Avantax Inc (AVTA) 2005 Q2 法說會逐字稿

Good day, everyone, and welcome to the InfoSpace Q2 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 miss Nancy Bacchieri, Director of Investor Relations for InfoSpace. Please go ahead.

Thank you, Carmen. Good afternoon and welcome to our call today. With me 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, his is an investor 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 10K and 10Q filed with the Securities & Exchange Commission in the section entitled "Factors Affecting our Operating Results, Business Prospects and Market Price of Stocks."

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 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 second quarter financial results, and then we'll open up the call to your questions.

Thank you, Nancy, and welcome to the call today. Revenue for the second quarter was 83.2 million, up 53% over second quarter 2004. Net income was 16.3 million or $0.44 per diluted share compared to 13.5 million or $0.37 per share in the second quarter of '04. We continued to generate strong cash flow. Adjusted EBITDA was 19.2 million and our margin was 23%. We improved our balance sheet as well, adding 23 million since the first quarter to total approximately 407 million in cash, and no debt.

During the quarter we announced $100 million stock repurchase program by June 30th, the Company had purchased approximately 11 million of our outstanding common stock. Although our results are in line with our guidance and show strong year-over-year growth across the board, they are below consensus numbers and at the low end of our range. Given this level of performance and other factors, which have limited our visibility, we are lowering guidance for the full year.

Search & Directory revenue was 46.1 million, up 34% over the same period last year and the segment income margin was 44%. Our Search & Directory results were in line with our expectations for the seasonally slower second quarter. In the third quarter, we anticipate revenue to be negatively impacted by the loss of a directory contract and the effect of Adware on our distribution business. At the end of the quarter, our online yellow pages partner, Verizon super pages did not renew the subscriptions portion of their contract. This represents a sizable loss as it will have a nearly $9 million negative impact on monetization rates for the second half of the year.

On the search side, Adware and Spyware have become an industry-wide issue. We've worked closely with our partners at Google and Yahoo to establish guidelines to eliminate surreptitious practices, and will continue to enforce compliance with those guidelines in order to deliver quality traffic. This will affect revenues derived from certain distribution partners. These 2 factors have contributed to our more conservative outlook for Search & Directory for the remainder of the year. On the plus side, during the second quarter we signed a distribution agreement to feature yellowpages.com, sbcsmartpages.com, and BellSouth realpages.com pages on our network.

We also launched our first send a mobile capabilities along with enhanced mapping and listing features, allowing our users to send directory information to their mobile phone. This marks the first of a number of important initiatives that leverage our Search & Directory content to bring new experiences to mobile users.

We remain positive about our online opportunities. In Search we continue to add distribution partners at a rate similar to last year. Year-over-year we have increased unique visitors to our owned and operated properties, and we continue to add Metasearch to deliver best results from the top search engines. Next week MSN listings will go live on Dogpile. Additionally, local searches continue to grow at our switchboard site. We are excited about the new -- our new products in the mobile arena.

As more local advertisers move online our business will be a beneficiary. Second quarter mobile revenue was 37.1 million, an 85% increase over the second quarter of 2004, and margins were 22%. As we anticipated, we experienced a sequential slowdown in our download business in the second quarter. However, year-over-year, downloads increased 65% and year to date they were up 95%.

Our mobile performance is affected by a number of variables, including retail trends in music and handset sales, promotions, the availability of new and popular content, increased competition, product mix and the introduction of new technology. At this time, we lack sufficient historical data to clearly weigh these factors which in such a nascent industry, limits our visibility and this is reflected in our guidance. During the quarter we continued to deepen and expand our relationships with our carrier and content partners. InfoSpace provided Cingular Wireless with the ringtone content for their newly launched which debuts ringtones, which debuts new ringtones from premier artists.

We also completed a content agreement with Nextel which extends distribution of our personalization portfolio. We also created and delivered a host of exclusive mobile content for the Cingular and Samsung sponsored Vans Warp Tour, a nationwide music festival. We continued to increase our mobile games distribution to U. and European carriers, launching several titles including Gem Jam Fever, BMW Formula One Racing and more. We also introduced a gaming channel for several carriers for which we provide, manage and program all of the gaming content on the Deck.

