Inuvo Inc (INUV) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the FindWhat.com fourth-quarter and full-year 2004 earnings conference call. (OPERATOR INSTRUCTIONS). At this time, it is my pleasure to turn the floor over to your host, Michelle Craft. Please go ahead, ma'am.

Good afternoon and welcome to FindWhat.com's conference call on fourth-quarter and full-year 2004 results. I would like to remind everyone that today's comments 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 at the end of this 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 webcast at http://www.Vcall.com/sepage.asp?id=90577. And a replay of the conference call will be available at the same URL on our Company website for 90 days after the call. It is now my pleasure to turn the call over to our Chairman and CEO Craig Pisaris-Henderson.

Thank you and welcome to FindWhat.com's Q4 and full-year 2004 conference call. 2004 was filled with milestones as FindWhat.com delivered on the first phase of its global corporate growth strategies. Specifically we embarked on an acquisition strategy growing the Company from one product and one market with approximately 160 team members to a Company that now offers multiple products in 12 countries, spanning three continents with approximately 500 team members.

Over 2004 we successfully built the largest independent performance-based marketing company in the world, growing our topline revenues from approximately 72 million for full-year 2003 to approximately 170 million for full-year 2004. Additionally we grew EBITDA from approximately 20 million in 2003 to approximately 37 million in 2004.

We entered 2005 on a firm foundation and have now turned our focus inward as we begin to execute on the second phase of our global (technical difficulty)-- strategy, a strategy that we feel confident will further differentiate our model and ultimately transform the marketplace.

I will talk to the second phase of our strategy in detail, but first let me turn the call over to Brenda who will highlight our Q4 and full-year 2004 results. Brenda?

Thank you, Craig. I am pleased to report that we realized record revenue of $59 million in Q4 of 2004. This represents a 179 percent increase from Q4 2003 revenues of approximately $21 million and also represents our 21st quarter of sequential revenue growth.

For the year ended December 31st, 2004, we reported revenue of 169 million which represents 135 percent increase over full-year 2003 revenues of 72 million. For reference purposes, Miva, Comet and B&B combined contributed approximately $6 million to our consolidated Q4 2004 revenue, and Espotting contributed approximately 29 million.

I want to remind you that as we continue to integrate our assets, it will be difficult to isolate the stand-alone financial impact of each entity, and accordingly we will not provide the disaggregated results of (technical difficulty)-- but we will continue to report our revenue for Europe versus United States.

Before talking to our financial performance, I want to highlight the following adjustments that affected our Q4 and full-year 2004 results. First, the Company realized $570,000 or 2 cents per diluted share related to non-recurring tax benefits in Q4 2004. Secondly, in Q4 2004 we realized a 1.1 million or 3 cents per diluted share non-cash impairment charge related to the Company's required goodwill in Miva Corp. For the full-year 2004, the Company realized a 4 cent per diluted share non-cash impairment charge, an increase of 1 cent per diluted share over Q4 due to approximately 4.(technical difficulty)-- diluted shares outstanding.

Excluding the 570,000 non-recurring tax benefit and 1.1 million nontax deductible impairment charge, the Company's consolidated effective tax rate in Q4 2004 was 39 percent. Before I detail our results, let's review how we measure our financial performance.

In addition to GAAP measurements, the Company (technical difficulty)-- profitability-based metrics to evaluate our period to period and year-over-year performance. They are EBITDA and adjusted EPS. The Company defines EBITDA as net income before interest, taxes, depreciation and amortization, and defines adjusted EPS as EPS before tax adjusted amortization spent.

Let's discuss our results. Excluding the previously noted impairment charge, we recorded EBITDA of 11.5 million in Q4 2004, which represents a 94 percent increase over EBITDA of 5.9 million in Q4 2003. And for full-year 2004 (technical difficulty)-- EBITDA by (technical difficulty)-- to 37.1 million versus full-year 2003 EBITDA of 20.1 million. Our EBITDA margin for Q4 and full-year 2004 were 19.6 and 21.9 percent respectively.

