Inuvo Inc (INUV) 2004 Q3 法說會逐字稿

Good afternoon and welcome to FindWhat.com's conference call pertaining to the period ended September 30, 2004 earnings. I'd like to remind everyone 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 outlined toward the end of the conference call, and are also detailed in FindWhat.com's filings with the Securities and Exchange Commission. To comply with the SEC's guidance on fair and open disclosure, we have made this conference call publicly available via Web-cast at http://www.Vcall.com/custom events/na012230/index.ASP?ID=89557. And a replay of the conference call will be available at that same URL and on the company Web site for 90 days after the call.

I am pleased now introduce Craig Pisaris-Henderson, Chairman and Chief Executive Officer of FindWhat.com Inc.

Thank you Karen and welcome to FindWhat.com's Q3 2004 conference call. Q3 was a truly historic quarter for our Company. We continued to execute against our global vision of providing small, medium and large advertisers with efficient and innovative ways to market their products and services. Simultaneously, we continued to help publishers of all sizes grow their businesses with new tools and support services. And, for the first time, we did this on a global basis.

In just a moment, I will walk through some of the highlights from Q3 and turn the call over to Brenda and Philip to touch on both financial and operational highlights. Before I do, I would like to congratulate and thank all of our global team members for a job well done in Q3. (technical difficulty) They have continued (ph) to give (ph) 100 percent dedication and focus that we are now today announcing these historic milestones.

Turning to the highlights, Q3 marked our twentieth consecutive sequential increase in revenue, coming in at 58.3 million, a 227 percent year-over-year increase. Q3 also marked our fourteenth consecutive sequential increase in EBITDA with EBITDA coming in at 11.2 million, greatly exceeding guidance and leading to an increase of our full year EBITDA guidance.

On July 1, we announce the closing of the Espotting merger, thereby creating the largest independent performance-based marketing Company and commerce-enabling solutions provider in the world. I'm also very pleased to announce that Espotting was not only a positive EBITDA contributor to FindWhat.com, but was also accretive to earnings in its first quarter of inclusion, a full quarter ahead of schedule.

As many of you know, we share the performance-based marketing sector with two very large global companies. Those companies offer performance-based marketing services, but also compete with other online publishers for market share.

We believe our strategic decision to continue -- of continuing to partner with and not compete with online publishers puts us in a favorable position. It allows us to dedicate our resources to developing and providing services our partners need to remain competitive against those larger companies trying to take market share away from them.

While this has been our strategic direction in the U.S. market for the last 5 years, completion of the Espotting merger and the launch of our Japanese partnership with Mitsui gives us the ability to continue to execute our strategy on a global basis. We now have the opportunity to help hundreds of thousands of advertisers and thousands of publishers grow their businesses in 10 different countries.

In Q3, we also launched several new services. Most notably, our pioneering pay per call (ph) product in the U.S. gives us the ability to expand our potential market to include approximately 10 million U.S. businesses. These businesses are primarily local service providers such as doctors, plumbers, attorneys and electricians which do not have Web sites. They can market through pay per click offerings.

With pay per call, we can promote their products and services on the Internet and deliver potential customers to their telephones. This new service also helps us establish the foundation of future off-line initiatives, as a phone number can be used in any medium, unlike a URL. While there is a learning curve associated with this new service, we believe pay per call has a very promising future.

To summarize what all these accomplishments represent in a short statement, FindWhat.com is 1 of 3 companies with our sector that has a global footprint. This gives us the ability to acquire or build new services and then deploy those services in major markets worldwide. FindWhat.com is 1 of 2 companies that help advertisers of all sizes not only establish an online presence, but then market themselves effectively across the Internet with integrated tools that are simple to use.

FindWhat.com is the only Company to identify high potential new markets and then partner with the strongest player in each of those markets. Examples include Thomas Global Register for the B2B market; Mitsui and Company for the Japanese market; Verizon for the U.S. local market; and the Yellow Pages Group for the Canadian local market.

