good afternoon.

Thanks Scott.

I had a couple questions, again on the mobile side. First of all, I see you came out with the new ring tone service and directly with some of the labels. What I understand either that service or any other services are carriers paying you guys on a net basis, which would be higher margins but lower revenue?

In terms of Cingular, most of the content continues to come from us, Scott. So, I am not sure specifically on that comment. But regarding kind of -- I guess, the bigger picture question about is to how to book the revenue. It really depends on the carrier and depends on what we're doing for them. For some carriers we do -- and then within each carrier there is a -- I would say a significant range of services we provide.

So, again, it would depend on the product. If we are securing the content and doing all the work of preparing it and getting it out there and taking the risk on the collection side and other items like that, that obviously going to be gross revenue if we adjust -- do not adjust if we are doing that kind of the hosting or the delivery, which we do for some carriers as well. Then, you'll see more of the net view there.

Well, I guess what you are referring to, was Cingular. I mean, as we mentioned here in the call, we you know, I think we've been fairly clear about this. We do handle the alliance share of the download and the sourcing of the content, and the packaging, the rendering, the merchandising for Cingular. Not only that has not changed, but it actually been extended just recently. So, I am not sure what you are referring to there.

I guess AT&T is the interesting center may be do a direct relationship with the contents, so they take ownership first the contents and then paid out net for some of the digital rights management bone mastering type technologies?

Well, we do have different kinds of relationships as David just outlined. But with Cingular, that's not the way the relationship works.

Okay. Same question, again. I know a lot people will talk about the flat guidance on the mobile downloads. Clearly, it seemed like the quarter on mobile downloads in the market ramped up on a monthly basis.

So, even if you grew monthly from the third month of the quarter, you should see some growth out there. So first question is, can this be a little bit soft or is this just conservatism? In fact, what would it take for you guys to do a hybrid type model? Obviously, you mentioned in your comments that less promotion from the carriers pushing this content. Does it make sense to take the bull by the horns and kind to drive the on demand -- drive your on demand?

Well, again, Scott, it's something you know, in terms, if you are referring the kind of a B or C, I think that's you are referring to B to C model.

Okay.

At this point, as we look at the model and the kind of spend it takes to drive demand, we are not confident at this point. That doesn't mean that further study or experience wouldn't change our minds. But, we are not confident at this point that this is a profitable viable business unless you are counting heavily on breakage within the context to that. And we are not -- I guess, I should speak personally, I am not sure how many businesses are really long-term successful that count on you know, count on a consumer paying for things they don't receive.

So, you know, I am -- we're probably you know, again we are conservative by nature, so we would like to take a wait-and-see attitude on that. There is certainly nothing in our agreements with our carrier customers or anything like that that would preclude us from doing this, and we have all the physical assets that take in place to do those kinds of businesses.

But, right now, we like the model that we you know, we kind of share the marketing if you will effort with the carrier. And we think that's a more profitable marketing -- profitable business. And as you can see by our margins that have been pretty strong here and remain strong, that's playing itself out.

Okay. Great. Thank you.

Thank you.

We will now hear from Jason Avilio with First Albany.

Thank you, guys. Thanks for taking my call. A couple of questions. First, I am just again trying reconciled guidance, particularly when I looked back at Q2 last year. It doesn't look like seasonality was nearly a pronounced what you are expecting it to be into Q2.

So, I am wondering you know, first I guess, with the Cingular relationship, is there something change in terms of debt placement where may be more service providers are there, the level of inventory that you are going to supplying to them is going to be either like I said, are there was other third party or may be done more internally, which would impact revenue? And then secondly, if you give us -- I know, you don't break out quarterly, typically on a business unit basis.

But, if you could just give some sense, I mean, are you expecting a down double-digit sequential number on the Search & Directory side I think that will helpful? Thank you.

Jason, on your first question about second quarter, I'll try to make sure I get all of them here. First quarter -- second quarter last year, as you look at the mobile business, it's I think last year a lot of trends there but very, very hard to identify things in such early stage of the business, remember that was really one to two quarters into that business. So I don't think it is obvious to point out the kinds of things we things we saw.

But, as we indicated on the call as we look at second quarter you know, we see the music industry, the CD sales and volumes of music just to have a significantly slower first part of this year, year-to-date as I mentioned on my comments down 11% year-over-year. We see handset sales are seasonally much stronger at the later half of the year and in particular, we think that skews more heavily and impacts more heavily the younger generation that we tend to serve.

So, really, it's not about as much looking as last year or there is some data that we can look to that. So it's too early from that perspective and more about looking at the second quarter. In terms of your question about Cingular, no change there. We are pleased and excited to announce that we've extended that deal on comparable terms.

