Avantax Inc (AVTA) 2014 Q1 法說會逐字稿

Good day, everyone, and welcome to the Blucora first quarter 2014 earnings results conference call. This call is being recorded.

With us today from the Company is the President and Chief Executive Officer, Bill Ruckelshaus; Chief Financial Officer, Eric Emans; and the Senior Director of Investor Relations, Stacy Ybarra. At this time, I would like to turn the call over to Stacy Ybarra. Please go ahead, ma'am.

Good afternoon and welcome to Blucora's investor conference call to discuss first quarter earnings. Before we begin, I would like to remind you that during the course of this call, Blucora representatives will make forward-looking statements including, but not limited to, statements regarding Blucora's expectations about its products and services, outlook for the future of our business and growth initiatives, and anticipated financial performance for the second quarter and future periods.

Other statements that refer to our beliefs, plans, expectations or intentions which may be made in response to questions are also forward-looking statements for purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act. Because these statements pertain to future events, they are subject to various risks and uncertainties and actual results could differ materially from our current expectations and beliefs. Factors that could cause or contribute to such differences include, but are not limited to, the risks and other factors discussed in Blucora's most recent quarterly report on form 10-Q on file with the Securities and Exchange Commission. Blucora assumes no obligation to update any forward-looking statement which speak only as of the date the statement is made.

In addition, during the call our management will discuss GAAP and non-GAAP financial measures. In the press release, which has been posted on our website and filed with the SEC on Form 8-K, we present GAAP and non-GAAP results along with reconciliation tables and the reasons for our presentation of the non-GAAP information. We've also provided supplemental financial information to our results in the Investor Relations section of our corporate website at www.blucora.com, and filed with the SEC on Form 8-K.

Now, I'll turn the call over to Bill. Following his comments Eric will review the first quarter results and second quarter outlook. Then we will open up the call to your questions.

Thank you, Stacy. Happy to be here today.

Blucora had a solid start to the year. Revenue was up 31% over first quarter last year driven by growth at TaxACT and the addition of Monoprice which we acquired in August of 2013. Our performance in the quarter underscores the profitability of our three businesses and the growing diversification of our company. Our strategy at Blucora involves operating and investing with discipline. If we execute consistently over the medium to long term and continue to meet the needs of customers in our markets, Blucora will be successful.

Now for an update on our three businesses. TaxACT performed very well in a shortened tax season. And I want to especially thank the team at TaxACT for another solid year of execution, product innovation and profitable growth.

The IRS opened on January 31 and, like last year, filers started and completed their returns later in the season. We again saw record activity in the days leading up to April 15th. TaxACT generated more than 5.5 million consumer e-files this season, up roughly 5% over last year. Professional preparer filings were up 9% year on year to 1.3 million. Combined, TaxACT assisted approximate 6.9 million filers this tax season, up over 5% versus last year. Our share expanded in total filings and prep filings. Core consumer filings share fell slightly this season in the face of faster DDIY market growth and aggressive competitor pricing.

Our team stuck to its playbook. As in prior seasons, we focused on customer growth and increasing ARPU while at the same time driving marketing efficiency and effectiveness. From a market perspective we were pleased to see the DDIY category gains overall in view of the enlarged pool of filers as a future opportunity for TaxACT. Of course we face competition from large players in tax prep whose strategies and tactics can differ meaningfully season to season. We monitor our competitor actions in season and look for opportunities, but the team is remarkably effective at staying focused and leading from the front as the value leader in do-it-yourself.

TaxACT expects 12% revenue and 19% segment income growth for the season. ARPU expanded nicely aided by mix shifts and increased attach rate on new offerings. We've demonstrated significant operating leverage through disciplined marketing and expense management.

On the product front this season we launched a number of new offerings, including a differentiated smartphone app for tax filing, TaxACT Express. We now offer tax filing solutions for PC, tablet and smartphone uses, all with anytime, anywhere access. We are proud TaxACT was recognized by PC Magazine this season as the editor choice for both best free tax preparation service and best paid tax preparation service. With great products, a better value proposition and increased consumer awareness TaxACT continues to be well positioned to grow in multiple areas. We are excited about our future opportunities together.