This strategy of partnering with the best companies in their respective vertical markets gives FindWhat.com the ability to leverage each partner's core strength with FindWhat.com's industry-leading technical and service offering. That said, I will now turn the call over to Brenda to discuss our financial performance.

Thank you Craig. I am pleased to report that FindWhat.com realized record revenue in Q3 2004 of $58.3 million. This represents a 227 percent year-over-year increase from Q3 2003 revenue of approximately 17.8 million, and also represents our twentieth consecutive quarter of sequential revenue growth.

It is important to note that revenue for Q3 2004 included a full quarter of Miva, Comet Systems Inc., B&B Advertising (ph) and Espotting Media. For reference purposes, Miva, Comet and B&B combined contributed approximately $5 million to the consolidated Q3 2004 revenue. And Espotting contributed approximately 28.3 million.

Moving forward, as we continue to integrate the operations of Miva, Comet, B&B and Espotting, it may be difficult to isolate their stand-alone financial impact. Accordingly, it will be increasingly less relevant to provide the disaggregated results of each entity.

Now let's visit how we measure our financial performance. In addition to GAAP measurements, the Company utilizes 3 profitability-based metrics to evaluate our period-to-period and year-over-year performance. They are EBITDA, adjusted pre-tax income, adjusted pre-tax income per diluted share. We began using these metrics in Q1 after our first acquisition. We believe these metrics fairly present our performance, as they eliminate non-cash charges for amortization expense related to acquired intangible assets.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. And adjusted pre-tax income is defined as GAAP pre-tax income plus amortization expense.

Now, let's discuss how well we did. In Q3 2004, we realized approximately 11.2 million in EBITDA, which represents 129 percent increase over Q3 of 2003 EBITDA of 4.9 million, and was significantly ahead of our expectations.

Our adjusted pre-tax income in Q3 2004 was approximately 10.2 million, or 32 cents per diluted share. This represents an increase of 123 percent over Q3 2003 adjusted pre-tax income of 4.6 million or 20 cents per diluted share, and was also significantly ahead of our expectation.

Turning to our Q3 2004 EBITDA margin, our EBITDA margins in Q3 were an impressive 19 percent, which nearly reached our EBITDA goal the second half of 2005 of 20-plus percent. Philip will discuss the factors that led to this performance in a moment.

Espotting's EBITDA margin on a stand-alone basis was impressive. And their positive contribution to the Company's consolidated 19 percent margin made them accretive from day 1, not 90 days out as management originally anticipated.

Turning to our balance sheet, cash and cash equivalents at September 30 were approximately $46.2 million with very little long-term debt. We believe we will continue to generate positive cash flow from operations. So we would anticipate our cash balances to rise going forward, assuming we do not enter into any new strategic transactions. We continue to have available a $10 million line of credit which, as of today, remains untouched.

Finally, I would like to highlight what we anticipate for the remainder of 2004.

Now that we have closed Espotting and we can reasonably estimate our global effective tax rate of 40 percent, we will begin to report and project 2 new non-GAAP measures -- adjusted net income and adjusted Earnings per share, which are defined as net income before tax-adjusted amortization expense on an absolute and per-share basis respectively.

With regard to our projected Q4 2004 revenue, we project revenue between $58 and $65 million. This projection includes the impact of a recent decision to cease to displaying online gambling-related advertising to users within the FindWhat.com network who have IP addresses originating from the United States, or from IP addresses in which the Company cannot determine the country of origin.

The display of online gaming advertising to U.S. residents is subject to uncertainty, and we feel this prudent decision regarding online gambling-related ads keep us in line with industry trends. In Q3, gambling-related advertising represented approximately $2 million of our FindWhat.com network revenue.

Finally, our full year revenue is expected to be between $168.8 and $175.8 million. We have increased our fiscal year 2004 EBITDA guidance to $33.6 and $38.6 million, which compares to the Company's full year 2003 EBITDA of 20 million. Adjusted EPS is expected to be between 70 and 73 cents. And our full year 2004 EPS is expected to be between 60 and 63 cents, which compares to EPS of 53 cents for the full year 2003.