So, I think you're going to continue to see that as a very important relationship for InfoSpace. And finally on your quarterly question, again, I would just reiterate that our guidance is some 83 to $85 million in revenue which if you look at that relative to first quarter on a sequential basis, that's about 82 to 85% decline, and reflecting the things that we talked about. So I don't know how to answer the double-digit part of your question or where that would fit in with those numbers I just cited.

Hi. And then just one quick follow-up. As it relates to full year guidance, it looks like these numbers are really back half of the year loaded. So what gives you, I mean, Q3 has always been a seasonable weak quarter both in terms of I guess in that assumption pattern on the Search side and I don' think in the headset cycle is there any different Q2 and Q3.

And, it looks like on the mobile side particular that you're going have to do I don't know $50 million in the back half to hit to your the midpoint of your guidance. I'm wondering maybe you could give a little color what's going on in the back half of the year versus Q2 and what gives you the confidence in the back half of the year on numbers? Thanks.

Sure. On terms of the second half of the year, I think a couple of factors. Let's start with Search & Directory. Well, if you look at last year's trends, we saw favorable growth in the second half of last year across really all of our different Search & Directory properties. And so, we expect that to continue as we look out this year.

And, I might think that would be consistent kind of with most in the industry, again looking backwards, rather than forwards. On the second question about the mobile side, really I think there's a number of important factors, the handset sales and new handset introductions which is really a key to the growth -- the key to what's fueled a lot of our growth over the last 12 months. It really starts in the summer timeframe with the introduction of new phones. Remember, if you think also about the younger demographic, yet starting with back-to-school kind of opportunities and then on into the holiday season.

And, similarly, the music industry follows that pattern as well in terms of the volumes that they deal and the growth in volumes. That's to your point it is more back and later and so. And then finally, we're just starting in the games business, I mean, we acquired two companies in the last sort of three last months and obviously we're working hard there to build those businesses as well.

Thanks.

Sure.

Moving on Lance Marx from Wells Capital Management.

Hi guys. I was just wondering if you kind of give us clarification or just your thoughts on cash deployment, so it's on I guess, close to $12 share cash. I know you have done a bunch of acquisitions, but can you talk about how you think about stock repurchases particularly with your stock now starting at three times cash? And maybe just give us some sense of what the acquisition pipeline looks like? Thanks.

Well, the last part of that is pretty hard to comment on Lance. Obviously, we're looking all the time at acquisition opportunities. At this point, we know we are still we believe we are in very good markets in both of our businesses whether it is an awful lot of long-term opportunity. That doesn't always translate into acquisitions opportunities but certainly we think those are there.

If there were ever a point in time where we didn't think that we could deploy that cash to grow the business directly and of course, we would look at alternatives such as buybacks.

Thanks very much.

Thank you.

Moving on to Mike Latimore from Raymond James.

Yes. This is Israel sitting in for Mike. Just a quick question. Are you seeing any pressure from your mobile care customers as far as the portion of the payout and how usage extended your contract with Cingular on comparable terms? But, with your other care customers, are you seeing pressure to pick up a smaller share?

Israel, it's David. Not really. I mean obviously Cingular is one of our most important customers. And we talked about that one. So I think that's hopefully indicative of what we're seeing out there. The other thing we've always said like in any business is over time, it's all about price has got to be related to volume. So the business continues to grow at a healthy rate, there'll always be discussions longer term about pricing but it's in the context of a much bigger price.

You know, I think, Lance, I would say that this is a business with scales. Israel, this is a business with scales, and so as in any business with scales, you will pass along part of that scale, that scale to someone to your partners.

Okay. Can you go to your in terms of customers for the quarter? Was there any change between that and what they were in '04 as far as Cingular, Yahoo, Google and Verizon?

Yes, relative to '04 fourth quarter, no change.

Okay. And also on the games business, how is that splitting or how do you see revenue splitting between like the domestic carriers and international customers for '05? Are you expecting more growth internationally or will it come domestically?

While as I said kind of earlier, we think that there's significant opportunity outside of United States. And so on the mobile side to speak to mobile first, we've made a number of we think important acquisitions in that area which are based in Europe. I think that gives a feel for our interests and focus on the mobile side in terms of doing a lot more in Europe. In terms of Search & Directory side, a similar comment, which is what we are doing some stuff in Europe and it's relatively small today.

And, we are putting more energy and focus around that opportunity because we think there's a bigger opportunity out there, and clearly you're seeing that from some of the other companies and industry.

Okay. Thank you very much.

You're welcome.

We will now hear from Jason Willey from Moors & Cabot.

Good afternoon guys. Just a kind of clarification on the guidance side for the mobile for at both quarter and a full quarter. So, I'm wondering is that kind of as I understand correctly is that time to assume a no share lost with the existing top customers that you have now?