Over the past 18 months the mobile one tent market has grown more rapidly than anyone would have imagined. InfoSpace moved quickly to capitalize on this opportunity becoming the leader in mobile content and services in North America and we're enjoying an increased presence in Europe as well. It's important not to underestimate the tremendous opportunity in mobile entertainment and services.

Currently, less than 10% of subscribers have downloaded a ringtone and less than 3% have downloaded a game. Increasing handset penetration and positive consumer trends reinforce that the mobile media space is emerging as one of the most valuable and dynamic new communications and entertainment mediums. And InfoSpace is a leader today serving as a critical link in sourcing and delivering content to mobile devices. As we look ahead we're focused on improving the mobile experience and in the near term we're increasing our investment in content and applications that will grow our addressable market and help our partners solve critical problems.

We remain very bullish on the mobile opportunity. Our carrier relationships remain strong, are growing and we've seen millions of users adopt our services over the last 18 months. Moving forward, we are confident in our opportunities and our abilities to capitalize on them. InfoSpace is a solid, profitable business firmly positioned in 2 high-growth markets. We enjoy strong relationships with the largest and most important companies in the search and mobile arenas. Looking ahead we aim to provide these and other new partners new and exciting new products, content and applications.

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

Thank you, Jim. I'll start by reviewing our second quarter results and then I'll provide detail around our revised 2005 outlook. Our revenues for the second quarter were $83.2 million, an increased $28.7 million or 53% from second quarter '04. We saw sequential decrease due mainly to a decline in mobile media downloads and search distribution. We had another strong quarter of profits generating net income of $16.3 million or $0.44 per share. An increase of $2.8 million or 21% from the second quarter 2004. Weighed at average fully diluted shares was 36.7 million for the second quarter of 2005.

For the second quarter, adjusted EBITDA was $19.2 million, an increase of $7.1 million or 59% from the second quarter of '04. The adjusted EBITDA margin -- the adjusted EBITDA margin for the quarter was strong at 23%. And as of June 30 of this year, we had approximately 560 employees. Now I will review our segments starting with Search & Directory. In the second quarter of '05 Search & Directory revenues were $46.1 million up 11.7 million or 34% from the second quarter of '04. Relative to first quarter, revenues were down $1.9 million or 4%. Most of this decrease was in Europe as a result of strengthening our traffic criteria.

During the quarter, total paid searches in North America for both Search & Directory were approximately 214 million, an increase of 20% from the prior year second quarter and up 3% sequentially. Average revenue per paid search was approximately $0.18, an increase of 13% over the prior year second quarter. Due to seasonality and consistent with prior years, pricing was flat relative to first quarter.

Segment income was 20.3 million, up 5.7 million or 39% from the second quarter of 2004. The segment margin remained very strong at 44%. In the second quarter, search distribution revenues in North America continued to account for over 60% of the portion of Search & Directory revenue coming from search.

Now turning to the mobile business, revenues for the second quarter were $37.1 million, an increase of $17 million or 85% from the second quarter of '04. Relative to first quarter, revenues were down $2 million or 5%, due to slower sales of music downloads. Mobile segment income totaled $8.3 million for the quarter, up $1.7 million or 27% from the same period last year, and the segment margin was 22%. Relative to the first quarter our margin was adversely impacted by a faster shift towards the higher quality label tones. We saw sequential growth on the label tone side, which was offset by a decline in sales of polyphonic tones.

Since polyphonic tones have a higher margin the decline in these sales reduced our overall margins. Regarding the balance sheet, the Company ended the quarter with approximately $407 million in cash and marketable investments, up $23 million from first quarter. During the quarter, we repurchased 336,000 shares for approximately $11 million. We expect to continue to be active with our $100 million repurchase program. Now let me turn to our revised 2005 outlook. On the search and directory side we expect revenues to be down in the third quarter relative to the second quarter and then see growth in the fourth quarter.

The main reason for the decline is that Verizon SuperPages did not renew their online yellow page subscription-based business. However, Verizon SuperPages continues to be a partner on a pay-for-performance basis. This change was effective as of July 1 and will reduce revenues by almost $9 million in the second half of 2005. Despite the near-term loss of revenue, we continue to believe in the long-term opportunity in local search.