Both the 2004 full year adjusted EPS and EPS assumes 28.7 million average shares outstanding. This concludes the Q3 2004 financial highlights. I will now turn the call over to Philip.

Thanks Brenda. I want to focus on the integration of our various businesses, the progress we have made, and the plans we have in place to continue to invest in projects we hope will capitalize on the unique collection of assets we now have.

Clearly, our various divisions have handled the change in corporate structure very well to date. At the start of this year, each of our team members was part of an entity with one primary product serving a single continent, and in some cases and only one office with less than thirty teammates. The majority had never been part of a publicly traded Company, which brings new disciplines and processes.

Today, we are we have four divisions with different but complementary products serving a global audience. There are about 460 team members spread over 13 offices. And we're looking actively to expand our team at almost every office as we pursue new initiatives both inside and outside our current operations. We're working in partnership with some of the largest companies in the world, and in most cases surpassing their expectations, providing services quicker and more efficiently than they could themselves.

We certainly cannot claim we have everything figured out in terms of our integration, or that communication inside our expanding Company is flawless. But we do feel that we are reaping the benefits of an M&A and partnership strategy that focused on finding businesses that hold leadership positions in their various markets, with strong teams already in place.

As a result, we're taking the best of the best from our various divisions and sharing those top practices across the Company. Also, we're enjoying the task of evaluating and implementing exciting projects that would not be possible if not for our current structure and size.

To date, we have publicly announced or discussed interdivisional projects for every one of our acquired businesses, including Miva Marketplace, which offers FindWhat Network listings seamlessly to Miva Merchants as the merchants build and maintain their stores, and Ad Revenue Express (ph), which allows the FindWhat Network to offer B&B's automated sign up process for traffic partners.

We're just beginning to Gia (ph) routing between the FindWhat and Espotting networks, which we believe may generate over $1 million in additional revenue per quarter once it is fully implemented. We're making great progress in offering a toolbar solution from Comet for our FindWhat and Espotting network traffic partners, as well as our private-label partners, so that our partners can offer a toolbar as if it were their own.

Combining with Espotting has been our large strategic move to date, and it is worth elaborating on our European operations. Espotting's historic strategy was to pursue market share with less of the focus on the profitability of individual deals with advertisers and distribution partners.

That focus began to change about year ago, and the results have been rather dramatic. Espotting's EBITDA margin has increased significantly, from a negative margin a year ago to margins of over 10 percent last quarter. We believe there has to be a balance between market share growth and profitability until we expect Espotting to continue to pursue and win deals with top-branded sites in every European country in which we operate.

We believe there are still margin improvements to be had across our Company. But we don't expect to cease further decreases in sales and marketing expense for Espotting, which has improved its EBITDA margins by more than 25 absolute percentage points since Q2 2003, primarily by rationalizing its revenue sharing payments to distribution partners.

As a Company, we remain committed to investing in our future, balancing current margin performance with pursuing projects that will improve our results in 2005 and beyond. We have roughly 50 open positions to fill across our Company, and these hires are critical to taking advantage of the opportunities we have discussed today and others that are still in discussion stages. Now, I will turn it back to Craig.

In closing, I'm extremely proud of all of our global team members for turning in a fantastic quarter in this, what is seasonally the most challenging quarter within our industry, while also deploying new initiatives and integrating 5 new companies in 9 new markets we've had (ph) this year. The consistency in which our team has performed has been exemplary, and further demonstrates our team's ability to execute on our vision of building a robust, diversified and global marketing Company. (technical difficulty) We will now turn the call over to the operator for Q&A.

(Operator Instructions). Eric Martinuzzi, Craig-Hallum Capital.

