Inuvo Inc (INUV) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the FindWhat.com first-quarter earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Karen Yagnesak, Director of Marketing and Communications with FindWhat.com. Thank you. You may begin.

Good afternoon. Welcome to FindWhat.com's conference call pertaining to first-quarter 2004 earnings and the update on our merger with Espotting Media, Inc.

I would like to remind everyone today that today's comments will include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties will be discussed toward the end of this conference call and are also detailed on FindWhat.com's filings with the Securities and Exchange Commission.

In addition, FindWhat.com and Espotting Media have filed a registration statement with the SEC relating to the acquisition of Espotting, including Amendment No. 1, thereto, filed April 22, 2004. We urge you to read those materials, which contain more detailed information about the acquisition.

To comply with the SEC's guidance on fair and open disclosure, we've made this conference call publicly available via Webcast at http://www.vcall.com/cepage.asp?ID=87982, and a replay of the conference call will be available at the same URL and on the company's Website for 90 days after the call.

I would like to now turn the call over to Craig Pisaris-Henderson, Chairman and Chief Executive Officer.

Thank you, Karen, and welcome to FindWhat.com's Q1 conference call. With FindWhat.com taking on a more diversified business model, and a new divisional structure to support that model, Q1's record-setting results demonstrate our team's ability to execute on our vision of building a robust global marketing company. Doing so further differentiates FindWhat.com from others in our sector while maintaining a leading position within the U.S. performance-based marketplace.

A few highlights from the quarter include the following -- Q1 marked the eighteenth consecutive quarter of increased sequential revenue, exceeding guidance by 2.7 million. Q1 also marked the twelfth consecutive quarter of increased sequential adjusted pre-tax income, with our adjusted pre-tax income per share coming in 5 cents above expectations.

We closed our first acquisition in January with Miva followed by a second with Comet Systems in the final days of March, giving FindWhat.com a more diversified business and revenue structure for the years ahead. We launched our private-label initiative with Verizon, taking a leading position in the local pay-per-click marketplace.

We announced a new relationship with Thomas Global Register, forming ThomasB2B.com to create a leader in the performance-based B2B advertising marketplace. And today we have announced our expected closing date for the Espotting transaction, which we believe will create the leading independent global provider serving online businesses in 11 different countries on three continents.

It is also my pleasure to report that due to our continued success, the closing of the Comet transaction and the expected closing of Espotting, we are increasing our full-year 2004 revenue guidance to 174 million and our full-year 2004 EBITDA guidance to 34 million. As you can see from this summarized list of highlights, we have been extremely busy thus far in 2004 and are delighted with the development of all the points mentioned above.

With that said, I would like to thank all of our team members. It is through your 100-percent-in attitude and efforts that we have continued to grow and maintain a leadership position within the industry.

Before turning the call over to Brenda and Phillip for an overview of our financial and operational details, I would like to take a moment to update the investment community on FindWhat.com's strategy and how it may differ from others in the sector.

Over the past few quarters, as we've announced new relationships, some have asked how each new initiative relates to the others. To help give clarity internally and externally, we have summarized our strategy with three words -- find, get and keep. In short, our goal is to help online businesses find high-quality sales prospects, get those prospects to convert into customers, and to keep those customers coming back through retention-based marketing efforts.

As most of you know, in Q4 2003, we took a positive step in defining this vision by taking on a new structure, creating our merchant services and FindWhat.com network divisions, each focused on specific products and services. With the expected closing of the Espotting transaction, we anticipate adding an additional division, focusing on the European performance-based marketplace. We anticipate the divisions will work together to provide a full range of find, get, keep services to our global customer base.

While there is much to do in 2004 to integrate the aforementioned services, we are keenly aware of other opportunities that fit within our find, get and keep strategy that would be of value to our customers and further solidify our position in the marketplace. That said, as we move forward on integrating our services and looking into new opportunities, we will continue to be clear in our objectives, prudent in our decisions, and highly efficient in our execution.

We are optimistic about the marketplace and our position in it and will continue to move aggressively on all fronts. At this point, I will turn the call over to Brenda for a detailed overview of our financial statements.

I am pleased to report that in Q1, we continued to meet and exceed our financial objectives. In fact, Q1 2004 represents our eighteenth quarter of sequential revenue growth. First, I will discuss the Company's first-quarter financial results in detail and then turn it over to Phillip.

