Avantax Inc (AVTA) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to the InfoSpace Q4 2006 earnings release conference call. Today's call is being recorded. At this time for opening remarks and introductions, I will turn the conference over to the Director of Communications for InfoSpace, Ms. Stacy Ybarra. Please go ahead.

Good afternoon and welcome to InfoSpace's fourth quarter 2006, and full-year 2006 earnings conference call. I'm Stacy Ybarra, Director of Corporate Communications.

With me on the call today is James Voelker, Chairman and CEO, and Allen Hsieh, Chief Financial Officer. Before we get started, I want to remind you of two things. First, this is an investor call. Accordingly, we will 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 affect the Company's actual results of operations include, but are not limited to the progress and cost related to developments 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 and quarterly reports on Form 10-Q as filed from time to time with the Securities and Exchange Commission in the section entitled Risk Factors. Listeners are cautioned not to rely on the 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, Allen will review the fourth quarter and full year financial results and first quarter outlook. Then we'll open up the call to your questions.

Thank you, Stacy, and welcome to the call today.

In the fourth quarter, our primary focus was the execution of our restructuring program related to the pending loss of significant revenue from one of our carrier partners. Overall, the restructuring plan has been progressing effectively and in line with our expectations.

In September, we began streamlining our priorities to achieve profitability for our business. We have organized into two units, mobile services, including Portal, storefront, messaging and mobile search assets and online, our Search & Directory properties as well as our private label distribution business.

As previously announced, we suspended investment in mobile content initiatives and, accordingly, we plan to substantially exit that business over the first half of this year. At that point, our mobile revenues will be reduced by approximately 3/4 from today's levels.

We have announced a reduction in head count by roughly 1/3 of our workforce and we plan to end 2007 with slightly less than 500 employees. To date, we have recorded $62.3 million of restructuring charges of which $16 million are cash, and we expect additional cash charges over the next two to three quarters to range between $1 and $2 million as we complete this process.

For the year revenues were $372 million, up 9% year-over-year. Online revenues were $187 million, up 2% year-over-year and mobile revenues were $185 million, up 17% from 2005. Revenue in the fourth quarter was $89 million, below our guidance of $91 to $93 million and up 3% over the same quarter last year.

While mobile revenues were in line with our expectations, we experienced lower-than-projected online traffic and monetization in the quarter. The majority of the shortfall is attributable to our removal of poorly converting distribution traffic from our network, however, we also had lower-than-expected performance on our owned and operated sites. Our balance sheet remains strong, we ended the year with $402 million in cash and no debt.

Now, let me share a few thoughts on our business units. Although we were disappointed with the fourth quarter results, InfoSpace's online business is solid with great products, a proven business model and strong partnerships for distribution and monetization.

In October, dogpile.com won the prestigious J.D. Power & Associates award for the highest customer satisfaction across all search engines, Dogpile scored top ratings in all three categories, ease of use, functionality and results. We were not really surprised as independent studies have proven that our metasearch technology consistently yields a higher search success rate than all the major engines and the major search engines are diverging in how they search: Google, Yahoo!, Ask and MSN use fundamentally different methodologies to crawl the web.

In fact, about 85% of first page results are unique on the major engines. As the leading metasearch provider, this enhances the value of our offering as we assemble an every expanding and more relevant set of results. Our distribution partners benefit as well as we consistently monetize better than any single engine while delivering a great user experience.

In the Fall, we extended our technology to a new brand. The kid-friendly search site zoo.com. Zoo offers children the opportunity to experience the wealth of educational, informative and fun material on the internet while filtering adult and other inappropriate content.

On the mobile side, our core technology products are in high demand and we continue to grow users and revenues. We're the leader in the mobile data technology solutions for operators providing Portal, mobile search, messaging and/or storefront solutions to three of the top four carriers in the U.S., as well as several carriers in Europe.