We are also cautious about the near-term outlook for our search distribution business. We have been focused and will continue to focus on making sure that our partners meet the stringent industry standards related to Adware and Spyware. This is an industry-wide issue and it will have a near-term impact on our results.

On the mobile side, a number of factors contributed to the decline in download sales in the second quarter. I want to emphasize that we have seen no real change in our customer relationships or our Deck placements. Our June and early July data give us some indication that the trends have stabilized, but given the data we are cautious about the rest of 2005 particularly the third quarter. We still believe that fourth quarter should be a seasonally stronger period due to new phone sales, new music sales and greater promotional activity by the carriers.

Given all these factors, we are lowering our guidance for the full year. For our third quarter guidance, we expect revenue to be between 75 and $80 million. Adjusted EBITDA to be between 9 and $11 million. And net income to be between 5.5 and $7.5 million. Fully diluted earnings per share is projected to be between $0.15 and $0.20. For the full year 2005, we expect total revenue to be between 330 and $340 million. We expect that the proportion of revenues between our 2 businesses to remain in line with the mix today.

Our revised guidance will have an impact on our target margins. Mixed changes in our business will also have an impact on margins. As we look out into 2006, and beyond, we believe that we need to expand our efforts around developing and marketing our products. We expect to spend $5 million in the second half of 2005 marketing our Dogpile.com search site. As Jim indicated, we are continuing to invest in developing leading mobile products and services.

However, much of the benefit from these initiatives will be in 2006 and beyond. Given these factors, on the Search & Directory side we expect that the segment margin will be in the 35 to 40% range. On the Mobile side, we expect the segment margin will be in the 15 to 20% range. We expect adjusted EBITDA for the full year 2005 to be between 62 and $67 million.

We expect net income, excluding the gain from the first quarter litigation settlement, and assuming a 38% tax rate in the fourth quarter to be between 44 and $47 million. And fully diluted earnings per share to be between $1.15 and $1.25. Regarding Income Taxes, if we achieve our operating plan during the second half of 2005, it may warrant reducing the reserve on our deferred tax asset. This would provide a one-time Income Tax benefit in the period that it is reduced. In periods thereafter, we would expect to record Income Tax expense.

For guidance purposes, we have assumed an effective tax rate of 38% starting in the fourth quarter. This will result in an estimated increase in tax expense of $4 million or $0.10 per share in the fourth quarter. Although this will reduce our future reported net income, keep in mind that we have a significant net operating loss carry-forward that is in excess of $1 billion. As a result, when we report income taxes it will be mostly a non-cash expense, and our actual cash tax rate will be under 3% of pretax income.

In summary, we expect that the third quarter to be down relative to the second quarter. but we expect that the fourth quarter will show growth. This concludes our prepared remarks. I will now turn the call over to the operator and we will take your questions.

We will now begin the question and answer segment of the conference.

[Operator Instructions].

Our first question comes from Mike Gallant with CIBC World Markets.

I want to review the mobile guidance in terms of the margin profile that you described of 15-20, that's coming down fairly dramatically and you talked about the shift to more MP3 and less polyphonic. Is that it? Or is there something going on beyond that? And then also in terms of what the effective tax rate you think will be in '06 as you know it today, 3Q and also in '06, thanks.

Mike, it's David. Regarding margin a couple of comments. As it relates to the second quarter, the shift -- or the change in the margin from where we were about 26% in Q1 to the 20% was primarily as a result of the mixed change that I mentioned regarding the label tones growing faster and having seen some declines in the polyphonic side of the business. As we look out to the rest of this year, we think that that trend will continue and will have an impact on the margins, which is part of the reason for our guidance.

And the other part as both I indicated and Jim indicated we have a lot of, you know, initiatives and opportunities that will position us for the future in the mobile market, and that's going to take investment. And the biggest cost on the mobile side is really investment in people.

And okay, on your second question, regarding 2006, assuming that the net operating loss, you know, gets reversed as I discussed, you should expect in '06 -- our best estimate right now would be an effective tax rate of 38%, a pre-tax income, but again, keep in mind that that's not a cash tax, that's a GAAP tax rate. We think that the actual cash tax rate would be significantly under that, probably in the order of less than 3%, and obviously as we get closer to 2006 we can give you a better sense of that.