Starting with revenue, Q1 2004's consolidated revenue was approximately $24.7 million. This exceeded our original revenue projection by more than 2.7 million. When compared to last year, our Q1 2004 consolidated revenue exceeds Q1 2003's revenue of 15.8 million by approximately $8.8 million or 56 percent.

It is important to note that revenue for Q1 2004 included a full quarter of Miva, which we acquired on January 1; nine full days of Comet Systems, which we acquired on March 22; and the initial launch of our private-label deal with Verizon. Although Miva, Comet and Verizon contributed to the overall revenue growth in Q1, they accounted for less than 1 million of our revenue, with the majority of our revenue growth attributable to FindWhat.com network.

With revenue growth out of the way, this will be a good time to talk about the measures, which, in addition to GAAP figures, we believe will best record our financial performance moving forward. We now have a significant amount of non-cash amortization expense in connection with the acquisitions of Miva and Comet, and beginning in July, from our merger with Espotting.

As such, in order to fairly judge and compare our financial performance from period to period and year to year, we believe that there are three non-GAAP measures on which the company can be fairly assessed. They are EBITDA, adjusted pretax income and adjusted pretax income per diluted share. We define EBITDA as earnings before interest, taxes, depreciation and amortization. Adjusted pretax income is defined as GAAP pretax income plus amortization expense; and adjusted pretax income per diluted share is adjusted pretax income divided by the number of diluted shares outstanding.

Now let's discuss how well we did with regard to these three measures. In Q1 2004, we realized approximately $6.8 million in EBITDA, which represents an increase of 49 percent over Q1 2003's EBITDA of 4.6 million.

Our adjusted pretax income in Q1 2004 was approximately 6.4 million or 27 cents per diluted share. This represents an increase of 48 percent over Q1 2003's adjusted pretax income of 4.3 million or 20 cents per diluted share.

Turning now to our Q1 2004 EBITDA margin, it is easy to calculate that our EBITDA margins in Q1 2004 were 28 percent, equal to our full-year 2003 EBITDA margins. However, looking forward, we recognize that our full-year 2004 EBITDA margins will decline -- not as a result of an increase in the amount of revenue we share with our FindWhat.com network distribution partners, which was relatively flat in Q1 at approximately 50 percent of our FindWhat.com network revenue, but primarily due to lower margins for the businesses we are integrating during the year.

What's more, we are focused on growing the FindWhat.com network as well as committed to investing in and integrating our three new private-label partners, Mitsui, Verizon, and our new joint venture partnership with Thomas Global Register.

Finally, we are determined to maintain the momentum of our M&A strategy. To that end, we believe that the foundation we lay today will assure strong and stable positive returns tomorrow. And that foundation is built by advancing our technological, human, and capital resources.

Having said that, we expect our EBITDA margins to be approximately 27 percent in Q2 2004; and primarily as a result of closing Espotting on July 1, they will drop to approximately 16 percent in the second half of the year. We do expect that we can push the margins of the businesses we are aggregating back above 20 percent in late 2005 as our private-label initiatives mature and as we benefit from integrating the FindWhat.com network more fully with Miva, Comet, and upon closing, Espotting, to pursue opportunities that we would not have had as separate companies.

Turning towards our balance sheet, cash and cash equivalents at March 31 were approximately $55 million, a decline from December 31, 2003's balance of 59 million, which is due to the purchase price cash component of Miva and Comet Systems. We have $158,000 in long-term debt, and have secured a $10 million line of credit, which as of today remains untouched.

Finally, I would like to highlight the remainder of what we anticipate for 2004, and then Phillip can provide greater detail on the overall 2004 financial outlook. Assuming we close Espotting on July 1, 2004, we estimate total 2004 revenue of $174 million, which represents 141 percent increase over our 2003 revenue of $72 million.

EBITDA for full-year 2004 is estimated at 34 million, which represents a 70 percent increase over 2003's EBITDA of 20 million.

Adjusted pretax income is estimated to increase 67 percent in 2004 to 31.5 million or $1.08 per diluted share, which assumes average diluted shares outstanding of 29.2 million. This compares to 2003's adjusted pretax income of 18.9 million or 85 cents per diluted share, when we had 22.1 million diluted shares outstanding.

This concludes the Q1 2004 financial highlights. I will now turn the call over to Phillip. Thank you.

Thanks, Brenda. Q1 started strongly, and as a result, we posted a terrific quarter, with revenue up 17 percent over Q4 2003, helped in part by the addition of Miva's results for a full quarter and Comet's results for nine days. Our current projection for Q2 2004 is for a sequential revenue increase of 9 percent, primarily due to including Comet's results for a full quarter.

