Avantax Inc (AVTA) 2005 Q4 法說會逐字稿

Good day, everyone and welcome to the InfoSpace Q4 2005 earnings release 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 Stacy Ybarra, Director for InfoSpace. Please go ahead ma'am

Good afternoon and welcome to InfoSpace's 4th quarter and full-year 2005 earnings conference call. I'm Stacy Ybarra, 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'd like to remind you of two things. First, this is an investor conference call, accordingly, well only be taking questions from the investment community. Second, this conference call contains forward-looking statements related to the developments 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 effect the Company's actual results of operation, include, but are not limited to the progress and cost related, development of our products and services, the timing of market acceptance of those products and services, are dependent on companies to distribute our products and services, the performance of our system, the effectiveness of the developments and implementation of our strategy, possible changes to that strategy, the availability to retain key contracts and personnel and the availability 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 and quarterly reports on form 10-Q, as filed from time to time with the securities and exchange commission. In the section entitled "Factors Affecting Our Operating Results, Business Prospect and Market Price of Stock."

Listeners are cautioned not to rely on these forward-looking statements, which speak for 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'll turn the call over to Jim, following his comments, David will review the 4th quarter financial results and then we'll open it up. The call to your questions.

Thank you, Stacy. Welcome, everyone to the call today. InfoSpace ended 2005 with a strong 4th quarter capping a great year. In 2005, we experienced another year of exceptional growth in revenue, profits and cash flow. Revenues were 340 million for 2005. Up 36% year-over-year. With a 21% adjusted EBITDA margin. Our strong financial performance is a testament to the dedication, innovation, and hard work of our employees and the opportunities in the market in which we compete.

In addition to the growth and profitability, we further strengthened our balance sheet. After investing approximately 70 million in our repurchasing our stock. We added 54 million to the balance sheet to finish the year with approximately 375 million or $11.17 for diluted share and cash. We produced dramatic growth over the last three years, in this time frame, revenues increased over 150%. And we improved from an operating loss of 9 million to a profit of 159 million. That is one measure of progress, another measure is the more than five fold revenue increase in our Mobile business across this time frame. And the establishment of our leadership position and the exciting Mobile Media Market. Nearly everyone agrees that the mobile market is large and growing fast. And as technology improves and customers are exposed to a broader array of services, growth will accelerate. To put this opportunity into perspective. The highly publicized US online digital music sales were only approximately 350 million in 2005, while the Mobile Ring Tone Market alone was more than twice that size.

This is just the beginning. While most have recognized the opportunities, there's less general understanding of the attributes it will take to succeed. I would like to take a few minutes to provide some insight into this market and to illustrate our strengths in addressing it. At the Mobile Media Market is emerged, many analogies to the growth of the internet have been proffered. Some are appropriate. The growth of the internet significantly accelerated when broadband networks became widespread. In North America, the Mobile Market still operates in what is parallel to a dialup mode. As the 3g-networks are completed and the handsets are turned over, speed will thrill. Also analogous to the net, it will be paramount to provide users a method that navigate and discover content. As Mobile Real Estate is scarce and content is plentiful. On the web, Amazon, Yahoo, Google and Expedia have assumed this role. Other analogies are enact exact at best. For example, the internet is a truly public network, where each user pays for his or her small portion of the network and allows it to be combined to form the whole.

In addition, the devices attached to the network are open devices with, for the most part, are a single operating system. This device is financed in whole by the user who then defines the capability and format to suit his or her needs resulting in each web site having more or less equal access to end users. None of this is true in the mobile world. The mobile networks have been developed by separate entities, consuming vast amounts of capital provided by their shareholders who demand and deserve a return. The devices that access these networks are heavily subsidized by the carriers and proprietary by design and only the applications that the carriers approve of will appear or function on them. Carriers hold and should be expected to continue to hold enormous influence on the services provided and the content available across these networks and devices. The vast and very devices create a layer of complexity and delivery in management not present in any other media type. That's destined to endure.