Excluding the previously noted tax benefit and impairment charge, we recorded adjusted EPS of 20 cents in Q4 2004, which represents a 33 percent increase over adjusted EPS of 15 cents in Q4 2003. And for full-year 2004, we reported adjusted EPS of 74 cents, a 40 percent increase over full-year 2003 adjusted EPS of 53 cents. Again, excluding the previously noted tax benefit and impairment charge, we recorded GAAP net income in Q4 2004 of 5.3 million or 16 cents per diluted share compared to 3.5 million or (technical difficulty)-- per diluted share for the same period last year. And for full-year 2004, we reported GAAP net income of 17.6 million or 62 cents per diluted share, which compares to full-year 2003 GAAP net income of 11.8 million or 53 cents per diluted share.

Our balance sheet remained strong throughout the year. At December 31st, our cash, cash equivalents and short-term investments totaled approximately $54 million.

Now I would like to highlight our 2005 guidance. Please keep in mind that our guidance for (technical difficulty)-- Q1 and full-year 2005 excludes stock-based compensation expense which the Company anticipates will begin recording July 1st of 2005. As Craig will discuss further, our forward-looking revenue guidance for Q1 and full-year 2005 reflects our focused attention on improving our advertiser's leads and ultimately the conversion of those leads by maintaining high quality standards within our network traffic flow.

Additionally we anticipate a short-term decline in our Q1 and Q3 2005 EBITDA margins as we plan to invest in several new initiatives in the first half of the year such as our global marketing effort, global platform integration and FAST search technology initiative. We expect increased expenses in Q1 and Q2 associated with the Company's patent litigation with Overture, which is scheduled for trial in Q2 2005, as well as increased expenses associated with Sarbanes-Oxley Act compliance. We anticipate that these initiatives and expenses will increase total operating expenses by approximately 2 to 3 million in each of Q1 and Q2 of 2005. We expect that our EBITDA margins will rise above 20 percent in the second half of '05.

For Q1 2005 we project revenue between 55 and 59 million, EBITDA between 8 and 10 million, adjusted EPS between 12 and 15 cents, and GAAP EPS between 8 and 11 cents, and our Q1 per diluted shares are estimated at 33 million. For full-year 2005, we project revenue between 250 and 270 million, EBITDA between 45 and 54 million, adjusted EPS between 59 and 85 cents, and GAAP EPS between 53 and 69 cents. Our full-year 2005 diluted shares are estimated at 34 million.

This concludes our Q4 and full-year financial review and our forward-looking 2005 outlook. I will now turn the call back over to Craig. Thanks.

Thank you, Brenda. For shareholders to properly evaluate FindWhat.com, it is important for investors to understand our strategic belief and then how the second phase of our strategy addresses those beliefs.

First, we believe that the shift in the (technical difficulty)-- is not just about paid search nor is it just about online media. We believe that a shift is occurring towards businesses being able to purchase all forms of media both online and off-line on a performance basis. We believe that those who think the performance-based marketing is limited to paid search and is reaching maturity are very wrong.

The performance-based marketing is in its very early stages and will have a profound impact on how both online and (technical difficulty)-- will be purchased in the future. We believe the opportunity is not described by marketshare within the online space, and we believe performance-based advertising will capture a significant share of total global ad spend.

This year you have seen FindWhat.com lead the industry by reducing a Pay-Per-Call solution that drives potential customers to businesses that don't have or cannot sell through websites. This extends to the online world of performance-based marketing to off-line businesses and is a great illustration of how we believe the industry and our business will continue to grow.

Second, we believe the current industry structure is not sustainable and that each of the top tier players in the online space will have to offer their own brand, performance-branded, performance-based advertising solutions. We believe that failure to do so will leave them out of the fastest-growing segment of the advertising market and deny them access to the broad base of new advertisers adopting performance-based advertising for the first time. This trend is evidenced by the recent actions of MSN and Verizon as they develop services that strengthen their relationship with their own audiences and advertisers, and we anticipate other major players will be announcing similar strategies.