Congratulations on a terrific quarter. My question has to do with the impact of gambling on your guidance. Is it correct for me to assume that the old guidance of 60 to 67 million of revenue is for Q4? You basically just pulled 2 million out of the high and low end of that, due to the online gambling. And then I have a follow-up.

Hi Eric, this is Philip. That was clearly part of the thought process. As we look at projections at any given point in time, we try to take a look at sort of what's happening in the business, what's going on. I think that's one of the more significant factors in terms of modifying the guidance on the revenue side. Obviously, on the EBITDA side we're able to increase that guidance for Q4.

That is quite impressive -- the profitability. As far as -- and I guess I should be talking to your competitors to answer this question. But could you, for someone who is maybe not as in tune with the competitors here, how -- as far as domestic gambling listings, how do your two major competitors treat them?

This is Craig, Eric. I believe the growing trend within the industry is to do what we're doing at this point. There's a number of -- there are a number of illustrations to point to in the marketplace. But we just feel this is the most prudent thing for ourselves, considering just the trend within the industry.

So in terms of the competitors, I think you're right. You should ask them directly. But nonetheless, I do think the trend you're seeing with FindWhat right now is going to -- or the move you're seeing with FindWhat, excuse me, is more or less the trend across the industry.

Youssef Squali, Jefferies & Company.

A few questions -- a couple of them, maybe, for Brenda. Brenda, by my math, it looks like you're giving yourself a couple hundred (technical difficulty) to invest in new initiatives in Q4. Is that correct?

And second, guidance for share count last quarter for Q3 was about 33.5. It came in at 32.2. I was wondering if you could elaborate on why. And then I have a follow-up for Craig.

Let me take the share count first. With regard of share count we did have 33.5. We were issuing more shares to Espotting. As you know, you have got to realize that our stock price has been down in Q3. Therefore, there was less dilution from the options and warrants. So we did have less shares out.

But what made up for that is, we projected last quarter on our earnings call 1.5 million in amortization expense. You'll notice, Youssef, that there's 2.2 million in amortization expense due to a new valuation report that was performed during this quarter. And due to Espotting's profitability, the valuation of their intangible assets were higher.

So those two, I think we would have picked up 2 cents more had we not recognized the 700,000 additional amortization expense. And we would've lost a cent had we recognized the 33.5 million diluted shares if our stock price had cooperated this quarter. So all-in-all, we're net up a penny based on the projections that were given last quarter.

As far as the baking in the investments, your first question, we had said over and over that we have a list of strategic initiatives and operation initiatives that we want to implement. Depending on what we get to in Q4, will depend the on the level of our investment. But we feel that what we're currently seeing is in our guidance.

Marianne Wolk, Susquehanna Financial Group.

Hi, I just had a couple of quick questions. First of all, I was wondering if you could talk through any changes that occurred in your traffic partners or mix this quarter. Can you give us some feel for what percentage of your traffic partners, particularly in the U.S., came from partners you signed over the last 6 months?

There's also been some chatter about Dogpile and Lycos and whether or not they are still contributing. Could you give us a feel for that? And then finally, can you update us on Comet and its relationship with Overture? Is it stable? Did they improve the tack (ph) rate and the like? Thanks.

Sure. That was a whole host of questions, Marianne. Let me just give you a blanket answer, although we cannot breakout some of the details. As you are all aware, we don't breakout partners and we don't comment specifically on any of our relationships. To the extent that we would have a partnership that would contribute over 10 percent on a recurring basis, obviously we would do that. But that just is not the case.

And with the fact -- or excuse me, with the Espotting merger now basically closed as of July 1, any significant partner that we had in the past is actually that much smaller for obvious reasons, because of a much larger share of our Company. But nonetheless, just in general we do not comment directly on any of our partners. I will let Philip touch briefly on the Comet question.

Yes. Again, I think we're not going to be able to give you too much insight. We are bound by the confidentiality terms of that agreement. There's still a relationship there. So Comet continues in certain circumstances to show Overture listings. But beyond that, I think we're not allowed to comment.