Can you expand on where the incremental people that you will need to hire and what kind of areas their going to be in?

Sure. The main areas are around new product initiatives, creating new products and new technologies, since I think you were speaking about the mobile space, and the other areas really are around the marketing and merchandising that we do for our customers.

Is there another question operator?

Yes, ma'am, our next question from Gordon Hodge can Thomas Weisel Partners.

Yes, just a couple of questions. One, you mentioned that Europe - you had, maybe, a cleansing of the affiliate base over there. Just curious, what percentage of traffic comes from Europe? And then if you could talk about -- just give us a rough sense, if you could, on just the master tones or label tone percentage in the quarter relative to polys? And then lastly, just wondering if you could just give us a sense for what the games business contributed, if anything in the quarter? Thanks.

Sure, Gordon. On the Europe side, our Search & Directory business in Europe is fairly modest, probably somewhere around 5% of our search and directory revenues come from Europe today. On the label percent, it's not something we've broken out separately, because we have a number of different products including label products, we have graphics, we have polyphonics.

And we have a number of new products we have been introducing that have other flavors, but what I could say, and what I will say is that the label business continues to be probably the fastest growing sector of our business today just because it's a higher quality product, it has a lot more advertising and promotion around it by both the carriers as well as the music industry.

And obviously, as a company, we continue to work on introducing new and -- new types of content that aren't just reflected in the label side but to date, that's probably kind of the most popular side of the business. On the game side, as we talked about last quarter, games was in the 5 to10% range of our mobile revenues. That continues to be the case in second quarter and continues to be our expectation kind of for the rest of this year that it will be somewhere in the 5 to10% range.

Great. Thanks.

Sure.

Our next question comes from Stewart Barry with Think Equity.

Thank you. I just have 2 questions. Have you fully cleaned house in terms of strengthening your traffic criteria? Or are you still in the process of evaluating your distribution partners? The second question is I was wondering if you could give us more color on Verizon's rationale to discontinue the relationship?

Yes, Stewart, this is Jim. Let me go the second one first here. We learned very late in the -- in the second quarter here about Verizon's shift, and without trying to guess too much into what they're thinking, we know that Verizon has been very aggressive on the sales side this year in terms of selling pay- for- performance advertising.

They probably were not driving as much -- as much traffic from the search engines as they had predicted and hopes and felt that they needed to shift these dollars to buy search engine traffic and do that to support commitments they've made to their pay-for-performance kinds of customers, so again, a surprise for us and it didn't give us much time to try to remonetize that traffic, which we're obviously trying to do now.

On the first part, in terms of the Adware, this is a -- an ongoing -- we have been doing this, really, since mid last year, and it's a process that includes what the criteria that both Google and Yahoo and soon to be MSN will require, and it's also a process that really is shifting from the way people who provide Adware kinds of services go out and deliver traffic. So, we feel like we've made a tremendous amount of progress on this but it is a bit of a moving target.

Okay. Thanks.

Our next question comes from Jordan Rohan (ph) with RBC.

I was curious on timing. You mentioned the Verizon deal was renegotiated or what have you, the notice was given to you guys in late Q2. Could you give us an idea as to whether that was halfway through the quarter or a little bit later? And second on the Search & Directory side, it looks like there may have also been some sort of commensurate decrease in the pay out per click that you might expect in the future from Google, Yahoo, and other partners. Is there some sort of smart pricing going on, on the clicks that you deliver via their syndicated commercial search results?

I don't know what you are talking about, on the second one there, Jordan, but no, we really haven't seen anything, and don't anticipate any kind of substance of change, at least not a negative change in our relationships with Google and Yahoo in terms of price per click. On the first one there, Verizon is still a partner of ours, and we want to continue to have a good, long relationship with them even if it is just on the pay-for-performance basis, but suffice it to say this was very, very late in the third quarter.

Okay. let me try to, if I could, be a little more clear.

Second question, I'm sorry.

The question would be now that you have cleaned up the traffic, could you see your revenue per click or whatever metric you want to use increase as the less spiky traffic will have been -- I don't know, deleted from the system?

I don't know, David. Do you have -? I don't have a real feel for that.

I mean, our sense, Jordan, is that that won't have an impact on rates, if you will, because our rates are driven by the advertisers and the kind of bidding process, but it has an impact on -- over the second half of the year on volumes.