Interestingly, as we diversify our revenue streams across different geographies and platforms, the businesses of the FindWhat.com network, Comet, and Espotting all have similar seasonal patterns tied to Internet usage, and we are seeing them combine to begin Q2 at a slower pace than Q1. We believe that pace will increase, leading to our current estimates for Q2 and the remainder of 2004.

We've assumed moderate contributions from our most recently announced private-label deals, as Verizon is the only one expected to generate traffic in Q2, and even it has not yet been fully launched with an automated sign-up capability still to be offered.

We are very pleased with the progress that Espotting has made, as their calendar Q1 results were much better than we had anticipated. Their strong start reinforces our view that, assuming completion of the deal in July and no material changes in exchange rates, Espotting will be an accretive deal to FindWhat.com shareholders within a few months of the closing. Specifically, we mean that in Q4 2004, we believe Espotting can increase our adjusted pre-tax income per diluted share above what it would have been without the merger.

On the expense side, we continue to invest in the future, including integration activities, which do have an impact on near-term EBITDA margins. As Brenda addressed, we believe that once we pass the integration phase of our mergers and acquisitions and our new private-label deals become more mature, our currently anticipated collection of businesses and business lines have room for margin improvement.

This will come in part from leveraging some of the cross-divisional opportunities we are creating. One example is our recent announcement of the launch of Miva Marketplace 2.0. The launch is the first of we believe many examples, where the deals we are doing open up opportunities that did not exist for us as a stand-alone business.

Miva Marketplace 2.0 offers tens of thousands of Miva merchant users with keyword-targeted pay-per-click advertising services accessible from special controls in the Miva merchant version 4.23 administrative interface, built specifically to interact with the FindWhat.com network account manager.

In simpler terms, that means it will be very easy for tens of thousands of Miva merchants to sign up to bid on keywords in the FindWhat.com network and receive highly targeted leads to help their businesses. Clearly, Miva's software offerings gain appeal if they can help online stores throughout the customer lifecycle, and Miva Marketplace 2.0 is a big step in that direction.

Throughout 2004, we plan on continuing to announce the benefits of combining forces with Miva, Comet, and soon, Espotting, as well as with our private-label partners. Now let me turn it back to Craig.

Again, I would like to thank all of you for attending our Q1 2004 conference call and again, thank all of the FindWhat.com team members for their 100-percent-in attitudes and efforts in making FindWhat.com a global leader. At this point, we will turn the call over to the operator for the Q&A session.

(OPERATOR INSTRUCTIONS). Eric Martinuzzi, Craig-Hallum.

Good afternoon, ladies and gentlemen, and congratulations on a terrific quarter. I am interested in finding out -- if I just try and go apples-to-apples, your old guidance for 2004 was 95 million. Is there any way you can give me what that number would have been had you not factored in some of the Espotting contribution?

Eric, actually, we sort of looked at it combined and have not broken that out. But I think if you look at what Espotting did in Q1, which was about actually over $30 million of revenue and probably on kind of a run rate basis, around 2 or 2 to 3 million in EBITDA, we've been -- I think assumes some modest improvement out of that going forward.

Again, remember that their Q3 -- well, actually, Q3 in general, calendar Q3 for the Internet, is not the best quarter. And I think it's a bigger impact on them than it would be on us in the United States just due to vacation patterns. But I think we sort of -- with that seasonal ride in place, assume some modest improvement from that.

Okay. And then on the FindWhat network, you talk about not -- I guess the sequential improvement being a little bit less than what you had seen in the past two quarters. Seasonally, I was thinking that Q2 would be seasonally up from just a Q1, where typically that's the weakest of the year. What do you attribute the less-aggressive tone in sequential growth to?

I think the way we think of it is Q3 is typically the slowest quarter, Q4 is the best and then Q1 and Q2, it's sort of a tossup. I think it's just sort of based on what we were seeing. When we reported results for the fourth quarter, which was, I think, the beginning of February, we'd obviously seen the first quarter get off to a pretty good start. (technical difficulty) slow a little bit. So I don't know that there's one specific thing we can point to in terms of Q2; it's just kind of the run rate that we are seeing right now.

Lastly, there has been -- more and more, we are hearing about -- first of all, paid search is less of a secret than ever, and we are seeing that impacting some advertisers. Are you seeing any sort of arbitrage effect? In other words, an increase in your total number of advertisers as folks find the pricing, the bidding at Overture and Google a little rich for their taste?