Mark May, Kaufman Brothers.

First, I wasn't completely clear on the answer related to gambling and its impact on the fourth quarter revenue guidance. So were there other things that were weighing down the guidance in the fourth quarter? Or -- said you did 2 million and the third quarter from gambling. Were you originally baking in to do something more than that? And had it not been for the decision in October, your guidance would have increased? Or can you just give us a little more feel for how the decision to cut out gambling impact of the fourth quarter. And then I have a follow-up.

I think you are maybe reading too much into it. It's not like we've got a projection. We give a projection and one quarter and then we start to disassemble it, either in that quarter or in the next quarter. We kind of take a fresh start, look at where we are, look at what's going on. And that's where we come back to what the right projections are on a go forward basis.

Again, as we said before, clearly, not showing gambling-related advertising in the United States is going to have an impact on our overall revenue performance in Q4. And I think -- to not just leave it as a big question mark, it was helpful to mention how much of an impact it had on Q3. But to say that that's the only thing that goes into our projections, or is that the only thing driving it either up or down, I think is just a tough thing to answer because I don't think we necessarily do that. Like we said, we don't disassemble the projections we had from the prior quarter.

(multiple speakers) (Operator Instructions).

Just do a quick follow-up on that point. Philip answered that absolutely perfectly with regards to the fact that we look at a number of different factors. But it should be noted that, yes, obviously we are moving gambling listings out of our -- out of the revenue equation, so to speak. It's significant, and that's why we have mentioned it. And that is one of the primary points that we looked at this quarter in terms of what we've guided for in Q4.

(Operator Instructions). Mark May, Kaufman Brothers.

Just a follow-up. Craig, you were at our conference in early September. And you mentioned that on the M&A front, while you had identified a couple of companies that fundamentally you are interested in at the time, just financially valuation-wise you couldn't come -- couldn't make it make sense. Obviously, the stocks have been fairly strong since then. Can you just give us an update on the acquisition front?

And then just more of a housecleaning question -- I noticed that on the balance sheet, the receivables and payables post Espotting -- looks like they have on a relative basis quite a bit more in receivables and payables, relative to their contribution. I'm just wondering if you can give us a sense of why that is.

I'll tell you what Mark -- I will take the first part and then pass it over to Brenda. On the acquisitions or the M&A front, yes we have been out there, as I did note to you several months ago, looking at other companies, looking at interesting opportunities. We're focused on providing multiple products and services and multiple buying opportunities to both businesses in the form of advertisers as well as publishers.

And to the extent that there is anything on the immediate horizon, obviously, I cannot comment on that. Nonetheless, we've actively been having conversations with a number of companies. And to the extent that we can get something put together that would make sense, we would have to take a look at it.

But I will tell you, our primary focus is integrating, which we obviously have done an incredibly good job of doing this past quarter with the 5 different companies that we brought into the FindWhat family, so to speak, over this last year. And to the extent we can put something together on a go forward basis with a potential target down the road, I just can't comment on directly. I will turn it over to Brenda for the second half.

With regard to the accounts receivable and accounts payable, you're correct that they increased significantly post Espotting merger. Let's take the accounts receivable first.

Espotting plays in a very different market. The majority of their revenue comes from what we call billable accounts. They come from agencies whereas FindWhat is a 75/25 -- 25 percent of our revenue comes from billable and 75 comes from prepaid. I would say that it is probably 40/60 with regard to Espotting. 60 percent of their revenue comes from billable; therefore you are going to see significantly higher receivables than FindWhat.com.

Additionally, with accounts payable, Espotting's payment terms are -- they pay the majority of their affiliates every quarter, as opposed to -- FindWhat.com pays them every month. So you have a build up of payables at the end of the quarter. And you have your receivables based on higher percentage coming from billable accounts.

Tom Underwood, Legg Mason.

I was wondering if you're going to -- beginning in the current quarter be breaking out for your Q international from domestic operations, and if the international results will include primarily Espotting or if there will be anything else in there.