More than 20 million U.S. users accessed our Portal and mobile searches in the fourth quarter, an increase of over 60% from a year ago. As we sharpen our focus on mobile platform services, we remain optimistic that we can further strengthen our market position and as search and advertising move to mobile devices we're well-positioned to capture value in the chain.

In fact, we expect to enable, via partnerships, search-based advertising products with both a North American and European carrier in the first half of this year. In addition, our mobile local search product, InfoSpace Find It! has been upgraded to feature a voice out capability that delivers turn-by-turn spoken directions. We've also deployed a WAP version across six carriers in the U.S.

Between the WAP and downloadable version, InfoSpace Find It! has approximately 200,000 users. Going forward, we remain on solid financial ground with a strong balance sheet and a positive cash flow business. As we complete this restructuring, we will pursue opportunities to grow the business as well as cash flow.

With that, I will turn the call over to Allen.

Thanks, Jim, and welcome to our call today.

I will start with a review of our fourth quarter and full year '06 results and then discuss our outlook for the first quarter of '07. Our revenues for the fourth quarter were $89.3 million, an increase of $2.8 million or 3% from the fourth quarter of '05. Sequentially, revenues were down 7% from the third quarter.

As Jim mentioned, revenues were below our expectations and I will address this in further detail when we discuss our segment results. For the fourth quarter in '06, adjusted EBITDA was $1.9 million, a decrease of $13.9 million from the fourth quarter of '05, however, keep in mind that we recorded an incremental $4.5 million restructuring charge in the forth quarter, which was in addition to the $57.8 million restructuring charge we took in the third quarter.

Excluding the restructuring costs, our adjusted EBITDA was $6.4 million in the fourth quarter. On a sequential basis, excluding the restructuring cost, adjusted EBITDA was essentially flat with the third quarter. In the fourth quarter of '06, we had net income of $30 million or $0.91 cents per share as compared to net income of $37.9 million in the fourth quarter of '05 and a net loss of $46.7 million in the third quarter.

Included in the fourth quarter net income was a tax benefit of $32.6 million, primarily from realizing a deferred tax asset related to net operating loss carry forwards, which was similar to the tax benefit of $25.4 million we recorded in the fourth quarter of '05. Weighted average fully diluted shares were $33.1 million for the fourth quarter of '06.

For the full-year 2006, we had revenues of $371.7 million, an increase of $31.8 million or 9% from 2005. Adjusted EBITDA for '06 was a negative $27.8 million, which included--includes a restructuring charge of $62.3 million. Excluding the restructuring charge, adjusted EBITDA is $34.5 million in '06, compared to $70.9 million in 2005.

For the full year 2006, we had a net loss of $12.7 million. Comparing our net loss in '06 to net income in '05 requires consideration of a couple of items.

First, we had litigation settlements and an income tax benefit in 2005, resulting in a gain of approximately $102 million. Secondly, in 2006 we recorded a restructuring charge and stock-based compensation expenses which were partially offset by the income tax benefits, but nevertheless, netted to a net charge of approximately $38.2 million negatively impacting our results.

Now, let me turn to our segments. Starting with online, in the fourth quarter of '06, revenues were $41.8 million, down $2.5 million from the fourth quarter of '05, and sequentially down $6.7 million from the third quarter.

As Jim mentioned, search revenues were below our expectations. Approximately 1/3 of the underperformance is from our owned and operating sites and the remainder from our distribution partner sites. The shortfall from our distribution partners was primarily the result of us removing poorly converting search traffic. Segment gross profit was $27.8 million.

Gross profits decreased by a $0.5 million from the fourth quarter of '05 and was down by $2.6 million sequentially from the third quarter. Our gross profit margin was 66%, up compared to fourth quarter '05 gross profit margin of 64% and up 4% sequentially.

For the fourth quarter of '06, search distribution revenues were approximately 54% of our total search revenues, as compared to just over 60% in prior periods. For the full-year '06, online revenues were $186.9 million, up $4.3 million or 2% from '05.