I would not say that we are, Eric. Actually, what we are seeing is pretty much the same level of participation by advertisers of all sizes. We are really excited about some of the new initiatives that we've launched. Phillip talked about the Miva Marketplace and what we are going to be able to do in terms of facilitating advertisers' participation within our network. But at this point, I would not say that we are really seeing much of a difference from what we have seen in the past.

Great, thanks. That covers it for me.

Richard Fetyko, Merriman & Co.

Congratulations on the quarter. If you could sort of go over the first-quarter upside, 2.7 million in revenues. What drove that? Was it volume versus pricing? Could you sort of give us a little more color? Did your network increase, or was it more traffic from the existing partners and in terms of pricing what you are seeing out there?

Richard, it was actually a blend of all of the above. We did see some nice uptick pretty much across the board in all areas. As you know, we have not been breaking out metrics for a number of reasons. One reason was because we have been pretty focused on some new initiatives. But now we have actually not only announced the launch, so we did not think the previous metrics were really a good way to try to form any type of guidance on FindWhat. But nonetheless, we saw a pretty good uptick across the board. We are really not breaking out any one of those metrics in terms of attributing our growth in Q1 to one specific metric.

If I can elaborate just a little further on what Craig just said, we did state both in the press release and publicly tonight in my statements that the majority of the growth did come from the network, and very little of it came from Comet and Verizon.

And just to round out the question, Richard, I think in terms of whether it was existing partners or new partners, again, it was a mix. We had some nice uplift pretty much across the board, especially early in the quarter across all partners. And then we have also done, again, a good job of adding some new partners into the mix.

Excellent. And on the Comet Systems, I think you've disclosed that the Overture contract will terminate. What do you intend to do there? Obviously, I would imagine that you are going to use your paid listings. And how will that impact the Comet Systems' revenues? And also, do you have other similar type of acquisitions in view?

I will kind of answer that in reverse. Do we have other acquisitions or similar acquisitions? Right now, we are looking at a number of potential opportunities. Whether or not we can consummate any of those, we are not sure. But we are very focused on building out that find, get, keep strategy.

That being said, with Comet's contract coming due here shortly, we really are indifferent on how we move forward. And we are looking at a number of opportunities, to be quite frank with you, in terms of what's the best way we can move forward with that division. But as of right now, we are really indifferent and we're still looking into what the right path is.

Got you. And on the private-label deals, should we expect more? And anything out of Europe that you think might be coming out on the private-label side as well?

In terms of expectations, I mean I can tell you internally we are working towards other relationships. Whether or not, again, we consummate them in '04 or not has yet to be seen. But nonetheless, we are working towards other relationships.

In terms of Europe, we do see a number of opportunities over there. But obviously, we have not closed the Espotting transaction yet. We are working diligently with numerous key team members over in Espotting, looking at some of those opportunities. But really, until we get number one, the closing out of the way, and number two, some of what we consider to be low-hanging fruit, just basic integrating and making sure that we work very smoothly together and take a look at some shared services opportunities, I mean we probably would not embark on a huge opportunity, a private-label opportunity in the European marketplace until we could get the those lower-hanging fruit, so to speak, put aside.

Thanks. Good luck, and I will yield the floor for now.

Tom Underwood, Legg Mason.

I was wondering if you all could comment just in terms of the marketing and sales and service line item. It tends to have been trending downward for the last couple of quarters. I know that TAC is a big part of that line item, but even if you were to move out the rough million or so that you got from the acquisitions that maybe don't have TAC associated with it, it still seems to be moving in a positive direction. Is that because of growth in private-label or something else?

Overall, Tom, we do keep very, very close track of the marketing, sales, and service expenditures. But we have gained some traction, and we have gained some efficiencies in Q1. That's not to say it's moving forward. We don't want to continue to re-invest, as I said, in the infrastructure. But yes, we did have some efficiencies in Q1 with regard to the majority of our expense, first being traffic acquisition, and second being our labor costs.

How did TAC trend in the quarter?

TAC was approximately 50 percent. It was flat from prior year.

Great. Thanks.

Jordan Rohan, Schwab Soundview.

Congratulations on the quarter, real impressive.

Thank you.

I'm probably not alone in admitting that I've lost my bearings a bit on your company, especially on the part of the company that has yet to close and become part of your company, that being Espotting. But it looks like if I take into account the increase in guidance versus the last time you spoke, we are looking at an incremental 79 million in revenues and EBITDA of about 7 million increase. So about 10 percent incremental margins.