Now turning to E-Commerce. As expected, it was a challenging Q1 retail environment, but Monoprice performed in line with our expectations in the period. Monoprice continues its efforts to build awareness among technology consumers. In the first half of this year the team is operating cautiously, monitoring consumer sentiment, marketing efficiencies and site performance to continue to grow profitably in a soft market.

Our long view of the Monoprice opportunity is unchanged. The value proposition is compelling and quite simple: quality products at fair prices with excellent customer service. In Q1 we launched new products in our audio, computer accessories and networking categories. We also launched a line of home automation products to great reception. New offerings, line extensions and new categories are all critical to keeping Monoprice top of mind and exposing the brand to new shoppers and new purchase occasions.

We will continue to be cautious in our guidance for Monoprice as we navigate in the first half of the year and make needed investments in site optimization, marketing systems and data analytics to enhance decision making and accelerate customer acquisition. We are strong believers in the multi-year growth potential with this business and the significant opportunity in strengthening the Monoprice brand.

Turning now to search. Q1 performance was slightly below expectations this quarter driven by slow growth in both our owned and operated properties and in our distribution network. Our search business is going through a number of transitions that, together, are creating headwinds for us in the second quarter. I want to take a moment to highlight some of these transitions and what we are doing in response.

First, in late February we implemented a technology change with our Search partners that ultimately will result in faster deployment of features and enhancements across our network. Unexpectedly, this technology change significantly impacted marketing efforts to our webcrawler.com property which resides on a separate code base. In response we significantly reduced marketing spend at WebCrawler to maintain desired rates of return resulting in decreased revenue. We are currently implementing changes to our tech solution to offset these impacts. And while we expect a recovery, we cannot predict today when that will take place.

Second, we are transitioning our business pursuant to our renewed Google partnership, which as previously discussed in February, excludes Google Mobile Search going forward. These transitions coincide with our implementing the earlier referenced technology change across our distribution network. While impacts of the technology change to our distribution network are less pronounced, we believe the combination of these events is creating uncertainty with our partners.

In the past we have experienced disruption in our network when uncertainty or changes are introduced. It proves challenging to bring new partners aboard and challenge to grow existing partners as they test and adapt to changes. We believe our new partner additions will resume and performance of our existing partner will improve as we move into the back part of the year and we are working to accelerate this transition. Key to this effort will be actively monitoring the quality of our network to make sure our partners continue to bring value to both users and advertisers. This is a constant focus for InfoSpace and becomes more important in times of transition and change.

As a result of these factors, we are guiding Search conservatively into the second quarter pending further visibility. While these dynamics affect our results in the short term, we believe the InfoSpace business will return to growth later this year. Our value proposition in the search marketplace remains centered on bringing quality traffic to our search engine partners and differentiated content and monetization solutions to users and partners. The team is experienced and now laser focused on adapting to changes this year and navigating to a new baseline.

In other news last month we were thrilled to announce we have entered into a definitive agreement to acquire HowStuffWorks and we are excited to welcome their talented team to Blucora. HowStuffWorks is a trusted digital information resource. Their growing audience generates approximate 200 million page views and 38 million unique visitors per month with multi-format content that drives deep engagement across desktop, tablet and mobile devices.

We believe this transaction, combining HowStuffWorks' high-quality content with InfoSpace's expertise in search positions us to engage with end users across a broader array of touchpoints. The user journey online begins with navigation and often ends with an action. In-between there is discovery, idea generation, research and information, comparison and decision support. We want to leverage search and content to provide value to users during their journeys. HowStuffWorks represents an important step in this direction.

In closing, we remain focused and excited about the plan in place to drive value at Blucora. We are taking decisive steps to address the issues impacting our business this year and the long view for our company continues to be quite compelling.

With that, I'll turn it over to Eric for more details on the financials.

Thanks, Bill.