These elements combine to form a different media market. One in which InfoSpace is well positioned to succeed. Our strategy for growth and value creation is built on three pillars; distribution, technology, and content. Our distribution goal is simple. Reach the largest possible audience through multiple channels. We have essential footholds on several fronts and we'll develop another this year. Online, we distribute information content to over 24 million users via our own brands and those of our 100-plus distribution partners. We have partnerships with over 40 mobile carriers in North America and Europe, which serve over 400 million subscribers. Our longstanding arrangements with major mobile operators such as Cingular, Verizon, T-mobile, Virgin, Vodafone and Orange have propelled the growth we've enjoyed. While the vast majority of mobile content transactions take place on the phone today. Mobilizing major brands is fast becoming an important route to consumers. We work with brands such as Samsung, Motorola and Siemens and just yesterday, we announced a partnership with fuseTV, the only all music , viewer influence, television network in the US.

InfoSpace will develop, build, and manage the fuse network's storefront, offering a broad array of mobile content. Our association with fuse is a great example of leveraging our carrier relationships, our private labeling skills, our technology, and the content catalogs we have to reach consumers. The newest and perhaps most exciting channel is our direct-to-consumer launch targeted for the first half of this year. We've conducted significant consumer research in order to craft a consumer friendly, value oriented offering, that will feature our unique applications in a variety of content. Our close working relationships with the carriers make us a trusted partner in developing this off deck channel. The second pillar is technology. InfoSpace possesses critical discovery, merchandising, and delivery capabilities, such as Meta Search, Store Front, and Portal Services and our patent pending technology that deals with a delivery of content across hundreds of mobile devices. These capabilities combine to enable the presentation, merchandising, and delivery of relevant content to users everywhere, whether online or mobile.

In the 4th quarter of '05. We launched MEdiaNet 3.0, the new portal service that significantly redefines the mobile browsing experience for the customers of Cingular wireless. This dynamic portal allows Cingular subscribers to more easily find the content they're looking for and the customize and personalize information for the devices. A critical component to our strategy is providing search capabilities to make it easier for users to find content and information when their mobile. As an expert in search, InfoSpace has invested in technology that factor in user intent to better prevent relevancy. Included in MEdiaNet is our Mobile Search product. This is a significant step in our quest to become the leader in Mobile Search. The launch has been very successful as total search query volumes and queries per user have exceeded expectations. Building a large and growing Mobile Search audience is a significant initiative for us in 2006 and we've taken a strong first step with the MEdiaNet launch.

Our portal and storefront technology enjoys widespread adoption and we continue to steadily improve the user experience and the modernization. Portal and store fronting are becoming more tightly integrated with search technology and with the entire content management delivery process. In 2005, we sold and delivered over 150 million mobile downloads of content to over 600 device types, no other company has this scale or the broad technical skills we've developed which serve to make InfoSpace a valuable partner for mobile operators and content producers. Neither the carriers nor the content owners possess the core competency or the scale necessary to cost effectively execute these complex tasks across the supply chain.

As the mobile market grows, and the content pool expands, the complexity of content acquisition, rendering and delivery will increase and become more challenging to manage. Regarding content companies, access to distribution on the carrier networks is limited and our position as a trusted partner is essential to the mobile value chain.

The third pillar is content; providing the user with whatever he or she desires, be it personalization, entertainment or information. Regarding the latter, we recently renewed our online agreements with Google and today, with Yahoo to continue to deliver their results on our branded destination sites and distribution sites. Both are multiyear arrangements, we're very proud to continue our longstanding partnerships with both of these leading companies. We've developed a deep library of mobile content in music, graphics, games and a variety of other personalization projects. We're the leading provider of publisher of mobile content in North America with under 600 licensing agreements and over 1.5 million items in our content catalog.

Our goal is to build on this by extending our range of content to appeal to a much wider audience. Well continue to expand our demographics beyond youth oriented contented by adding more sports, news and opinion as well other verticals that have been under marketed such as the Hispanic and Faith-Base segments.This year we are also launching new initiatives for video applications and integrated with editorial and personalized content.

In the 4th quarter we added significant industry expertise and leadership to our team. Jules Haimovitz, President of Dick Clark productions and former President of MGM networks joined our board of directors. Also, accomplished media and entertainment executive Stephen Davis came aboard as our President of Mobile and Online Media. Steve was President of Granada America, the US based development and production division of iTV, one of Europe's largest media companies. We're very excited about the future here. We have the critical assets and skills required to build a substantial business in a dynamic market. We build strong distribution and content relationships and we have a broad and deep technology and operational skills already operating on scale. While some have been skeptical about the role of intermediaries in this market. Our carrier customers continue to ask more of us, and our content partners look to us for broad distribution and technical wherewithal, on a daily basis.