It also looks like about 64 million in revenues -- according to your guidance, 64 million in revenues in fourth quarter '04, which would annualize to about 250 million or so. Now if we look at that and just assume that the margins do actually get to the point where you say, above 20 percent in late '05, we assume at least a 50 million or so EBITDA contribution in 2005. Am I doing any of this math wrong? Because I do have one follow-up question, if I am understanding this correctly. Can you get to 250 million in revenues and EBITDA of 50 million in 2005?

You are just multiplying the Q4 estimates by 4?

Right. I realize it's a rather unscientific approach to it, but since you guys are growing on a sequential basis, I'm trying to look for the lowball 2005 number and then apply the margins that you spoke to on the call.

Right, no, that all makes sense (ph).

Okay. Clearly, a lot of that has to come -- you guys have great margins on the FindWhat domestic business. Can you talk to me, please, about how you anticipate increasing the margins so dramatically at Espotting?

And if you do that, if you happen to reduce traffic costs, for example, as a percentage of revenues over there, how does FindWhat/Espotting keep from losing key partners or affiliates abroad? Thank you.

I think on the margin side, you know, I guess past performance is never a guarantee going forward. But I think their Q1 performance kind of speaks for itself, in that I know that there was some skepticism given the results that we put out -- actually, that Espotting contributed to the S-4 that we put out -- that they did have a loss in 2003. But again, we felt like they were about to turn the corner, and they did actually better than we expected in Q1. And again, if our history is any indication, once you turn that corner, you do stay profitable, and usually you can add onto that profitability. So I think the Q1 results are sort of where we put our faith in the fact that they can have a positive contribution going forward.

In terms of the second question, which was how do you prevent against partner defections, we have not figured out how to do that on the U.S. side. I guess we don't have sort of brand-name partners to as much of an extent. And so the mix of our traffic up and down with various partners is a little bit behind the curtain mostly for competitive reasons.

With Espotting, I think they're in a phase that, again, that we feel like we've been in over the past few years, where they are in a market that is growing very, very quickly. They offer sort of we think superior service. I think they are perceived as more of a local company. And our hope is that that perception remains solid, even after we come together. And that speaks a little bit maybe to how we intend to operate the businesses going forward, which we can speak to if you would like.

But no, I think it is the overall growth. I think it's the special sauce in terms of service and really paying attention to partners of all sizes. Again, they have some bigger or higher profile partners, let's say, than we do. But they certainly do a great job, as I think our team does, of super-serving folks in more of the middle tier.

So I don't know if I've answered your question specifically. But we certainly think Q1 should give investors, because it gives us, a good feeling that they're able to turn that corner.

Just one quick follow-up, and I apologize for the sets of questions here, but does that mean that the European market is similar to that of the U.S., where revenue shares over time will stabilize? Can you just speak to the competitive dynamics between yourselves, Google, and Overture in Europe? Are they significantly different? Do you expect to be subject to an increase in revenue shares over time? Is this something that has already stabilized and should (technical difficulty) –- likely to (technical difficulty)?

Yes, I think what we sort of said -- well, I don't know if we said it explicitly, but clearly in our guidance going forward that they were going to contribute more than their fair share of EBITDA -- given that they were not contributing any EBITDA, positive EBITDA in 2003, they had to improve margins. And the most obvious place for them to improve margins is on that sales and marketing line, which is mostly made up of revenue-sharing payments.

They have already done that. Again, we have not broken out their line-by-line performance, and that's because they have not completed their audit yet. But yes, I can tell you the improvement from Q4 and all of 2003 to the first quarter of 2004 was because that percentage of revenue that they are giving away has gone down. And again, that is somewhat due to a mix in who their partners are, and unfortunately, we cannot speak to any specific partners. But yes, I think that they can probably make some more improvements there, again, mostly based on the mix of who their partners are and who they are serving and how they're serving them, if that answered the question.

Sure, thank you.

Marianne Wolk, Susquehanna.

A couple questions. First, would you mind give us the amortization and depreciation in your June and September guidance, just so we can make sure we understand the bottom-line impact of what you're discussing? Then I had a follow-up question.

In the June guidance in September, we specifically said that we did not include in the press release the results of Espotting's intangible amortization expense. But what we do have for quarter over quarter is we have 1 million in Q2. We have got 1 million in Q3. Having said that, we have released preliminary results on Espotting's amortization expense. So why don't I just go ahead and give you total estimated amortization expense for the year? And that's going to be about 3.7 million, and that includes in Q1 just under 200,000 because Q1, we closed Comet the last nine days of the quarter.