Segment gross profit was $120.2 million, up from $114.5 million in 2005. Our gross profit margin was 64%, up compared to 2005 gross profit margin of 63%.

Now, turning to the mobile business, revenues in the fourth quarter of '06 were $47.5 million, up $5.2 million from the fourth quarter of '05 and in line with our third quarter. Our segment gross profit was $18.7 million, a decrease of $1.7 million from the fourth quarter of '05, and an increase of $400,000 from the third quarter. Our gross profit margin was 39%, down compared to the forth quarter of '05 gross profit margin of 48% and in line with the third quarter gross profit margin.

For the full-year 2006, mobile revenues were $184.8 million, up $27.4 million, or 17% from '05. The gross profit decreased by $6.9 million from '05. Our gross profit margin was 40%, down compared to 2005 gross profit margin of 51%.

Regarding our balance sheet, we ended the year with $401.9 million in cash and marketable investments, down approximately $9 million from the third quarter, primarily due to timing of the collection of receivables and payments related to our restructuring. For the year, cash and marketable investments were up $27 million.

Now, let me turn to our first quarter outlook. For the first quarter of '07, we expect revenues to range between $82 and $84 million. This guidance anticipates that the major record labels will go direct to our carrier partners.

Media revenues, which were primarily label tone sales, represented about 80% of our total mobile revenues in the fourth quarter of '06. While we expect a transition to occur over the next two quarters, the negative impact to revenues may not be linear and could happen faster or slower than anticipated. Keep in mind the ongoing mobile service revenues generated between $9 and $10 million per quarter in '06.

We expect the adjusted EBITDA to be between $6.5 million and $7.5 million and have a net loss to range between $1 and $1.5 million or $0.03 to $0.05 per share. Our guidance includes an approximately $1 million gain on the recent sale of assets of our U.S. game studio. We also expect an effective tax rate of 40% to 45% .

This concludes our prepared remarks. I will now turn the call over to the operator, and we'll be happy to take your questions.

[OPERATOR INSTRUCTIONS]

We'll have our first question from Scott Sutherland, Wedbush.

Thanks and good afternoon.

Good afternoon, Scott.

Hey, Scott.

Just a question, clarification on mobile, I mean it sounds like you're going to completely exit the publishing and content business and focus on infrastructure, is that accurate or are you keeping any sort of content business by the end of this year?

Well Scott, the intention is to substantially exit it and by--and basically, we're looking at the first part of the year. Halfway through the year, we believe all of the kind of label tone business and associated with that will be gone and then there is other ancillary graphics business, etc., that we'll make decisions on, but substantially, I think that's correct.

Okay, so we get down to $9 or $10 million plus a little bit of remaining stuff there?

Correct. If you look at last year's numbers, yes.

What is kind of the profile on the gross margin or operating margin you think these remaining infrastructure services have, like the search and 411 and storefront stuff?

Yes, Scott, this is Allen. In terms of the gross profit margin on that-- our now core mobile services business, it's relatively high because of the fact that there is not that same level of content cost that we used to have, right, so you have to think about it as fairly high profit, gross profit margin business.

But, if the people--the costs are all people, right?

Right.

So it has high gross margins and then it's a matter of can you operate it at a level that produces profit on the bottom line, which we believe we can.

Would you say 70% is fair where it was in the past before you got -- bought Moviso?

We have not actually talked about that, disclosed it publicly. I think you will see a lot of that information as we go through the next year or so.

As we go through the next few quarters, right.

Online dropped. Do you see yourselves taking any more distribution traffic out? And the second question on that is it looks like it had a positive effect on the gross margin in that segment. Would you expect gross margin to expand a little bit more?

Well actually, we wouldn't mind seeing gross margin return to where it was and have more traffic that produces bottom line cash flow. The shift you saw in gross margin is because there was just relatively more owned and operated traffic to distribution as there had been in many, many previous quarters. With the traffic, it's kind of a cyclical thing, really.