At least one major content player has recognized the challenge this market holds. Last quarter, Electronic Arts acquired JAMDAT, the leader in mobile games, at a healthy valuation relative to revenue and profit. EA knows how to license material for games and they know how to build them. They recognize the technical expertise JAMDAT had build in mobility and the significant distribution network they developed. We have a track record of growth and execution and have the capitol and organization structure for success. We recently combined our Mobile and Online units to leverage our considerable resources and talents on both sides of our business. Two-thousand and six will be an important year of development and investment to exploit the merging opportunities, created by the converges of mobility, entertainment and information.

Before I turn the call over to David, I would like to express my thanks and admiration for the job he's done here, and for the effort he's expended on behalf of InfoSpace and its shareholders, as we announce today. David plans to resign during the first half of 2006 to pursue other opportunities. He came on board as part of a restructuring effort and has been one of the most significant contributors in turning the Company around to the type of results that we have been so proud to achieve. David's ready for new and different challenges in his career and we and I in particular, wish him all the best. I'll miss his intelligence, his integrity, and his counsel. For the time being, David will remain in place as we search for his successor. With that, I'll hand the call over to you, David to provide some more detail on our financial results and outlook. Thank you.

Thanks, Jim. And welcome to the call today. On a personal note, it has been great working with all of you, I am very proud of what we've accomplished in InfoSpace in the last three years, as Jim indicated I will be actively involved in the management of InfoSpace until my successor is named. I expect the transition to be a smooth one, especially since we are fortunate to have a very strong and seasoned financial team.

Now for our results. I will start with the review of our 2005 results and then discuss our first quarter 2006 outlook. Our revenues for the 4th quarter were $86.5 million, an increase of 6.9 million or 9% from 4th quarter '04. From the 4th quarter 2005. Adjusted EBITDA was $ 15.8 million, a decrease of $6 million, or 28% year-over-year. However, adjusted EBITDA was up $1.8 million or 13% relative to 3rd quarter. The adjusted EBITDA margin for the quarter was 18%. We had another strong quarter of profits generating net income of $37.9 million or $1.13 per share. Included in net income was a tax benefit of $ 25 million or $0.74 per share from realizing a deferred tax asset related to a portion of the net operating loss carry forwards attributable to continuing operations. Excluding this tax benefit net income would have been $12.9 million or $0.39 per share. Weighted average fully diluted shares were 33.6 million for the 4th quarter of '05.

For the full year '05. We had revenues of $340 million, an increase of $90.6 million or 36% from 2004. Adjusted EBITDA for 2005 was $70.9 million, an increase of $11.9 million, or 20% from 2004. Net income was $159.4 million or $4.47 per share. Net income includes two significant items in 2005, totaling $102.3 million or $2.87 per share. A $77.3 million net gain from a litigation settlement in early 2005. And the aforementioned $25 million tax benefit in the 4th quarter. Excluding these two items, 2005 net income would have been $57 million or $1.60 per share.

On the employee front, we ended 2005 with 615 employees. Up 170 from year end 2004.

Now let me turn to our segments. In the 4th quarter of '05. Search and Directory revenues were $44.3 million, down 2.9 million or 6% from the 4th quarter of '04. During the quarter, total paid searches in North America for both Search and Directory were approximately 195 million and the average revenue for paid search was $0.18. Segment income was $19.6 million and the segment margin was 44%. The segment income and margin showed significant improvement from 3rd quarter due to a number of factors. Seasonal strength at our own sites, a favorable mixed shift, and the reduction in marketing span relative to 3rd quarter. In the 4th quarter, Search Distribution revenues in North America continue to account for approximately 60% of the portion of Search and Directory revenue coming from Search. For the full year 2005, Search and Directory revenues were $182.6 million, up 25.7 million or 16% from 2004. Segment income was $78.1 million, up 9.5 million or 14%. And the segment margin was 43%.