So Q1 amortization, you are saying 200,000 and --?

200,000, and the rest of the year would be the 3.5 million.

Without Espotting.

No, that is with Espotting.

And the 1 million you just gave us for Q2 and Q3, that includes depreciation?

No, that's amortization.

Amortization (multiple speakers)?

(multiple speakers) depreciation for the year and this was without Espotting. Again, we have not done a lot of analytics with regard to Espotting's depreciation. But so maybe about 2.7 million, and that's FindWhat, Comet, and Miva combined.

Okay, that's helpful. And then just another follow-up question regarding the guidance. It seems to me if you are potentially guiding a sequential decline in the September quarter from the current run rate that you have expressed for Espotting, but that perhaps the FindWhat.com network could be more stable. Is that appropriate? Or are we expecting both of them to be down sequentially in the September quarter?

Again, we have not sort of broken things out. But I think in general, if we wanted to add any new partners in the FindWhat network again (ph) -- certainly, the Espotting network would decline. But that's never the case. Every quarter, we are able to go out and bring on some more folks.

So we have not broken it out. But in general I would say, we look at Q3 as kind of a flat quarter. That's been consistent in prior years. I think Espotting -- I don't want to speak for them or specifically break them out. But I think, again, they have to do a fair amount of work to get to be a flat quarter or a slightly-up quarter.

Okay. And can you just confirm that you have not lost any partners this quarter, and that that's not one of the factors in your lower September outlook for the FindWhat.com network?

No, Marianne, our partner mix actually changes from quarter over quarter. I think -- I can't say this with exact certainty, but I would be surprised if we had any quarters where we did not lose a partner. It's just sort of the nature of the game and the size of some of the partners that we deal with.

But in terms of I think why we started off a little bit slower in Q2, it's more a mix of I think the fact that Q1 was one, really good, and two, it was really good early in the quarter and it slowed up a little bit. But again, we think that will pick up throughout the rest of the year, and I think our estimates reflect that.

Did you lose anybody significant?

Again, we don't specifically talk about any given partner. But no, our mix I think changes from quarter to quarter. And in terms of any significant partners, no.

And at one point, I was looking at private-label as roughly 10 percent of your revenues. Is that still about the right figure to be using for the current time frame?

Again, we have not broken that out just due to the contracts that we have with various entities. But Lycos has been our only private-label partner to date, and in the first quarter, remember that Verizon launched by March 1, and it's not yet a full launch. So I think we have always said that the private-label part of the business -- which, again, has just been Lycos -- has been under 10 percent. But we have not really been permitted to go into much more detail than that.

I think looking forward, given what we said, which is that we are only expecting sort of moderate contributions from the more recent private labels, that yes, we believe it will continue to be less than 10 percent.

Going forward in 2005, 2006, is it possible that that could more approach the 10 percent level? Again, we have not given guidance that far out. But yes, I think private-label can become a bigger percentage of the overall pie.

Youssef Squali, Jefferies & Co.

A few questions -- number one, a quick one for Brenda. Brenda, you said that the acquisitions helped topline by less than $1 million. I was wondering if you could give us the same for the bottom-line impact from Miva and Comet? Number two, what is the TAC assumption in your margins for Espotting?

Let me take the first question. The impact to the bottom-line with regard to Verizon, Miva, is less than a penny to the bottom line. And that was publicly stated in the press release. So less than $1 million contribution to revenue, and less than a penny to the bottom line. And the second question again, Youssef?

It was about TAC with Espotting. (technical difficulty) like TAC in your guidance, in your margins -- 16 percent EBITDA margin in the second half -- I was just trying to back into a TAC. Now it's 50 percent. What would it be with Espotting for the second half?

You know, it's something that we are not releasing or disclosing at this point in time. Espotting has a very different makeup, as you know, than FindWhat. But we are not disclosing what their traffic acquisition cost at this point in time, because when we close in July, it could be very, very different.

Will that be something you will be disclosing going forward?

As you know, it's something that -- we are looking at all different kinds of measures moving forward. And what we're going to release come July, come August -- again, I do not want to answer that today. But it's certainly something that we may break out geographically. We may take a look at our traffic acquisition costs geographically, and release that. But as of today, I can't answer whether or not we're going to be doing that.