Let's start off with a review of our first quarter 2014 results including segment performance detail and then I'll close with a consolidated outlook for the second quarter.

Consolidated revenue for the first quarter was $216.2 million, up 31% verses prior year, and adjusted EBITDA was $56.9 million, up 24%.

Non-GAAP net income was $50 million or $1.12 per diluted share, and GAAP net income was $26 million or $0.58 per diluted share. As a reminder, first quarter 2014 is benefited versus prior year due to the inclusion of Monoprice.

We exiting the first quarter with cash, cash equivalents and short-term investments of $336.4 million and net cash of $57.8 million. These totals reflect debt principle payments of $44 million made during the quarter.

Turing to our first quarter segment performance beginning with our tax preparation segment. Revenue for the quarter was $72.3 million and segment income was $37.4 million for a segment margin of 52%, which exceeded our first quarter expectations. First quarter revenue versus the comparable prior year was up 12% on DDIY e-file growth of 5%.

Now, let's shift our focus to the first half expectations which include the full tax season and provide a more representative view of the trends in the business. We are raising our first half expectations for our tax preparation segment to revenue of $97.5 million to $98.3 million. And we are also raising our segment margin expectations to approximate 55%. This translates to revenue growth of approximate 12% and segment income growth of 18% to 19% versus the first half 2013.

First half expected revenue growth of 12% is primarily driven by consumer DDIY reported tax season e-file growth of approximate 5% and ARPU gains of approximate 7%. The ARPU gains were primarily driven by paid software mix shifts couple with increased sales of our add-on services.

Our preparer software revenue, which represented approximate 10% of tax preparation segment revenue, is also expected to grow 12%. Segment income is expected to grow 18% to 19%, driven by our revenue growth and marketing efficiencies. Marketing expense for the first half of the year is expected to be up 2% to 3%.

We are pleased with how the season has come together and believe the team executed very well in another competitive season. The financial results really do speak for themselves.

With that, let's move on to E-Commerce. Revenue for the quarter was $37.1 million and segment income was $3.5 million for a segment margin of approximate 9%. On a pro forma basis, revenue was up approximate 7% while segment margin was down approximate 350 basis points, primarily driven by increased marketing expense. Orders were down 2% versus the prior year, which was offset by a 9% increase in average order value.

As we had indicated in our last call, we were seeing slower revenue growth exiting the fourth quarter which carried into the first quarter. While we attribute a portion of this slowing to macro level factors and increased competition, we have also reviewed the trends within our business and we are focused in a couple areas.

First, we have seen a drop-off in purchase frequency, some of which is to be expected due to a mix shift in user acquisition toward paid channels. And second, we are seeing a decline in marketing efficiencies. We are focusing on these areas and actively pursuing initiatives to improve the trends. Looking forward we are holding in the mid- to high-single-digit year-on-year growth expectations into the second quarter. We expect segment margin to compress to the 7% to 8% range as we continue to make disciplined investments.

Now, turning to the search segment. Revenue for the quarter was $106.8 million and segment income was $19.2 million, up 6% and 5%, respectively, from the prior year. Revenue performance slightly missed our expectations while segment margin came in at the high end of our expectations at 18%. The revenue miss was driven by slowing growth for both our owned and operated and distribution businesses. Owned and operated first quarter year-on-year revenue growth had slowed and was down 11% sequentially. Distribution was down 5% versus the first quarter of 2013 and down 16% sequentially.

Bill touched on the transitions driving the slowed growth in the first quarter that have continued into the second quarter. As such, let me spend some time on the second quarter expectations in light of these headwinds.

We expect search revenue will be down year over year in the range of approximate 12% to 21%. We believe this represents the low point for the year. We expect segment margin will further compress in the range of 15.5% to 16%. This represents a step down in the expected second quarter search performance that formed the basis for our full-year 2014 search expectations.

To provide context as to the size of the step down, we expect owned and operated will drive just over a third of the revenue decline driven by the impact of the technology change implemented on WebCrawler in late February. The remaining step down is driven by our distribution business and represents the combined impact of the multiple transitions Bill alluded to earlier.