During the second half of 2005, we made a lot of progress toward improving the quality of our distribution traffic network. Now turning to the mobile business, revenues for the 4th quarter were $42.3 million. An increase of $9.8 million or 30% from the 4th quarter of '04. Relative to 3rd quarter, revenues were up $3.2 million, or 8%. Mobile segment income totalled $7.3 million for the quarter, down 800,000 or 10% from the same period last year. And the segment margin was 17%. We are pleased that our mobile margin in the 4th quarter was in line with our 3rd quarter results. As we have discussed over the last few quarters, our margin has been impacted by two main factors, a significant mix shift toward label tones and our continued investment into the business and new opportunities that are presenting themselves. It is important to note that approximately 75% of our music downloads are now label tones. For the full year 2005, mobile revenues were $157.4 million, up a very strong $64.9 million or 70% from 2004. Segment income was $32.7 million, up $7.1 million or 28%. And the segment margin was 21%. This incredible growth speaks to the opportunity in front of us, and our increased investment and focus on it.

Regarding the balance sheet, the Company ended the quarter with $375.4 million in cash and marketable investments, up $13.6 million the 3rd quarter and up $54 million for the full year. During the quarter, we repurchased 300,000 shares for approximately $8 million. Since we initiated our $100 million stock repurchase program, we have repurchased 2.6 million shares at an investment of just over $70 million. Now, let me turn to our first quarter outlook. I'll start with a few housekeeping items.

First, in 2006 we will begin expensing stock options. We expect that our 2006 first quarter stock compensation expense will be approximately $4 million, versus no expense in 2005. Second, in the 4th quarter of 2005. We realized a benefit from our deferred tax assets. As a result, in the first quarter of 2006 our estimated World Wide effective tax rate for GAAP purposes will be between 5 and 10%. This compares to approximately 1% in 2005. Keep in mind that our actual net operating loss carry forward is over $1 billion. So this effective tax rate change will have no effect on our cash taxes.

Third, as Jim indicated, recently we emerged the operations of our two businesses, Mobile and Search and Directory. As such, in 2006, we do not expect to continue reporting each segment separately. Regarding revenues, we expect revenues to be generally in line with 4th quarter 2005. Keep in mind that the 4th quarter tends to be our seasonally strongest quarter. 2006 is a very critical year for InfoSpace as we continue to invest in the mobile market. This is a very fast growing and evolving business opportunity. In the first quarter, we will invest significant resources in three major growth initiatives; content licensing, mobile search and a mobile direct to consumer offering. These initiatives will account for approximately $ 5 million of operating expenses in the first quarter of 2006. For the first quarter, we expect revenues to be between $85 and $87 million. We expect adjusted EBITDA to be between $7 and $8 million and net income to be between $1 and $2 million, or $0.03 to $0.06 per fully diluted share. Keep in mind when comparing 2006 net income to 2005 results, our first quarter 2006 net income will include approximately $4 million from stock compensation expense. This concludes our prepared remarks, I will now turn the call over to the operator, and we'll be happy to take your questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Safa Rashtchy with Piper Jaffray.

Good afternoon. First, I want to make sure I heard you correctly, that you will not be disclosing segment information. If so, do you plan to give metrics that could help us follow the growth pattern of your businesses? And if not, what do you think is likely to look at the different businesses as you go forward. And I have a quick follow-up.

Thanks for the question. Terms of the segment, as Jim indicated and as I mentioned as well. At the beginning of this year, we merged our two business units and really just a bit of history on the reason and the rational for that. Was a fundamental view and we've talked about this before, the assets we have and the relationships we have and the technologies we have and the customers we have on the online side are moving more and more toward the mobile side where we think we have a leadership position. And so we felt that the best way to address this expanding market is via a combined effort. So I think in the near term, probably the best indicators of how the business is doing will be around a consolidated set of results. Obviously as some of these major business initiatives we discussed like the direct-to-consumer or the mobile search product as they get their own sort of velocity, will work toward giving you and investors a better sense of what the key metrics are, I think it's probably a little early to comment on specific metrics for any of these, we have a lot of initiatives in the works here and we'll be able to give you a better sense of that as the next couple months and quarters go on.

Okay. Are you seeing any traction for your online customers moving to mobile platform. Have you been able to actually put some of these advertisers, I assume that's what you're referring to on the mobile platform or is it the content you're referring, give us more clarity on that.