We are not trying to be cagey. But I think what we have said is that Espotting clearly has a higher -- the percentage of revenue that they pay out to their partners in '03 was significantly higher than ours. Obviously, that has come down somewhat in Q1, given that they have turned the corner with respect to positive EBITDA and profits. And I think we were asked a little bit before whether -- can that continue to come down, and we think it can a little bit. But I think overall, Espotting is going to have higher rev share, or pay out higher rev share than we pay out. What the sort of mature or sort of further-out run rate is on a combined basis, as Brenda said, we have not put that out there. I think in our estimates for what the rest of the year looks like after we close on Espotting, again, we have assumed they come down a little bit.

As a kind of a related question, and it kind of goes back to something that Jordan was talking about -- are you contemplating a change in the mix of the distribution partners? Historically, Espotting has obviously gone after the larger partners. With Google and Yahoo! going into the market, that had made things a little more difficult. So are we seeing Espotting just really kind of retrenching in your core business, i.e. midmarket and below?

I will take that. Actually, it's a combination of a few things. One, Espotting historically has played a much different role than FindWhat has ever played in the U.S. marketplace, meaning they've gone after the higher-tier deals as we all are familiar with, that obviously have smaller margins available.

That being said, Espotting still does play a different role. They've done quite well in building their position within the European marketplace in ways that FindWhat never had in the U.S. marketplace. That being said, as the European marketplace does mature, there are opportunities in the past they just did not pursue. There were looking much like Overture and Google have. They were looking at the largest deals and focusing aggressively on those deals. One of the things that we see the benefit with the two companies coming together is taking advantage of our expertise in the middle market. I'm not saying they have not done a phenomenal job, they have. But I think it's a combination of one, they occupy a different position today; two, the fact that the European markets are maturing, and you are seeing more middle-market players emerge as viable distribution partners; and three, the combination -- combining all our expertise in the middle market and how to provide additional value-added services and professional services to those middle-tier players will put them in a position long-term which should help on the margin side. So it's really a combination of a number of things. I would emphasize that Espotting had traditionally played or held a different position in the European marketplace. And quite frankly, even today in some of the countries, they are incredibly competitive in terms of a monetization perspective. They are incredibly competitive (technical difficulty) both Overture and Google were; as we all are familiar, FindWhat has just not taken on that role in the U.S. marketplace.

Craig, since I have you, can you talk a little bit about the need for you guys to have algorithmic search? You seem to obviously be doing a great job in the pay-for (technical difficulty) search. But do you see a point at which you will need to own algorithmic search, or at least partner?

I don't think I can give you a candid answer on that. There are opportunities today that, unfortunately, we have to forego because we do not provide that as part of our core competency. That being said, we have been very careful as you are very familiar with in the past to not get caught up in that search war. We do not want to go out into the marketplace and compete with the existing players, let alone some of the very large players that are coming into the search marketplace. We think that would be a losing battle from our perspective. But it does not mean that we would not search for a third-party provider or possibly something that would not be viewed as competitive, but that could provide value to our distribution partners.

It's an interesting situation to have a partner that really wants to work with you, but you are not providing that algorithmic side. I mean, the fact of the matter is we do work with some companies occasionally, depending on the opportunity. But today, I think we are continuing to do pretty well without having that as part of our core competency. That may change in the future, especially as we serve global distribution partners on three continents, we may need to change that. But today, right now, I think we're pretty comfortable, and we're still evaluating that situation. We just do not want to be viewed as a competitor in the search marketplace, because as I mentioned before, I think that is going to be a marketplace that's not only going to heat up in competition, but quite frankly, you're going to have some new players that are really going to take market share in the near future.

Fair enough. Thanks, and congrats.

Richard Fetyko, Merriman & Co.

I just have a follow-up -- could you speak to Espotting's price per click and how it compares to that of Google and Overture? I just wanted to get your idea or an idea of how much more competitive Espotting is in Europe?

Richard, besides sort of going onto the sites themselves and typing in some sample terms, it's difficult to get a good read on that. Overture and Google obviously don't break that out anymore. They certainly don't break it out for just Europe or for any of the individual countries. So beyond a feeling that -- this comes from Espotting and their interactions with various affiliates, from beyond a feeling that it's a certainly closer competitive race than it is in the United States, I don't know that we can break it out any more specifically than that, except on an anecdotal basis, which you could do yourself by going to the sites and sort of looking up different keywords.

That's been my experience. I just wanted to see if I could confirm that with you guys. Okay, thanks.

Jordan Rohan, Schwab Soundview.

This should be pretty easy and I apologize for the follow-up on a nit here, but I've noticed that your guidance now incorporates EPS on a pretax basis. I was wondering if you could just tell us if there's any reason to do that. Did something change about your effective tax rate? Does Espotting do something to your effective tax rate in the U.S.? Is there any reason for that?