There is always a certain amount of our distribution traffic that is depending on--dependent on what is called SEM, Search Engine Monetization--or Marketing and that kind of thing. And that traffic can come in and it can, what we see, frankly is we launch it with our partners, it's good traffic, maybe somebody stretches the envelope a little bit and the traffic is not as good or else the kind of techniques they're using run their course and they come and go.

So we'll always have some portion of our distribution traffic that is a bit volatile. That is just the nature of the game.

Okay. So more stable from this point forward, you would expect?

Well, yes and no. Again, our view has always been that if this is good quality converting traffic, we will do, we'll do business with it and we'll keep it, our partners like that, too, Google and Yahoo!, but as soon as it stops converting, we're very quick to move it off the network. So it can be, as I said, it can come on and be quality traffic for awhile and then all of a sudden whatever scheme they're using, scheme is probably the wrong word, whatever approach they're using, doesn't yield as good a results, then we move it off.

My last question is as you get kind of the content, the publishing part of the business. Is there any kind fees to break up the contract and are you--is that already in the restructuring?

That's largely within the restructuring [clause] already.

Yes, that -- .

Great, thank you.

That was not too significant even.

Okay, thank you.

Yes.

Our next question comes from Mark May, Needham & Company.

Thanks, a couple of questions. One, what do you think by the second half of the year, what the base kind of cash operating expense run rate for the Company as a whole will be in the second half of the year, and for the remaining mobile businesses that you'll be in when you finally exit content, what was the--did that business grow in the fourth quarter? If so, what was the growth rate And I had one other follow-up question.

Yes, in terms, Mark, in terms of forward-guidance, right now we're in a position to only give out quarterly guidance out right now, so I can't actually forecast that far ahead for you. In terms of the--I think you're asking about a growth rate in the mobile services business, I think that is--that grows. It doesn't grow as quickly as you saw with the media download business, but--so it doesn't have that similar growth rate there.

But we did have growth quarter over quarter.

Yes, we did have growth.

Maybe in terms of the first question, can you talk about the types of cost savings that you expect to recognize on an annual basis from the restructuring?

Clearly--well--

I think you just look to the 250 employee reduction and you can do some math off that and associate it and there will be some, as things play out and as the restructuring's done, there will be some savings on real estate and things of that nature and, of course, other expense that we were doing in the way of marketing or publishing expense on content.

Yes.

Those kinds of numbers will change as well.

And just a follow-up, I think the search segment declined 14% sequentially. Is that kind of a decent benchmark to use for the next couple of quarters? Might we see kind of double-digit declines for the next couple of quarters as you try to improve the quality of the network?

Mark, I think that as Jim mentioned before when we--we bring on distribution partners they are good traffic as they kind of push that envelope, that edge there, we will discontinue it. We'll move that traffic. At this point in time, I wouldn't suggest that there is any more left to do, but who knows, this is a very highly volatile part of our business.

Yes, I think you can see by the forecast here or the--for next quarter, we're not assuming anywhere near that kind of a--we're not assuming a drop like that by any means.

Okay, thanks a lot.

Our next question comes from Richard Fetyko, Merriman, Curhan and Ford.

Hi, guys. In terms of your first quarter guidance, I assume it doesn't include the full impact of the loss of the carrier and, basically, the exit of the content business on the wireless side. I guess you made it sound like it's happening over the next couple of quarters, correct?

Correct. It assumes the beginning of that, if you will, Richard.

Right.

I think to Allen's point earlier, the--this may or may not be a real linear process, right? We expect it to, and we're operating under the assumption with our partners that that will happen over the course of the first six months but in--is it going to be exactly linear? No.

So the wireless carriers that you lost or losing, is that also sort of a process or has that been cut off and the other carriers, you are sort of exiting one by one?

The whole thing is one process.