Okay. thank you very much.

Our next question comes from Jason Willey with Moors & Cabot.

I was hoping maybe you could add a little more color around the Mobile business and the revenue in the current quarter. We saw what I would call mid to high single-digit download growth from a couple of your key customers and you're talking about a transition to higher-dollar real tones from the polyphonics, and I'm just wondering if you could talk, maybe, about any competitor pressure you're facing in the market and why you're seeing a revenue decline when it seems some of the metrics would indicate you would may be seeing a slight growth in that business still?

Yes, sure -Jason. Well, I think first of all as I indicated on the call we haven't seen and had any change in the number of partners we serve or any real change in our kind of relationships with those partners or pricing with those partners or what I would call deck placement with those partners, kind of what Jim talked about and I talked about too, we talked about this at the end of the first quarter where we were concerned about the near term in the Mobile side, and I think our concern proved to be valid, which was that some trends in the handset sales, trends in music sales, some trends on the competitive landscape and trends on the merchandising side all had an impact on our results.

Now, this is a very young business, and so our ability to quantify any one of those is very difficult, because there is just nothing to compare it to in past periods. So we think each of those had some impact on volume growth. It's been our sense, remember again we serve a lot of different carriers across North America, and it's been our sense that these trends -- and not just our sense but the data that we have from our carrier partners has been very consistent across the carriers so, I'm not sure where you are seeing the comment you made but it hasn't been consistent with what we've seen.

The only thing I can think of there, Jason, is that as there was really going into -- there was in first quarter and going into second quarter certainly some carriers who had not put kind of the off-deck people on yet. There might have been a slight, increase just from that additive there but again, to David's point, we haven't seen -- we've seen it across the board with our carriers, most things behaving very similarly.

Okay. Can you talk maybe about the gaming business a little bit and what might be necessary to accelerate the growth there and maybe what the road map is for that part of the business?

I think we're really very pleased here internally about what we're able to do. We purchased 3 small companies and have knit them together into where we're operating on the same strategy where we're getting, we think, good leverage out of the development capabilities we have and out of the distribution capabilities. We have been able to bring -- so for example, we have been able to bring some of the 4 prizes titles that we had here only in the US, and last year really only on the blue (ph) carriers into Europe, we've launched 4 prizes on Vodafone and other carriers there, we've also done the opposite.

We have been able to bring some of the German and games developed in the UK over to Cingular, to T-Mobile, to Nextel and others, so we're getting those distribution pieces in order. Just this last week, we launched some games with another significant North American carrier where we've never had any presence before. So we feel good about that. And really it's just a matter of getting those things linked and getting -- broader distribution and doing more licensing.

One of the things that none of the -- or I should say one of the things that the three companies lacked was any capital to do any licensing of bigger name titles. That's something that we can do here, but that process isn't overnight either so we're working on that, and like all of our businesses here, we don't look at these as one-quarter businesses or 2-quarter businesses. We particularly think, Mobile entertainment, mobile games is a great long-term opportunity so we're trying to make sure we put all the building blocks in, make the right investments here so we're set to grow over a long period of time.

Thank you.

You're welcome.

Our next question comes from Scott Sutherland with Wedbush Morgan Securities.

Hi, Jim, hi, David.

Hi, Scott.

One of my questions was already asked but I've got a couple more questions. To the last question I too saw the same increase in some of your key carriers like Verizon, Cingular the number of content downloads have increased, are you seeing shift to more branded content sites or consumers wanting to shift to the brand and any strategy to kind of target that market?

I'm not sure what you are referring to in terms of branded content.

For example, Cingular launched "Star Wars" so instead of people going just to ringtones they go to a branded site enabled by a competitor of yours. Anything in the market like that that can -?

I think overall what we're seeing is a lot of experimentation and we're doing it too. Cingular sounds is part of that. Some of those brand names have been successful and some we have been disappointed in, and I think that would go across the board for all the brands that people are working with. Not the one you have mentioned but a very popular movie earlier this year. We merchandised for quite a while on Cingular, and frankly, didn't get a long way with it so we're all learning as we go. But I think mostly consumers are affected probably by the merchandising experience and what's up on the top of the deck and what's easy to get to, and we're all learning.