In light of these headwinds, our previously communicated full-year expectations are no longer achievable. That said, we are focused on getting back to sequential growth and expect to be in a better position to provide more clarity around the future growth expectations once we get through these transitions.

One last thing before we leave search. Please note that my second quarter expectations and full year commentary excludes HowStuffWorks as the transaction is expected to close late in the second quarter.

Moving to unallocated corporate expenses, first quarter came in at $3.2 million, down sequentially from $3.5 million and benefited from decreased headcount-related costs. Looking ahead, we expect costs to be closer to $4 million in the second quarter, returning to a more normalized level.

With that, let's finish with our consolidated second quarter expectations. We expect consolidated revenue of between $135 million and $145.5 million; adjusted EBITDA between $26 million and $29 million; non-GAAP net income of $20.3 million to $23.2 million or $0.46 to $0.53 per diluted share; and net income of $6.2 million to $8.3 million or $0.14 to $0.19 per diluted share.

With that, let's turn the call over to the operator and we will take your questions.

(Operator Instructions). Joe Janssen, Barrington Research.

Yes, thank you for taking my question. Bill, within search, if we can just focus on that for a second, I hear the commentary on Q2. You expect to be down 12% to 21%. You expect that to be the low for the year. And I know you typically don't give guidance in Q3, Q4, but can you kind of help us think conceptually how we -- just to have realistic expectations in terms of modeling, how I should be looking at Q3, Q4? I'm assuming it's going to be down but are we talking double digits or single digits?

Yes. So as it relates to the specific guidance, we really -- I'll stick to what Eric said during the prepared remarks, which is that this (inaudible) we have. We really -- we don't want to get back into the annual guidance game just given some of these transitions. What I will say though, Joe, is that these changes that are going on now look to us like changes we've gone through in the search business in the past.

As we've mentioned several times now, the search business tends to encounter these sorts of changes, whether they're policy directed, partner directed or otherwise. And it has been our experience that while you're going through the changes it is challenging for existing partners to implement the changes and then grow at the same time. They get distracted. We spend a lot of time with them sort of pointing them in the direction of where they need to go. And so that tends to have a chilling effect. It also has a chilling effect on the new partner sales effort. And so it looks familiar to us and so that is something we should absolutely emphasize. And those changes and the impacts of those changes tend to be transitory and you get on the other side of them.

In the middle of this as well, however, is the new contract that we've now moved to with Google as it relates to mobile, which is why we are careful to emphasize that that is also going on at the same time. Which, in addition to introducing yet again more change, is also going to alter the mobile outlook for the search business in the future in terms of our working with non-Google mobile search providers, which we think are going to be viable but, because that's in the middle of this as well, which is less transitory and more ongoing, that's why we really want to be careful.

Fair enough. And then within tax, I mean, good -- overall a good year. I'm just curious. I just wanted to focus in on the pricing side of the equation. As I look into next tax season, and I don't want to get ahead of myself too far, but you've had a couple years of pretty decent ARPU gains and then in your prepared remarks you kind of talked about aggressive price competition that you see out there. Just curious to your thoughts. I mean, do you think you can get similar ARPU gains in the future or do you expect that probably is just to kind of somewhat get to similar -- maybe an annual 3% to 5% ARPU gain and then the rest will come in volume?

Okay. So, this time I really will turn it over to Eric as it relates to any guidance around forward ARPU. What I will say, though, is that as we've maintained from the outset, and certainly this is the view of the TaxACT team, is core to their value proposition with their filers is the fact that they believe, and we certainly believe, that they are bringing a very quality product at a much more fair price. And so it would not be consistent with that philosophy to try to chase ARPU through rate card increases year on year. In fact, that's absolutely not been the history of the Company.