All right, and in terms of the online business, what is forcing you to clean up--I know you're talking about quality but the quality I guess is assessed by the advertisers which you don't really have direct advertiser relationships, it's your feed partners, Yahoo! and Google. Are those the partners who tell you and give you information about the conversion rates and the quality of the traffic of your sources and that's--is that how the process works in terms of identifying low-quality traffic?

Yes, it's a collaborative effort, there's no question and our partners have different kinds of tools that they use to measure. We also look at--we look at traffic in certain ways. They look at traffic in certain ways.

It can be dealt with in terms of geography where traffic's coming from and it also can be a factor of conversion. Conversion can be defined in a variety of different ways depending on the partner and the advertiser, and we look at all--and collaboratively, we look at all those factors and say is this traffic converting as well as we want it to, and if it's not, we remove it.

Okay, and then finally on the strategy, I felt like in the last year or so, you had really emphasized the wireless business increasingly more and talked about the online business increasingly less. Does this exit of the content business change your strategy and your emphasis and your focus of the resources? Just kind of trying to figure out where you're going to place more of your emphasis going forward now.

Clearly, the exit from the content business hasn't changed. We had felt that--as we've talked before, we felt that we had a pretty unique opportunity, we created a pretty interesting technology and content ecosystem. It was working quite well and growing quite fast, but the issue really became for us that content did not broaden it narrowed into and consolidated around one type of content.

Even though I know from an external point of view it might have seemed like we talked more about mobile and we did because the marketplace and partners needed more education about the mobile business, we've never--we love our online business, it's the best business model out there and going, so we definitely have never de-emphasized that internally at all. We're as focused on growing that business as we always have been and we will remain that way.

We do have to step back with the current mobile business and say, what are the ancillary opportunities for growth? We're really well in a great position with our--doing the Portals here. The users are growing dramatically. I think you saw that 60% year-over-year, but what else can we do to help monetize that position that we're in, and what else can we do to branch off of that. That's something we have to spend some time on now and decide how we want to use our resources.

Any thoughts about the use of cash? That's my last question, thanks.

Well, there is always thoughts about it in terms of what you're probably asking about is acquisitions. That is just not something we would comment on.

Stock buyback?

We have, as you know, we have done a buyback in the past, a pretty significant one. We didn't do any buyback here in the last quarter, although we have an authorization for one and we just wouldn't comment on what we might do in the future.

Thank you.

We'll take our next question from Safa Rashty, Piper Jaffray.

Hi, guys. A couple of questions, Aaron Kessler for Safa. First on the mobile business, any sense that you can give us what the operating margins were in the quarter for that business? And second, for the search business, can you give a sense for what the quality control measures that you have in place? I believe in the past you've also had an issue with some of the poorly converting traffic, how are you exactly screening these customers? Thank you.

Right. Hey, Aaron, I'll take the first one, in terms of the operating segment margins, right now we're working through that process in terms of forward-looking and I think you will see in the first quarter results that we will be breaking out segment results similar to--not exactly the same, but similar to how we have done before, but at this point in time, I can't comment on exactly what that will be for you.

Okay.

Yes, Aaron, it's an opportunity, I guess, to let you understand what the process is here when we bring a partner on and with any of our partners, and it's not one where I want to make sure we fully dispel any thoughts that anybody has that we're trying to throw stuff against the wall and hope it sticks or something like that. It's a collaborative effort. We run through a series of tests with our partners, we test the traffic.

There is a pretty extensive process with both partners and in fact one of our partners uses a third party to vet all new distribution partners that come on, and so these are--these are not things that are done capriciously. By the time a partner gets turned up on our network, they have been fully vetted by all of our advertising partners, so that is something that we do ahead of time to ensure that we're getting good traffic.

And when we say this traffic is being groomed, this might be--these might be partners that we have had for quite a long time who, again, change their techniques or try to expand them to areas that don't convert as well, etc., geographically, and that's just part of the business here. The part of the business all of us are in is constantly monitoring what kind of traffic and how it converts for advertisers and sometimes it's just that in--when you think about downloadables and applications, that there are just applications that do pretty well for awhile and then don't, ***Don't do well after awhile and nobody has a real answer for that, but it's a process that is very much front-loaded in terms of looking for the quality and then it's a constant collaborative effort with us to make sure the quality stays there.