And then finally, if I'm understanding correctly, it looks like your last guidance, at least as given on the last quarter's conference call, had about 60 cents a share. Now you are guiding to about 70 cents a share if you use a 35 percent tax rate. I'm not sure if that's the right tax rate. Can you speak to -- if I have the order of magnitude correct between the prior guidance and the current guidance?

Sure, let me take the first question. We are using what's called adjusted pretax income, Jordan. And the reason we are using that is because this is the first time since the third (ph) quarter we have had to recognize amortization expense relating to intangible assets from the purchase of Comet and Miva. And we know moving forward, Espotting will bring to the table a tremendous amount of intangible assets that we'll have to amortize as well.

So in order to compare things apples-to-apples from period to period and year to year, we are using what's called adjusted pretax, which is simply pretax income plus that amortization expense. And that should give a level playing field when measuring the Company's performance.

As far as 60 cents EPS, we are looking at a 38 to 40 percent effective tax rate.

Okay, so that will get you to 65 cents, then, 66 maybe.

I think if you look at it and redo the numbers and crunch the numbers -- and we can talk about this after the call -- you're probably looking at about a 60 cents EPS. (multiple speakers) maybe slightly less than a 60 cent EPS, but then again, you have to factor in that we're taking 3.7 to $4 million in amortization expense, which is hitting that bottom line, that earnings per share.

Ms. Yagnesak, there are no further questions at this time.

The conference call has contained certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words or expressions such as plan, intend, believe, expect, or variations of such words and similar expressions are intended to identify such forward-looking statements.

These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. Key risks are described in FindWhat.com's reports filed with the U.S. Securities and Exchange Commission, including the Amendment No. 1 to Form S-4 filed on April 22, 2004.

The forward-looking statements herein include, without limitation, statements addressing future financial and operating results, statements regarding growth strategies, statements relating to the expected financial performance of recent initiatives, and statements regarding integration of the businesses of Miva and Comet. In addition, past performance cannot be relied upon as a guide to future performance.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements -- potential that the information and estimates used to predict anticipated revenues and expenses were not accurate; potential that demand for our services will not continue to increase; the risk that we will not be able to continue to enter into new online marketing relationships to drive qualified traffic to our advertisers; risks associated with our ability to compete with competitors and increased competition for distribution partners; political and global economic risks pertaining to our business; other economic business and competitive factors generally affecting our business; the risks that operation of our business model infringes upon intellectual property rights held by others; our reliance on distribution partners for revenue-generating traffic; risks that our merger with Espotting or mergers or alliances with other companies which are or may be evaluated in the future will not be consummated; difficulties executing integration strategies or achieving planned synergies with Miva, Comet, and other acquired businesses and private-label initiatives.

Readers should also note that forward-looking statements may be impacted by several additional factors, including the failure of existing infrastructure to adequately support our private-label initiatives; the failure of our private-label partners to successfully create and manage paid listings networks; risk that the development and implementation of foreign-language versions of our technology will be delayed or not completed when expected; risks that the development, implementation and integration costs associated with our private-label services will be higher than anticipated; and the inability of our private-label partners to leverage off of their existing client base and potential distribution partners.

We do want you to know about some additional information and where to find it. FindWhat.com has filed relevant documents concerning its proposed merger with Espotting with the Securities and Exchange Commission, including an amended registration statement on Form S-4 on April 22, 2004, containing a joint proxy statement/prospectus. FindWhat.com urges investors to read these documents because they will contain important information.

Investors will be able to obtain a joint proxy statement/prospectus and any other documents that may be filed by FindWhat.com with the Commission free of charge at the Commission's Website, that is, http://www.SEC.gov, or by directing your request after such a filing has been made to FindWhat.com, 5220 Summerlin Commons Boulevard, Suite 500, Fort Myers, Florida, 33907, telephone 239-561-7245, attention Brenda Agius.

FindWhat.com and its directors and executive officers may be deemed to be participants in the solicitation of proxies in connection with the proposed merger. Information about FindWhat.com directors and executive officers and their ownership of FindWhat.com voting securities is set forth in the Company's joint proxy statement/prospectus for the annual meeting of stockholders held on June 4, 2004, filed with the Commission on April 22, 2004.

Additional information about the interests of those participating may be obtained from reading the definitive joint proxy statement/prospectus regarding the proposed transaction with Espotting.

That concludes our call today. Thank you for listening.