Well, the -- this is Jim. I think you know we've announced before, we talked today in the script, the search product that's on media net three right now. 3.0 is the first launch we've done with a carrier where we embedded mobile search in there. We don't think it's going to be the last. We hope not. The relationships we have with those carriers and particularly the fact that we deliver the portal for them already bode well for our opportunities there. I also mentioned briefly today that we resigned with Yahoo. In fact that just happened this afternoon. And that extends they're advertiser capability and results capability to mobile, as well. Stay tuned on that, you'll be seeing more as we go on. I mentioned in my script, but I'll mention it again as an aside. We've been frankly very surprised at not only -- really, at the number of queries we're receiving through the media net portal and the number of queries per user. Better than our -- much better than our expectations would have been. We're getting more excited about it.

If I could just -- last question, given this trend, I'm curious as to what appears to be conservative guidance for Q1. You may have addressed this. Typically you still have a reasonable strong season in search in Q1 building up on Q4. And your mobile business seems to be doing well. How should we look at the guidance you're giving, what kind of seasonal did you expect.

The 4th quarter for both our businesses is as we think the strongest quarter in terms of purchasing behavior and in terms of advertising behavior, et cetera, so whenever we look toward the first quarter, at least historically with granted a limited number of years of experience. We think that it tends to be not as strong from a seasonality standpoint. We always go into the 1st quarter cautious about a sequential comparison as opposed. That doesn't reflect any views on the fundamentals but just more on the sequential comparisons, just as a best example. The biggest handset sales of the year happen in the 4th quarter, for example. And similarly, you know, the biggest chunk of retail purchases and retail advertising happened in the 4th quarter, so those trends are trends that impact our thinking and our analysis.

Okay. Great. Thank you. Great quarter.

Thank you.

We'll move to Imran Khan with JPMorgan.

Hi, how are you?

Hi.

A couple of questions, first, average price declined from $0.18 to $0.20. I'm trying to understand if it's a macro level thing or something specific to you in terms of white pages. Secondly, you deal with Google and Yahoo, we have been hearing they've been getting much more difficult with sub syndication site. I was wondering if any kind of risk, what kind of risk you saw while signing that contract and if the tax rate has change. You could give us an idea if this went up or down. Those are the few questions.

Thanks. I'll take the first one, this is David. On the PPC. As you know, or as you may recall, the $0.18, that we report is a blended average of our two parts of our business so the search side which I think a lot of folks -- yourself could have a decent amount of rate visibility into. And the other part of our business, also the important part which is the directory side, and really this reflects mostly just a little bit of mix shift from 3rd quarter to 4th quarter where we did a little more on directory side. The thing we've always liked about directory is virtually every search -- directory yellow pages that is. Virtually every search is a commercial search. But the average rate for those searchers tends to be lower than your traditional search is, on the search side. On the second question, I guess --

I think Imran what you were asking is about our recent -- about the renewals with Google and Yahoo, and I would just say that our -- we've had -- we've many now had three years plus with what used to be Overture now Yahoo. A little more with Google and a little more with Yahoo. We've had a longstanding relationship with these companies. It's been great for us, we think it's been great for them. As our volumes have increased, the tack as you say, is -- you can think about the fact of more business you send people, the better the relationship might be. And so, you know, there's nothing really extraordinary to report there. We've had good relationships with them. We've extended these multiyears again, and we're very pleased with the result and we think they are too.

As a follow-up to this question, Jim. And David. I think you talked to us about you were cleaning up some of your partners who may have ad-aware and Spyware. Are you 100% done or do you think you still have cleanup to do?

No, we've spent a lot of time on that. Some of that is trying to hilt a moving target from time to time time with what the industry thinks about, and the -- there's innovative people out there too that find different ways to do things, I think that what's happened over the last year, at least in our relationships, we've worked really hard together with both Google and Yahoo to try to define the kind of traffic we both want. None of us are interested in traffic that doesn't convert. In their terms, or that is -- that our placing their advertisers and, therefore, our advertisers on sites they don't want to be on. We've spent long and hard hours making sure that we've defined that carefully and then I would tell you we absolutely adhere to all the definitions that are there. And we think we have a really good base of traffic to continue with right now. So we're, you know -- it's been a lot of hard work, but everybody is -- I think as an industry has come together on what the real definitions ought to be, and then how do you manage to it.

Thank you.

Thank you.