That's another thing I think I would emphasize about this whole value chain or this whole delivery chain, if you will it's very new and people are learning how to merchandise things, how to make all the gears work at the -- in the right mesh, whether it's billing, or merchandising, or content sourcing, or production, or whatever, and we're learning in some fits and starts here, whether it's us, the carriers or the content guys, so there is a lot of experimenting going on, but I think it's way too early to say -- to get down to microconsumer trends.

That leads me to my next question. Obviously this ring tone mix is hurting the margins and that seems to be an ongoing trend. When do you think you're going to get new products up and running in the mobile content space, areas like video and mobile music which seem to be kind of the next content categories?

I think video is a ways out before it's mass market. In terms of having the kinds of numbers of handsets that are out there that will really form a market large enough for video is quite a ways away. When I say quite a ways -- let's say more than 12 months. We clearly are working on all the technical capability it takes to do that and deliver it, et cetera. In terms of full music downloads, the same kind of thing in the sensethat the business model really needs to develop between the carriers and the labels, and you probably heard us talk about this before, but to this point right now, there is some dabbling but nobody has figured out the right business model, and everybody is still working on that.

So I think -- and I would step back and say I don't think it's time to wave the flag or the checkered flag around ringtones here. Less than 10% of the people in the US have downloaded a ringtone, that number is significantly higher than other areas and we think there is a lot of penetration but it's a matter of promotion, of merchandising and all the other things, and getting the right content out there.

Did you say that 5 million for Dogpile will be over the second half of the year or next quarter?

Second half of the year, Scott.

Lastly, on the Verizon contract would you say that contract on the directory side was more profitable than the traditional than the search and directory or did it have any impact on profitability margins?

It was a very high-profit contract.

Thank you.

Thank you.

Our next question comes from Sasa Zorovic with Oppenheimer and Company.

Thank you. A couple of questions, can you update us on the 10% customers here in the second quarter, and secondly what of your M&A plans at this point?

No change in the second quarter relative to our 10% partners.

Sasa, we can't be too specific on M&A, we look at things that can give us increased Mobile or anybody that has real skills on our product side, I want to say that the more we get out there and work and -- a lot of times, we have to be very circumspect about the new products we're working on, because you would understand that almost always when we're working on new products it's really directly in a partnership with a carrier. So last year, for example, when we launched Verizon's 2.0 portal therewas nothing to be said ahead of that time. They don't want any particular discussion about that, so most of the time we're going to be kind of quiet about that.

But the more that we're out there, the more we see the kind of assets we have and the skills we have are pretty far above most of the other players in the market, and so we continue to look really on the mobile side around distribution and increasing distribution capability, and I would say on the search side it's the same kind of thing. We're trying to improve our distribution, particularly in Europe. Very interested in traffic that's high quality traffic and what we can -- what we can acquire there.

In sort of regarding -- could you tell us maybe something regarding the size of the acquisition that you would be looking at, a little bit maybe more about the profile in addition to sort of targeting Europe, and then going back about the 10% customers, if you could tell us given that there is no change who those are and what the percentages of revenue if you could talk about those?

Well on the size of the acquisitions unless you have a specific idea that you want to talk to me about, I don't know. You can see we have a pretty significant cash balance, and we're a cash-flow-positive company. We can do quite a -- we have quite a bit of appetite there, but it's less around that than it is around quality, quality of the business relationships, the contracts they have. If it does happen to be technology, quality of the technology.

Those are the kinds of things that are more important, and fit, and our ability to digest them and to be able to leverage the assets once we get them. I think doing acquisitions is one thing. Integrating them is another. And so far, so good for us. We have been pretty effective, I think, at the 3 -- the 3 kinds of things we have done. David, on the 10%?

Back to your question, the 3 as I said, no change from first quarter, Cingular, Yahoo and Google.

Thank you very much.

Thank you.

Sure.

Our next question comes from Richard Fedico (ph) with Merriman, Kern.

Thanks for taking my question. On the Verizon contract, what else can you do to replace the revenues and increase the montetization on your sites to replace what you have lost with Verizon?