Tom, it's Brenda. We will for the Q -- we will be breaking out f the geographic revenue. You'll see domestic U.S. revenue versus European revenue. And at this point in time, it is primarily Espotting revenue.

Richard Fetyko, Merriman Curhan Ford & Company.

Congrats on the quarter guys. Just any update on the private label deals? What percentage of your revenues came from the private label deals that you have announced? And maybe specifically, if you could touch on the deployment of Mitsui in Japan, how that's coming along. And when should we expect the Yellow Pages to come on line?

Richard, we don't break out the percentage of revenue that comes from private label deals. What we can tell you is that they are maturing very, very nicely. We still have Lycos with us -- very much part of our revenue each month. With that, you know we have Verizon that is maturing very nicely. We've got Thomas B&B which launched.

So again, we've said over and over that the total contribution in 2005 from all our private labels would not be material. As we move forward in 2005 and beyond, if in fact it does become material, which we believe there is that possibility, we will break it out. But at this point in time, we're not breaking that out. And I will turn it over to Craig for an update on Mitsui.

Actually, just to start with the first portion and the update on new private label deals, we said at the beginning of the year, our goal was to bring on two additional private label partners, which we did do. I'm very excited about that, the U.S. specifically, about YPG.

I can tell you we're aggressively working for the launch of that initiative. I don't have the exact date on this call. I do know that we're targeting very -- I don't mean to sound so vague, but targeting (ph) (technical difficulty) for something very soon within this quarter to try to get that out there. But obviously, that's a joint effort with both FindWhat.com and YPG.

In regards to Mitsui specifically, Mitsui has done an incredibly good job of the playing the primary product in the marketplace. I say the primary product because it's not a fully deployed private label yet. They still do not have some automated sign up features, as an example, and some tools fully deployed to their client base, which reflects (ph) publishers and advertisers.

But all in all, the relationship is going very well. But I think Brenda pretty much put in perspective in terms of the contribution. It is minimal. These are essentially businesses that are starting from zero. They have zero advertisers, zero revenues, zero traffic. So to the extent we have to help them and guide them, build their businesses, it does take a little while for them to be positive contributors to the Company. But we're very happy with the progress on all fronts with our private label partners.

Stewart Barry, ThinkEquity Partners.

Good afternoon and congratulations. On the customer side, was there a change in mix between what the large agencies are purchasing? Or is that increasing as a percentage of revenue in terms of the keywords vis-à-vis smaller advertisers?

With regard to the mix, no, there really hasn't been much of a significant change.

Stewart, I think as Brenda was explaining before, I guess there's a change in the total because we now have Espotting that's a significant percentage of revenue. And Espotting's makeup, in terms of large agency advertisers versus smaller folks who pay up front, is very different from the FindWhat network's historical mix between those two categories.

So I think you see that impact, as somebody remarked on the balance sheet in terms of the level of accounts payable and on the level of accounts payable. But I think within each continent, or within each network, we don't think there was much of a shift between those two.

Derrick Brown, Pacific Growth Equities.

I'm wondering if you could walk through what you saw as the biggest drivers of EBITDA performance in the quarter and why, carrying that forward, why you are so much more optimistic about the EBITDA potential over the near-term?

I think there's a couple of key elements to a more positive EBITDA than we originally projected, a lot of it having to do with Espotting. Again going back, Espotting was accretive in day 1. And one of the reasons it was accretive day 1 is because they had better-than-expected EBITDA contributions.

A couple of things -- twofold -- one, we know that we've been signing new contracts -- new affiliate contracts at sometimes different economic terms than previously signed. Two, the overall global traffic acquisition cost was not as high as we originally anticipated. And that's due to, again, signing new affiliate contracts with regard to Espotting. But also, it's due to restructuring some deals.