We'll move to Jordan Rohan with Royal Bank of Canada

I was curious about the comment that part of the incremental 5 million in operating expenditure in first quarter was going toward content licensing, could you expand upon that a little bit and tell me, are you going out and specifically licensing content to make into ring tones to distribute in your own direct to consumer or is this the normal standard operating procedure in the ring tone business these days that you have to invest in content, pay more to the artists and such.

Actually, Jordan this is Jim, I don't think that we haven't seen any real increases for the artists. Unless the labels are paying them more, and I would highly doubt that is the case. So we really haven't seen any. What it reflects is, our audience is building rapidly. So that we now have an opportunity to, if you will, amortizing the cost of going and buying or buying rights or wiring rights or doing different things in the content world. Across a much larger audience than we had a year ago. So we're -- it's just -- it's an opportunity for us to use the size of our audience and leverage that into broader and deeper content rules, and, of course, the other thing that is happening is, of course, different kinds of content. Specific for the rest of this year, or later in this year particularly, you'll see a lot of video activity I think as the handsets get out there. And the networks get out there. And we're getting ahead of the game in getting licensed there.

Thank you.

Our next question comes from Sasa Zorovic Oppenheimer Funds.

Thank you very much. The past you used to give the guidance for the full year, now you've given it for the first quarter only. Could you tell us why that is now the case, please?

Sure, hi, Sasa. You know, really as we talked about, we have a lot of significant initiatives for this company that are getting kicked off in the early part of this year. On the operational side as Jim talked about, we've merged the business units, that just happened in the last few weeks on the kind of strategic initiative side. We're launching initiatives in the first half of this year related direct to consumer, we're launching -- we launched and we'll hopefully continue to launch mobile search and expand on that and then obviously on the content side I just talked about, we're doing a lot of things, our main focus is on getting these things up and running, getting some real data and visibility and we will comment when appropriate on future trends and opportunities from that.

Great. And then secondly, if you could give us an update on your gains part of the business.

Sure, I'll take that. We've said, you know, from way back when, a year ago, this time when we purchased the two European acquisitions that we expected the gains business to be in the 5 to 10% of our mobile revenues, as we look back at 2005. That was a good forecast. And continued to be the range of our game side and we got a lot of different initiatives going on in the games front as well. We've done some licenses and launched a few new games, I would characterize it as business as usual at this point.

Great. Thank you.

You're welcome.

We'll move to Clay Moran with Stanford Group.

Getting back to the investments this the first quarter, do you have any since of what the time frame is that you'll need to make them investments do they go beyond the 1st quarter. Can you give us a sense of when we start to see a return on those investments.

Sure, clay. In terms of the first quarter, these are important initiatives, I wouldn't view them as one-time items in the sense that the cost to get up and running and just to pick on -- as an example the direct to consumer opportunity that I mentioned. This will be an ongoing effort by the Company, obviously, the first phase you have to invest in it and spend time and money to get it launched pre revenues, after that, you'll have revenues, you'll continue to have real expenses associated with these businesses. In each of those cases that's the phase we're in which is the early phase of that. I would expect the investment to continue but also obviously we'll expect to start seeing the benefits of that investment as they kick. And that's maybe back to one of the earlier questions, at that point at those points we'll be able to give you a better sense of how they're going.

Okay. Thanks.

You're welcome.

Gordon Hodge Thomas Weisel Partners.

A couple questions, Jim, I think you mentioned you're ahead of expectations on the query volume on MEdiaNet3.0. Could you -- I was wondering if you could give us a sense of how many users you have on the portal now. You know, maybe -- and I don't know if you include the queries, I gather you don't. In your query counts that you do provide in terms of clicks, I don't know if those are revenue generating or not. The other question I have, you have an AOL directory deal that came up at the beginning of the year, I'm wondering what the status of that is. And lastly, just to follow-up on the question, it sounds based on your comment that is we shouldn't assume tack went down with Google and Yahoo, I'm curious just what the overall trend. I know you sometimes comment on that, if you wouldn't mind. Thanks.

I would say you're not counting these queries in the online queries we're receiving. David, I think you're going to take the middle we?

Sure, we have as part of our switchboard business, we have a relationship with AOL where we provide the platform that powers their yellow page business and it's still up and running and they're using it, so other than that, I can't comment much further than that other than to say we're pleased they continue to use it.

In the tack rate overall that it change much in the quarter?