As the only global non-competitive Company in the space with a model built to support a custom branded solution, we believe that top tier media companies will choose to work with us as they enter the marketplace. We have invested heavily in building this capability and have gained crucial operational expertise through our own private-label relationships with Verizon, Lycos and Mitsui. We are positioning ourselves to offer large media companies a turnkey private-label solution that supports functionality for pay-per-click, Pay-Per-Call, branded tool bars and now with the newly announced relationship with FAST, advanced contextual capabilities and algorithmic search results that are tailored to our partners' specific needs. We don't know of any other performance-based company that can match our comprehensive offering.

Third, we believe that lead quality should be and is becoming increasingly important to advertisers, and recent press coverage has focused substantial attention on the click broad issue and how it effects leads quality. For several years, we have understood the issue and have been investing heavily in protecting the integrity of our networks through both automated and human systems, thereby limiting our exposure to the issue.

That said, we believe that ultimately the value of a lead is best determined by whether that lead actually converts to a sale. Our recent acquisition of Miva empowers our visibility into the click stream, and for businesses with Miva storefronts, we are now able to track and add from the first click through to the point-of-sale. We don't need to employ intuition or advanced algorithms to determine whether traffic sources are good or bad. We are creating a single transparent platform that combines relevant advertising with the visibility to measure conversion rather than clicks alone, thereby giving us the ability to remove traffic sources from our networks that do not meet our high standard of conversion metrics, aligning our interest with those of our advertisers.

In fact, during Q4 we intentionally removed numerous traffic sources that would otherwise have produced approximately $70,000 of revenue per day. This action further illustrates our long-term view towards maintaining high standards and delivering high-quality leads to our advertisers.

Let me repeat we have intentionally removed traffic sources from our distribution network that would otherwise have produced approximately $70,000 of revenue per day in topline revenue. Again, our focus is to deliver traffic that converts rather than just clicks alone.

Although in the short-term allowing this traffic within our network could reduce revenues, we believe we're best served in the long-term by leading the industry through the creation of a transparent platform that will further differentiate our Company within the performance-based marketing world. Note that the battle to deliver high-quality traffic is an ongoing one for everyone in the industry, but we believe we are taking a different approach that will lead the efforts in our space.

Finally, our position regarding the overture patent litigation has not changed. The trial is currently scheduled for Q2 2005, and we continue to believe that the Company does not infringe upon any valid and enforceable claims of the overture patent.

2005 will be a great year for FindWhat.com as we execute on the second phase of our growth strategy and integrate our unique assets into a single transparent platform that addresses the rapidly evolving marketplace for performance-based advertising. We are committed to investing in the talent, systems and solutions that will drive long-term value for our advertisers, distribution partners and investors.

I will now turn the call over to the operator.

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

Thank you, operator. Good afternoon. I have a question about the Q4 performance with regards to where you thought things were going to pan out when you gave guidance going into the quarter?

As I look back to the Q3 call, you guys pretty much hit the EBITDA and the EPS that you thought you would do, but it looks like the revenue was sort of at the low-end of where you were projecting as we talked on November 1st. What was at it changed as you worked your way through the quarter?

Well, a couple of things. The first thing was as we always have we put out in terms of guidance, we put out what we see, and we have cleared visibility. That being said, we went out with the guidance in a range, knowing full well that as we further integrated our assets, (inaudible) in that second phase of our growth strategy, we would be able to actually have a better determination on quality traffic versus not as high quality of traffic.

But that being said, as we went through the quarter, as I pointed out in my prepared remarks, we started eliminating more traffic, and we continue some of those efforts even today if certain traffic sources do not measure to our high standards of click conversions or sale conversions. That being said, really the effect that we saw during the quarter was removing some traffic sources that just did not measure up to what we wanted to deliver to our advertisers.

On the EBITDA side and earnings side, I what you are seeing is a Company that continues to figure out better and more efficient ways to leverage assets on a global basis now. That being said, we are able to become more efficient, and that has resulted in our bottom line.

Okay. Did the conversion standards that you apply to your traffic change throughout the quarter? I know you're always striving for the best, but did you ratchet that up mid-quarter?

I would not say we ratcheted it up. What we have -- with the acquisition of Miva very specifically, we can now look at every click and look at what happens post click, and we are really the only company in the sector that is combining a number of assets together to find out what is truly a qualified lead versus what just a click is.