What we're pleased with over the last couple of seasons is that much of the ARPU gains experienced at TaxACT come from just the way you'd want them to, which is bringing more value to filers that they opt into and that they attach into as it relates to ancillary products or favorable mix shifts from what are essentially free filers to paid filers. So rather than sort of forcing it upon them in the form of a rate card change, we view that as sort of the most favorable and actually reaffirming aspect of how it is they've grown ARPU over the last couple of seasons.

Eric, I'll pass to you as it relates to how we might be thinking about that in the future.

Yes. Hey, Joe. I think it's a little too early probably to make any comments towards next season. I mean, obviously 15 days or so out of tax season we're still diving into the season and coming to how we performed as well as doing a competitive analysis of how our -- some of the tactics of our competitors have impacted us. And I think, as Bill called out in his script, every year brings a bit of a challenge of trying to understand how the competition is going to approach the market and how we're going to -- and then we have our strategy and then we adapt over the season. We're very pleased with how the team adapted this season, which played out in strong financial performance driven by good DDIY unit growth coupled with plus 7% ARPU gain.

So, I think it's too early to tell, but it is definitely a lever we look at. We're cautious when we look at it. And I would say this year, really, it was about that bringing more value to consumers. And although we did have a modest price increase, it was not overly aggressive and I think it really shows the value we're bringing and the promise we make to the consumer.

Okay. And one last question then I'll jump back in queue. Maybe just talking on the acquisition side of the story here. Maybe just quickly comment on the recent acquisition of HowStuffWorks. Maybe just kind of quantitatively in terms of what the overall revenue on the trailing basis, maybe the growth trajectory, what has been, what you might think, maybe some profitability around that. I know it's small, but I'm just curious.

And then the second one was just -- it seemed like the media started to create its own story out there on Brookstone. I'm just curious if you were -- were you looking at it? And I guess if you were, I guess what attracted you to that side of the business?

Yes. So on HowStuffWorks, we're really excited, as you probably can pick up in our opening remarks. It's a great business. We think there's more that we can do with the business. We're very excited to close the transaction later this month. We are not discussing their financials publicly, but suffice to say it is a profitable business and we believe that we can accelerate their growth. They are sourcing a lot of growth currently by both bringing more content that users are finding their way to, but also doing so in tablet and smartphone environments which we really see as being sort of validation of their audience. We do think there are a lot of really interesting leverage points with InfoSpace that we're already discussing with the team. So, we're excited about that.

And as it relates to your second question, I don't -- we're not going to comment on that publicly. We don't talk about things like that publicly.

Okay, fair enough. Thanks, guys.

Thank you.

Dan Kurnos, The Benchmark Company.

Great. Thanks for taking my questions.

Bill, just maybe a little bit more color on the HowStuffWorks acquisition. Just maybe some clarity for people out there. I think it was a little bit confusing as to how the partnership with Discovery is actually going to work with them providing the native adds. So if you could just sort of clarify how exactly that partnership is going to work within the acquisition that will be helpful. Thank you.

Yes. There's probably a limited amount of what I can say. One thing I will say is that we're thrilled to have a partnership with Discovery and look forward to hopefully not only making that a successful partnership, but also identifying additional areas where we might work together.

The Discovery digital team had pretty well integrated HowStuffWorks into the scope of what they were doing, including some of the advertiser relationships which existed on both HowStuffWorks and non-HowStuffWorks digital properties. And so the agreement really sort of addresses how it is to manage that transition in such a way that allows those advertisers to continue on sort of unaltered. And obviously there's benefits in that, not just with Discovery, but with HowStuffWorks Blucora.

Got it. That's helpful, thanks. And then just two high-level questions on search. Just curious, IAC called out some lengthening sales cycle from the B2B side of the business and there was a rumor that Google was actually hiding or withholding query data from certain third-party providers. In addition to all of the transitional elements that you've talked about, have you seen any additional competitive pressures in the space and is there any truth to the Google query rumor?

Yes. So, I think the Google query rumor is a little bit out of left field from our perspective. And in the vast majority of circumstances, our interest and our search engine partner interests are congruent, so we're all pushing for the same thing.