Well, we - Richard, thanks for the question. It's a matter of just going out and talking to people who have local advertisers and so you can imagine that there is a number of those that are an opportunity for us. We were clearly not pleased, I don't think you are ever pleased about this, but we'll try to turn this into a positive in terms of expanding the kinds of advertisers we can now bring on and it does actually give us on some of our sites a little product flexibility we didn't have before, but all of that is not to say that we weren't very disappointed and we -- and very surprised by this but we're hard at work at trying to replace it.

If I understand it right the Verizon listings were all instituted one InfoSpace.com or other sites as well?

On what I would call the InfoSpace.com network of sites, so it was many distribution sites as well as InfoSpace but you are correct, they were not on the Switchboard side.

The SBC and BellSouth and yellowpages.com listings are these pay-per-performance contracts and which site will they appear on?

They largely appear on the Switchboard sites at this point in any case, and they are -- I don't think we ...

...Related to searches, Richard ...

...Related to number of searches.

We get paid by the number of searches.

Okay, thank you.

You're welcome.

Our next question comes from Mike Lattimore with Raymond James & associates.

Hi. Just -- can you clarify your comments around competition on the Mobile side? I wasn't clear what you were seeing there if there was a change since last quarter.

Well, I think, Mike, this is Jim, I think the largest impact that's out there just in the marketplace is the money that Jamster spent to create a brand on the consumer side and you can look at those results and see what's going on. I think the results that you saw there are similar to what we reported from the carriers which is kind of an initial lift and then it's been relatively constant since then. In terms of where -- through the deck, if you will, through the carrier's deck, which is the area we are really focused on here, we haven't seen a significant amount of change.

There have been -- to an earlier question here there have been a couple of individual things done at Cingular but I would just stress to you that our relationship with Cingular continues to grow stronger every day and we do more and more work around them, and with them, and we get by far the lion's share of the downloads through that deck. So, we haven't seen any -- again, as David said, we haven't seen any substantive changes at all on our carrier customers.

Okay. And then how about -- in terms of your guidance for the rest of this year, does that assume any major new contracts or signed or re-signed?

Mike, obviously there is always -- you can look at the numbers and see sort of the kind of sense of the assumptions, but primarily it's around working with our existing customers. Obviously we have a team of people both on search as well as mobile always looking for new opportunities and ways to better monetize our opportunities, but it's kind of primarily around business as usual and continuing to look for new opportunities.

Okay great. Thanks.

Carmen, I think we have time for one last question.

Our final question comes from Gordon Hodge with Thomas Weisel partners.

Yeah. Thanks for taking my follow-up, just very quickly, if you could just make some comments about the traffic acquisition costs rate that you are paying? I think you have commented on that in the past, to your affiliates on the search side, and then lastly if you could review with us what other subscription similar deals to Verizon that you have on the directory side? If I'm not mistaken I think you have one with AOL and BellSouth but I would stand corrected if you can update us on that.

Let me take the last one. I'll let David try to figure out how not to answer the first one, but the second one is really the most similar contract, Gordon, would be the new one that we signed with yellowpages.com which I think as you know is now a partnership between smartpages.com and BellSouth's realpages.com. That would be the most similar. Also Decks, I guess Decks would be in that, but AOL is different in the sense that was a Switchboard contract that was really around operating the platform for them as well, so actually quite a bit different.

I think it's worth pointing out that we signed the yellowpages.com deal as Jim just mentioned recently and it's kind of a multiyear arrangement. In terms of Gordon, your first question on the kind of partner, revenue share arrangements, I would say 2 things. As it relates to our amounts we're getting paid from our 2 major partners, Google and Yahoo, no change there. Those are relationships that are longer term in nature. And then as it relates to the amounts that we're sharing with other partners there is really no change there. Obviously, it's a competitive environment. We're always looking to win new business. But we haven't seen any significant change in the rates that we've needed to pay.

I would just say overall on that Gordon, too, that really in the last 2 years -- either side of that equation, whether it's the tax that are being paid by the big guys or by people like us it's just been very, very stable and I think that just speaks to the fact that the industry has found the right equilibrium between what the value of traffic is, what the value technology is, and what the value of advertisers are.

Great. Thank you.

Thank you.

Thank you to everyone who joined us on the call today. Please, don't hesitate to give us a call if you have any follow-up questions.