That's confidential, Gordon and --

Oh, okay.

All I would tell you is we're pleased with these relationships, we continue to be, and our volume growth has been positive, and everything's been going along fine there.

What about the affiliate, I think you commented on that in the past. I think it's 60% of your --

Yes.

Is that still a good range?

Yes, I think David commented on that today. It's still holding there as we continue to be about the same on both sides there.

Terrific. Thank you.

Thank you.

Thanks, Gordon.

Our next questions comes from Stewart Barry from Thinkequity.

What was your international revenue this quarter and I was wondering if you could extrapolate on that front?

We didn't break it out separately. It will be in the 10-K when that shows up in a few weeks, it's been consistent during the course of the last few quarters. No real change there. The biggest push on the international front has been around two key areas so far. One has been the games business in Europe. And the others been some search and directory business that we do in Europe as well. We'd love to do more business in Europe. It's still a small part of our company, and it continues to be an interest to us in terms of what and how we can expand on that.

The only thing I'd add there is that we have -- we've increased our head count in Europe in the last quarter or so, brought on some new leadership and talent there, and we do believe that we -- and we've also at the -- kind of down in the grain here, you know, granular area a little bit. Worked hard on getting search products for specifically designed for some of the European players, we did were we've had some success -- success now with the clients on the search distribution side. Search is still relatively -- relative to the U.S. newer in Europe. And there's many more sites that really haven't just either contemplated search or really thought about their role in search. And so we still think there's a great opportunity there.

Okay. Well, thanks a lot.

Thank you, Stuart.

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

Okay, we'll take our next question from Will Power from Robert Baird.

Thanks. I wanted to follow-up on the off portal decision. You expect to incur $5 million in development expenses in Q1. I guess I wondered how much of that was associated with anticipated marketing expense. And then if you can give us any sense for the magnitude of required marketing expense going-forward, and then I guess as part of that at some level you'll be competing against your current carrier customers, and I guess I wondered how you were thinking about that dynamic and what kind of feedback you may have gotten from some of your larger carrier customers. Thanks.

Let me take part of that question. And then any of the relevant numbers we'll let David deal with. Actually, it was -- I won't quite say it was at the behest, but it was with working with our carrier customers. It was part of the confidence that we had in stepping forward here. The carriers want to see some off deck activity, you know, remember the carriers take a pretty healthy piece of the pie here for billing and for -- really, they -- it's a billing fee technically. But it's for access to the customer base they own. And I think that's something to remember overall when all of your thinking about this mobile market that's very different, these users are not -- they're not free to roam wherever they want. They are customers of certain carriers and the carriers own those customer relationships. Those are lucrative agreements, what they have really been looking for in off deck partners are people that fit I think a couple criteria, three criteria, I'd say, companies that they know have the wherewithal, the financial wherewithal to be in the business and stay in the business, that's number one. The companies that have the technical capability to integrate with them, provide, particularly awe start to move from a -- attaching a file to an SMS message and dumping it on a phone into more sophisticated applications and we fit that. The third, is just somebody that's integrated and trusted, a trusted partner that they've done business with before. So certainly we haven't developed these out of old cloth, we've worked with our carrier customers side by side to make sure we have the right kinds of offerings there. David?

The other part of your question, regarding the off portal and the$5 million,make sure I'm doubly clear here, the 5 million is investment in the total of 5 million investment in three major initiatives for the Company. Direct to consumer is one of those three. The other two as I mentioned are the content and the might be I'll search side, so the 5 million includes all three of those, in terms of the marketing specifically, yeah, a portion of that 5 million is marketing that. We won't break it out separately at this point for competitive reasons as we look to 2006 and beyond it's early. And competitive to be discussing our marketing plans, I would say that it wouldn't surprise you as the early phase -- we'll spend some money, a lot of the money will be designed to learn about, what are the most effective ways to get customers, what's the right cost of acquisition, et cetera, we can dial up or dial those earnings down as we government that's something you'll have to stay opportunity for.

Okay. There's a plan to get that launched here in the next month or two, at the end of the first quarter.

We talked about the first half of '05H6. -- '06. Anything more than that we won't be providing today.

Okay. Thanks.

Thanks, Will. Operator, I think that's -- we're out of time.

All right. That does conclude today's conference, we thank you for your participation, you may disconnect at this time.