How are you thinking about growing your owned and operated traffic at this point?

In a few ways. We continue to work on the main brand Dogpile. We've had--we get great critical reviews. Obviously, we use some online marketing to do that. We have been fairly successful throughout the years in maintaining our market share and even growing it a little bit there.

We have launched a new brand Zoo.com, we're going to use a lot of PR effort around that to try and move that. It's essentially--it is really the same back end as our other engines, it's just highly filtered and with a different front-end on it, different interface and that's really the approach we're taking is try and take different niches, if you will, and try and exploit those.

Great, thank you.

Thank you.

We'll have our next question from Jeff Shelton, Bleichroeder.

Thanks, another quick question on the online segment. The fourth quarter of last year sequentially [referred] to the first quarter, revenues were up. Should we be expecting that in the first quarter of this year as well?

Jeff, I don't break out guidance in terms of between the two items there, but as you can see that we expect that--we expect that revenues to go down in the aggregate from the fourth quarter primarily from the mobile media transitions.

How much was the games business that you sold in terms of revenue?

It was not a meaningful amount of money from [inaudible]. This is the small shop we had down in -- a studio down in the Bay Area.

It was de minimis.

And last question, the NOL tax benefit adjustment you made in the fourth quarter, was that on expectations of positive net income over the next 12 months?

Yes, it's really--Jeff, it's really more of an accounting hindsight look in terms of how much have you had collectively from a cumulative standpoint your earnings from your operations over a period of time and then you calculate how much of your deferred tax asset you would record in that period. So it's not a forward-looking view, it's more of a hindsight.

Okay. Thank you.

Operator, do we have any more calls?

We will have our next question from [Robert Toolbreth] from Think Equity Partners.

Hi, everyone, this is Rob in for Stu. Just quickly with the tax benefit this quarter, how does the NOL stand?

In terms of--I'm sorry, Robert, maybe you can explain to me what do you mean by "it stands"?

The value of the NOL carry forward. I believe recently we had talked about it being $1.1 billion or 1.0 billion, somewhere around there.

The overall value is still there. We still have the $1 billion, $1.1 billion NOL. The question is how much of a valuation allowance do I reverse and that, as I mentioned earlier, is really more of a mechanical exercise of looking back historically in your cumulative income, excluding all these extraordinary items, these one-time items, and that's how you calculate how much of the benefit to lift in a particular period.

Okay, and a lot of things have been asked so far. I just wanted to ask, quickly, it seems like larger competitors are getting more interest in the mobile search segment. Can you talk about the competitive environment for partnering up with carriers or handset providers?

Well, a little bit, sure. Our effort has been mainly to support the carriers and it's--I'd put it this way, the carriers are still in an early stage of somewhat beyond--somewhat beyond experimentation and not quite to--not quite really firm, firm strategies on how they want to go.

We have used different and on different carriers, there is different kinds of implementation. When you use the word "mobile search" at this point, it's really covering a lot of ground. Some carriers are focused, very, very highly focused on just searching their own catalog, in other words, trying to improve content sales, others are more focused on what they can do around advertising and [optech], frankly some are hardly focused at all on it.

Our efforts have been really to private label and support the carriers there. We have got a couple of things as we mentioned that we expect to enable here in the first quarter, or first part of the year in terms of a North American carrier and a European carrier and supporting an ad model.

The Find It! product that we have out there now on the WAP usage, we have some advertisers in that at this point, too, so it's all pretty formative stuff and I would say that nobody has--no carrier has really said this is exactly the way we want to go and how we want to attack this. They're all trying to figure out what is the user experience, etc., etc. So, it's still a wide-open field.