We haven't broken it out that way, Jason. But I think its business is usual as far as we are concern.

Okay. And then also in terms of guidance that you gave last quarter for the games contribution for the full year, is there any change to that in terms of what you're looking for that to contribute for the full year?

I believe that's about that's the same as well. I don't think we've seen anything different. And David mentioned various comments for games were around 5% of our mobile revenue right now. And that's within the range that we would anticipate from the guidance we gave last quarter.

Okay. Can you give any color around kind of what you're seeing in terms of the breakdown between polyphonic and monophonic ring tones and new more MP3 real tone type of ring tones?

Sir, when the monophonic, I kind of called them dying breed. There aren't many out there, there aren't many phones that support them anymore this sort of black and white stuff. But specifically regarding polyphonic versus label tones or what do you call MP3 quality.

I mean, the labels and the MP3 quality or some people call it true tones or label tones, they continue to be -- I would characterize them as a stronger scientific growth, probably, not as many of phones have label capabilities but the one that do that we find the customers tend to use them more often, it's the better user experience.

Now, that polyphonic, it's still just a very large space of user out there. So that' continues to be an important part of our businesses as to serve that user base.

And, I mean any can you give any more maybe clarity in terms of what the break down was or what you kind of expect it to be throughout the year?

Well, we haven't broken that our separately. But, I would expect that the labels and label tones, label tone I should say or true tone, which is began just a higher quality service. Doesn't necessarily have to be a label product from a label but just a higher quality product, we would expect that those overtime will grow faster than a polyphonic, if for no other reason than the bulk of the new phone's being sold are of the higher quality phones.

And, also because like I said, consumers would use the product more, if it's of a higher quality. So, both of those things kind as we look out over time, will tell us that the phones will continue to get better. In this, I would add benefits are other parts of our business like our focus around games.

Obviously, the better the quality of the phone, more color screens, more features and functional items the phone has, the more successful we'll be on the game side. And ultimately, another area of the content as well, so it's not a -- it's a very I think positive trend for the industry as whole.

Okay. And one last question, if I may. Is there any kind of opportunities in the near term or in the pipeline around expansion on the mobile site and to Canada or maybe even Latin America?

Well, this is Jim. We have -- we service carriers in Canada today. Rogers in particular, is a pretty significant customer for us. In Latin America, still our network deployment there in terms of high-speed network deployment is lagging in Latin America in general. So, I think, we're still a little ways away from that being a real viable growth market.

Thank you.

Thank you.

Moving on to Pete Spear from Delafield Hambrecht.

Hi. Guys, good afternoon

Hi. Pete.

Most of my questions have already been answered, but just kind of curious about the convergence of mobile and search and where in general do you see that as part of your strategy and how that can be monetize in and have you given some color on that for this year and next?

Well, certainly, we have-- we will be introducing things later in the year around that same -- around what you're talking about there. I think, our view and what work we're doing with need us to believe, that really it's much more of a find or a directory kinds of product that is-- that is really going to be a search kind of experience on the phone. At least in the next few years, if you will, okay. The devices really lend themselves to getting very, very succinct kinds of results back.

So, if you think about what we do and what we talked about here in terms of our Metasearch platform, and what that gives us is the capability to look at a lot of different kinds of databases out the rhythmic and structure and get back and as we talked about relevance today and the kinds of strives, we made in relevance online get back very, very succinct and specific results based on the content for the query. So all of those efforts have been not only towards improving our online but in the future looking toward how we would mobilize this service.

And, of course, given our positions with the carriers and our understanding of the dealing with the mobile devices and the mobile networks around us, we think gives us some real opportunity to excel in that space. So, I think, you will see products from us later in the year and you will see those products be enhanced a great deal over the next 18 months or so.

Okay.

It's a big opportunity for us. In terms of modernization, we think the market will look very similar the way the market looks today in other words, advertisers will pay for those exposures. But it's also very possible that people will -- subscribers will pay for those services as well as they are very used to doing that either be a 411 or other kinds of services today.

Okay. And is it safe to say that I can also be the case for a text-based advertising? That's been, as you may look that to analyze as well?

I don't know that our focus is I am not quite sure what you mean by that, by text based advertising but I think for us it's much more of finding -- having somebody find something, they're looking for, mainly in a local area. This is around a local directory kind of things and be able to take that query and really give them a succinct answer. And monitorizing again, we think can be from both directions.

Okay. Thanks very much.

Thank you.

Thank you.

Our final question this afternoon will be a follow-up from Gordon Hodge.

Actually, I'm all set. Thanks very much.

Okay. Thanks.

With that, I think, we would like to thank you everybody for joining us on the call today. And please don't hesitate to give any of us a call back if you have any questions.

And that will conclude today's conference call. We do thank you for your participation and have a great day.