So between those two components, we did see lower global traffic acquisition costs. And then there were some efficiencies with regard to sharing resources between the two companies. From day 1, we've been courting Espotting for quite some time. This was not a new company to us. So we had a very well mapped out plan on July 3. When we closed that deal, we immediately started implementing on that plan and started sharing resources. And we can tell you that there was (sic) a lot of positive results from that, which ended up right to the bottom-line.

Jason Avilio, First Albany.

First, I'm wondering if you would give us a sense directionally of growth drivers within the international business. When I say growth drivers, I mean CPC's versus perhaps volume increases, and what's really driving the growth internationally.

And then a follow-up on international -- what are you guys seeing in terms of backlog internationally? How much available inventory is out there for you guys to still land? And is that available inventory across sort of first-year properties? Or are you going to start to move downstream to the second and third-tier properties like you did in the U.S. market? Thanks.

I tell you what, I will start off and I will answer the second portion of that question first. In terms of available inventory, I don't think anyone has a pure concrete answer to that. As you know, we've done very well in the U.S. market, aggregating hereto, so to speak, companies -- smaller companies. And I will tell you Espotting has also done a very good job of working with smaller high traffic Websites and search companies. So it's not as though they didn't have that strategy in place.

It has changed slightly in terms of how focused they are on that tier of the marketplace. But in terms of just how much available inventory is out there, it's very hard say. I can tell you the European market is much more fragmented, where there are many more lower or smaller companies and Tier 3 companies to work with in the European marketplace that aren't quite as sophisticated as some of those publishers on the U.S. side.

So to the extent we can now take the experience and expertise that we've gained over the last 5 or 6 years in the U.S. marketplace and go into the European marketplace, where they are keenly aware of those larger companies I referred to in my prepared remarks, because in most cases these publishers only have one market. And that market may be Germany. It may be France. It may be UK that they are operating in.

It's not like the U.S., where they basically have the entire U.S. marketplace to try to grow their business. So when you are a publisher, as an example, in the German marketplace, and you have larger companies coming in and potentially trying to take market share, they are much more protective.

Well, there is an opportunity for us to sit down with those smaller partners in some cases, and not all small. Some of these are larger companies within their respective markets as well. And we work with them on a one-on-one basis to help them because of the competitive pressures they are facing. We feel there's a tremendous amount opportunity to grow from that perspective.

Again, I don't think anyone has a hard concrete answer in terms of just how much inventory is available. We see a lot of very promising opportunities. And I think that's best way we can put it right now.

I think the first part of the question was the international growth drivers cost per click versus click. And one thing, again, to remember is that Espotting is not just one market. It's 8 markets. And so there are different dynamics in each of those markets. They really do span the spectrum in terms of maturity and time to live and obviously size in terms of the country side.

I don't think there's anything we can comment on with specific overall appear (ph) -- or that it would be all that helpful. We do now talk about the aggregated clicks that we generate in each quarter. That was in response to investor requests to get a little bit more clarity in terms of what is going on behind the business.

But I think to comment on TPCs, again, for all of Europe or for all the Company is a little bit -- not very helpful. There are different things going on in each particular country. Obviously, private-label deals impact that. So you talk about the clicks but not the TPC.

Colin Gillis, Adams, Harkness & Hill, Inc.

Congratulations everyone. Just a quick question, Craig, I'm wondering if there's any more color you could provide on the degree of traffic acquisition arrangements that are based on a fixed cost model versus more of a revenue type -- revenue share type agreement?

Actually, we really don't break out any of our distribution relationships. To the extent that you may have misunderstood when the answers to -- as referred to in the difference of any of our partnerships, I can tell you we don't comment directly.

Okay. How about -- can we get an update on the Overture patent litigation and whether the Google settlement changes anything, and what court date might be set?

The court date at the moment is still scheduled for the first half of 2005. In terms of the -- Overture settling with Google, I'm not sure we can comment as to what Overture or Yahoo! are thinking.

Our position has been pretty consistent, that to the extent there is a reasonable settlement opportunity we would be thrilled to do that. To the extent that there is not, out our position remains the same, which is that we don't violate any valid or enforceable part of Overture's patents. So if we need to go through the court case to prove that, we're willing to do that.