As it relates to the partner slowdown, what I would say, just maybe to reemphasize, is that in the face of change it tends to have a chilling effect. That's what we're attributing it to. It's not, from our perspective, a competitive dynamic.

And then just maybe if you -- since you did touch on it briefly, could you give us your thoughts on how you're proceeding with optimizing sort of the non-Google mobile portion of the business and how that's developing?

Yes. So I break that into two categories. There's non-Google search, which is -- I would characterize as further along. There are other opportunities that we're evaluating, either in alpha or beta, around other models to bring that aren't so search centered inside of mobile. We're not prepared to speak to those, but the mobile market right now, there is a vacuum in terms of you have a lot of (inaudible) providers and increasingly traditional web publishers whose traffic is moving to a tablet and smartphone who are at a loss for not just how to render their content in those environments, but also how to monetize that content. And so I do think we're in the early days. As we had mentioned in February, a substantial percentage of our business is desktop, but we absolutely see mobile as being a huge opportunity and we're doing it on -- we're pursuing it on a multi-threaded basis.

Great. And then just one last one from me and I'll step aside. It looks like you bought back some shares in the quarter. Obviously with the share price where it is, could you maybe talk about the capital allocation strategy since you're clearly not getting any value for search here?

Yes. As I think you are implying, we do have room under our authorization, which was put in place for -- principally to allow us to address employee equity dilution that is I think going to sort of very predictably take place, but also allow us to be opportunistic from time to time. And so you're right to bring that up. I think the authorization remaining is roughly $40 million.

That's right. And let me clarify, Dan. We did not purchase back shares this quarter. We actually put some of our capital in de-levering and then paid down about $44 million of debt. So we have $40 million available under the current repurchase plan and we have the same strategy now as we have always had and if we see an opportunity to offset employee dilution or be opportunistic in the market we'll take that opportunity.

Alright, great. Thanks for all the color.

Thank you.

Scott Schneeberger, Oppenheimer.

Thanks, guys. Thanks for taking the questions. A few on tax. I was curious; what did you see in the early season? I think that's when most of the competitive pricing was occurring. Just curious what type of dynamics you saw and how did you adapt in that environment? And then if you could contrast it to the back half of the season. Thank you.

Yes, Scott. Hey, it's Eric. So, yes, we obviously saw some of the competitors being more aggressive than we had seen in past year -- on prior year on pricing. We certainly take notice of those things but are also executing against the plan. And on the marketing side we're using a lot of the channels that we had typically used, but we actually kind of re-weighted how we approached those channels, and I think to a very effective efficiency for the year. And that is kind of a first of the year process and a back of the year process, as well as always looking at who is existing within the pipeline, who you've acquired and where they are in the funnel and trying to address those folks.

So, it is a balance of looking at what the competition is doing while at the same time executing against your plan. And I think that the results, the financial results of the year have been better than our expectation and goes to the reactiveness of the team in dealing with that competition.

Thanks. And kudos on the performance you had to get the 5% volume and the 7% ARPUs is quite impressive in this environment.

I'm curious; of the 7% on the ARPU, if you're open to sharing, how much of that was rate? You mentioned a little bit but not a meaningful portion, so I infer it was just a small piece. Any quantification? And then in mix, was it more (inaudible)? Was it more the add-ons? Just kind of curious as to the components of that 7% to the extent you'll share it. Thanks.

Yes. I mean obviously we won't break it out too much but we can talk directionally. Pricing kind of manifests itself in two ways. One is obviously you have pricing and, to the extent people sign up, you get (inaudible), you get that uplift. But also, it goes to talking to the mix of your -- ultimately your mix in your software products where we saw positive shifts in mix. I think some of that could have been driven by pricing.

We also saw an uplift on add-on services. And I would say in general, we won't break out what those are, but we saw uptick in both. And we feel that the pricing was net beneficial because, ultimately, it didn't push people out of pay products but did push people into a bundling more software and then we saw a good return on our add-on software. I'm sorry, our add-on services.