All right, that should do it. Thank you.

Thank you.

We'll have our next question from Clay Moran, Stanford Group.

Thank you, I have two questions. You mentioned that 1/3 of the sequential decline in online was due to the owned and operated sites. Can you explain what was the cause of that and is that anything we should be concerned about going forward? And then second question, there was a question earlier about the use of cash.

You said you would not comment on acquisitions and you haven't bought back stock, at least in the most recent quarter. Can you talk about how you view your cash in terms of what is the benefit to you and what is your sort of comfort range cash that you like to have on the balance sheet? Thanks.

I can take the first one. In terms of our owned and operated, it was not actually a sequential decline of 1/3. Really it was that we had forecasted a--we were projecting a larger growth in our owned and operated, as well as our distribution and we did not achieve that same--that projection growth that we were hoping for here.

We don't think it's--we don't believe it's decline in situations here. It's really more that we didn't--we were hoping much better.

Was that a function of traffic less than you had hoped, a monetization, or can you give some color on that?

It's a factor really of kind of almost a monetization in terms of just--we saw a similar level--we saw the traffic that we were expecting. We just didn't have the similar [quick through] rate on our commercial results. So, it was more of a monetization side.

Just not the normal seasonal lift that we have had before in click-through rates.

Okay.

Play on the other one there on cash, you say comfort level. I am very comfortable with the amount of cash we have. My comfort level, though, I don't think is really the issue here.

If we look back here, six months ago we were in a completely different situation here in the sense that we had a business that in terms of the combination of our--we looked at our combination of our mobile content business, our infrastructure business and our online business really working in concert towards a lot of growth and really developing, if you will, a whole new kind of a company here in terms of publishing content and bringing content through mobile devices. At that point, we looked at our cash as very opportunistic;there were other things out there we might look to acquire with.

We really, I don't think at this point have a firm vision on it yet, and we do understand as management, as a board, what our fiduciary duties are here and we take them seriously, but we really can't comment on any use at this point.

Could I just follow up? I understand that you're comfortable. Today I would be as well with the cash position, but if you were to do an acquisition, I would assume you would do it with cash or at least prefer to and I'm trying to get an idea of what the size of that deal could be if you did it completely in cash so that you would end up with a net amount of cash that you would be comfortable going forward.

That is pretty hypothetical. It would depend on the cash needs of the combined business, obviously. If you were doing it--just talking off the top of my head, but I really don't think there is a way to comment effectively on that.

Okay. Thank you.

Thank you.

We'll have our next question from [Lloyd Wamsley], Thomas Weisel Partners.

It's Lloyd here for Gordon.

Hi, Lloyd.

How's it going?

Well, it's going.

I was just trying to reconcile your guidance with the fact that you said you expect such a steep decline in the next six months in the mobile business. I guess it would imply most of that decline will probably come in the second quarter and that you'll still be getting a good, say 85% of that business that you expect to go away in the first quarter?

Yes, Lloyd, this is Allen. We do expect it to be right now the way we have looked at it is more linear, but I do want to caveat a lot of this is outside of our control, so if it comes quicker or it could be pushed out longer. This is what we have kind of baked in based on the information we have right now that it will be probably a little bit more linear downwards and if you look at that from that standpoint, yes, it's probably larger in the second quarter.

Yes, okay. Thank you.

Sure.

Operator, we have time for one last question.

We'll have our final question from Richard Fetyko, Merriman.

Yes, guys, just in light of the sale of the Atlas business, I was wondering if you could comment on your intentions with the games business?

Well, I don't think we would make a comment on that firmly. Although we do plan to, as we said, substantially exit the content business, but it's not as if--we have time for that, if you will. So, if there is something to report, we'll report it but there is nothing to really report on that right now.

But you consider the games business part of the content business?

Yes.

Okay.

Thank you.

Great.

All right.

Thanks for joining the call today.

That does conclude today's conference, you may disconnect at this time. We do appreciate your participation.