Marianne Wolk, Susquehanna.

I'm all set. Thank you.

Youssef Squali, Jefferies & Company.

Just a follow-up to the Overture patent litigation. It looks like, from Yahoo!'s filing today, that they seem to have taken a deferred revenue of roughly $67 million over the next 12 years related to the Google settlement, which comes out to, by my math, somewhere between 5.5 and 6 million. I was wondering if -- you probably won't want to comment. But I just want to throw out it there. Is that too high, too low? In your case, do you think that's something that you can live with?

Again, that's a tough one for us to comment on, other than to say -- again, not to say it would happen with respect to this patent. But our view is that for patents such as these, the typical way to calculate the right royalty would be on a percentage of revenue basis, or maybe a percentage of profit basis.

So to the extent that is the right number for Yahoo! and how they're calculating future stream of that deferred revenue, it would appear to be a pretty small percentage of Google's expected revenue.

Richard Fetyko, Merriman Curhan Ford & Company.

I was just looking at your guidance, guys, for fourth quarter 58 on the towline -- 58 million to 65 million. 58 million seems like a super conservative number. What would have to happen for you guys to come in and the low end? What's -- I guess a range of $7 million seems a pretty wide range. What good or bad things could happen in the quarter that could make you come in at the low or at the high end of the range?

That's an interesting question Richard. I think the best way to answer that is -- and as you know, you have been following us for quite some time -- we call it like we see it. And to the extent that we're seeing, with the removal of gambling -- again, I think it needs to be reiterated -- by removing gambling and with the extent that we're actually seeing certain trends. That is what we feel comfortable with.

And as you know -- and you know this very well. We do call things like we see it. I wouldn't call it conservative. I think it's prudent and accurate. We're not going to put something out there that does not represent what we feel is realistic for the Company.

So rather than comment on anything that would need to happen for us to go to hit the lower end, or need to happen for us to exceed, I will tell you that as usual we're going to continue to execute at a very high-level.

And we've been integrating the companies that we talked about earlier. We just integrated a company that is essentially our size in the European marketplace in what is seasonally the most difficult quarter to operate in. In fact, half of the countries over there seem to go on holiday for about 1.5 months.

So to the extent I will comment on anything specific on what we're going to doing Q4 that could potentially boost those numbers, I just will not do it. But that's our position, just to call it like we see it and to be very responsible in terms of how we put guidance out to the marketplace.

We are now out of time for any further questions. I would now return the floor back over to Karen Yagnesak for any closing remarks.

This conference call contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, 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 by management's current expectations and are subject to in 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. and Securities and Exchange Commission, included a Form 10-K for fiscal 2003 and the most recently filed quarterly report on Form 10-Q.

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 protect and anticipate revenues and expenses were not accurate; potential that we failed to maintain an effective system of internal controls that could cause us to be unable to accurately report our financial results to (ph) prevent fraud; potential that demand for services will not continue to increase; the risk that will not be able to continue to enter into new online marketing relationships to attract 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 attendant to our business; other economic business and competitive factors generally affecting our business; the risk that the operation of our business model infringes upon the intellectual property rights held by others; our reliance on distribution partners for revenue-generating traffic; risks associated with our expanding international presence; difficulties executing integration strategies or achieving planned synergies with the acquired businesses and private-label initiatives; the risk that we will not able to effectively manage our growth; the risk that new technologies could emerge which would limit the effectiveness of our products and services; risks associated the operation of our technical systems, including system instructions, security breaches and damage, risks associated internal Internet security, including security breaches which if they were to occur could damage our reputation and expose us to loss or litigation; and risks related to regulatory and legal uncertainties, both domestically and internationally.

That concludes our call for today. Thank you for listing.

Thank you everyone. This does conclude today's teleconference. You may disconnect all lines at this time and have a wonderful day.