Great, thanks. A quick housekeeping one and then I have one more, if I could. The housekeeping one is the way you break out your tax season. The footnote says tax season beginning on the first day the IRS beings accepting e-files and then (inaudible) plus one. That's very clear. Was there -- is there any activity before or after that period? Did that skew your results significantly?

No. We're on an accepted e-file basis so we -- the start of our metrics really starts with when the tax season opens.

Fair enough. And then on the back end, that wouldn't skew it very much either.

Correct. I mean obviously there is activity afterwards, but we cut it off and that represents the most meaningful part of the season for us.

And then lastly, it looks like some nice margin expansion and an absolute impressive margin in the tax services business. Was that on any efficiencies, comp controls or was that predominantly coming through in the ARPU just falling through? Thanks.

No. Look, we saw a great operating leverage and I would say that that is coming from the marketing efficiency. As I called out earlier, our marketing was up only 2% to 3% over prior year and very impressive execution by the team.

Okay. Thanks very much.

(Operator Instructions). Mitch Bartlett, Craig-Hallum.

Hi. Good afternoon. I just wonder if you could go back over the explanation, I think I missed it, on what impacted WebCrawler, the change in your tech solution.

I think, Mitch, maybe one thing is definite encourage you to read the remarks. We try to be pretty explanatory in the upfront comment. But the technology change that we implemented is something that we've done across our network, so both owned and operated and distribution partners. And what we spoke to specifically with respect to WebCrawler inside of our owned and operated is that, upon implementation of that change, it had a pretty negative impact on our marketing performance. And in the face of that, we pulled back on our marketing spend, which of course depressed the revenue. And we believe we've identified the root cause around what it is that caused that and are well on our way to implementing a solution. But given where we find ourselves at this point in time, are exercising a reasonable amount of caution as it relates to guiding into Q2.

It's not simply a matter of just rolling back the change then, obviously.

Well I think, without getting into too much detail, we feel like we've got a pretty good handle on what to do to address the impacts that stemmed from the technology change and so we're optimistic that the performance will return there.

Got it. Okay. And just one more, I guess, on Monoprice. Did you say that ARPU was down 9% or so and what caused that?

No, I'm sorry. Orders were down 2%, but average order values was up 9%

Oh, okay. Very good. I'm good. Thank you.

Thank you.

Thanks, Mitch.

Aaron Turner, Wedbush Securities.

Hi, guys. This is Aaron filling in for Gil. Just had two questions related to acquisitions. After HowStuffWorks, what would you say your appetite is for future acquisitions? And then related to that -- and this is -- I know you can't speak about Brookstone specifically, but has your -- has the scope of the acquisition targets that you're looking for perhaps extended beyond digital properties or are you still focused on digital? Thank you.

Yes. And I will touch on that question because it's the second time it's been asked on the call. But before doing that, first on HowStuffWorks and our appetite for any further acquisition. So HowStuffWorks in our minds was a great example of being able to invest against strategies that exist inside of the businesses we own. We do believe there are a lot of sort of complements between InfoSpace and HowStuffWorks that we can take advantage of and look forward to communicating further on the progress of that in the future.

The overwhelming focus for the team over the next several quarters is going to be on addressing precisely the issues we spent the most time on this call with respect to InfoSpace, the core business, as well as Monoprice and their performance through this market. Which isn't to say that we're not going to be evaluating acquisition opportunities, but doing (inaudible) a reasonable amount of discipline as we do and also focusing on getting out businesses to perform the way we want them to.

Our acquisition philosophy has not changed and so this is really to your second -- the second part of your question. We have an opportunity at Blucora to not just operate and extend the businesses we currently own, but to allocate our capital that we're generating to accelerate the visions of those businesses, but also if the right opportunity comes along to find a new business to bring into Blucora. The market conditions right now are pretty frothy, which is causing us to -- not to stop looking at things, but to very often turn things away because the valuations don't make sense to us. But no, our acquisition philosophy in areas of focus has not changed.

Great. Thank you.

Thank you.

And with that there are no further questions. Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.