That being said as we continue to go through the quarter and quite frankly as we continue to go through Q1 as well, we are looking at various traffic sources, and if it is not converting at a very high-level, then we are removing it out of our network. So I would not say things have necessarily changed. We're just getting better and better visibility into all areas of our network.

Youseff Squali, Jefferies.

Thank you very much. Hi, guys. Craig, I think you said in your prepared remarks (technical difficulty)-- very early stage of the growth phase at this medium. If you were to look at the organic growth of the business, and I just did a quick math to kind of strip out each spot and strip out the other acquisitions that you have made, it seems to me that your core business, Q4 of this year over Q4 of last year, year on year basically, it was up I don't know, 10 to 15 percent roughly. I was wondering if that is the growth you're talking about?

And second, what is the -- I guess this is sort of a question for Brenda -- what is the organic growth assumptions in the revenue and EBITDA for '05? I know that you're going to stop kind of breaking those up, but if you were just to look at organically something that you had all these assets starting at the beginning of '04, what would that number be? And then I have a follow-up.

Okay. Well, actually we are going to take the first question. You actually posed a couple there. That question first question was the growth. Year-over-year I believe is what you are referencing. As far as growth, we have been -- in Q4 specifically, as you probably are aware, we eliminated a few things.

Number one, we eliminated some gambling revenue that was coming through from the previous quarter, as well as as I mentioned in my prepared remarks, we have actually started going through and eliminating traffic that we do not believe is converting at a high enough level. The primary reason why we do that is because if you deliver traffic that is converting at a higher level, you will see a response or you will see your advertisers, excuse me, responding with higher bids for that traffic. So in other words, the demand increases as the quality of traffic goes higher.

So the long and short is, what was the increase? It was relatively mild, but it was interesting. It was relatively mild growth, while also removing several million dollars of a specific sector that we no longer collected revenue from while also taking out as I mentioned approximately $70,000 of revenue per day of the traffic that just was not quite meeting our standards. So we actually feel pretty good in terms of the growth that we have access to, and we definitely took proactive measures to make sure that that quality continues to increase to really continue to differentiate what we are providing to the market versus anyone else. Nevertheless, it is a very good position for us to be in as we continue to grow through the sector.

I know Brenda was going to pick up the second portion.

Yes. I just want to go back to you said that if you look at the organic growth and the fine line, you can very easily do that with the amount of information that we've given you quarter after quarter. But again organic growth in fine line appears to be at 14 percent compared to Q4 of last year. Again going back to removing, you have to now remove the gambling impact of that and remove the traffic and also consider the Geo-routing.

Moving forward in 2005, we are looking again at Geo-routing. One of the things that we have said over and over is that we are not going to be breaking out Stein Mart (ph) revenue from Espotting revenue because we plan on monetizing revenue in different geographic areas and again going back to what Craig said on the traffic.

Richard Fetyko, Merriman Curhan Ford.

On the traffic sources that you eliminated in the fourth quarter, could you just give us a sense of how much of the was on the core side versus Espotting versus BB&E (ph)?

Sure. We are pretty much going from the U.S. out. As you and I have actually discussed in the past, Richard, our strategy has been to develop a global footprint, that is step one. Step two, make sure we have the adequate product and services that we can deploy (inaudible) through that global footprint.

That said, almost every bit of the integration process that has occurred to date has been on the U.S. side. So step one is really taking a look at the U.S., the U.S. distribution network, traffic sources having a firm understanding, and actually it is a more prudent approach as well because we know we can attack the U.S. marketplace in one fell swoop. Let's just say they are roughly the same size. The European marketplace and the U.S. marketplace are roughly the same size. But Europe really is not one marketplace. It is multiple front marketplaces.

So we know if we can have a positive effect in one marketplace and really have it deliver a meaningful effect immediately, it will be from the U.S. side. So it really has been strictly from the U.S. side of the equation so far.

Christa Sober, Thomas Weisel.

A couple of questions. First, looking at your sequential clicks were up 12 percent, but obviously total revenue was flat. Was that as a result of the private-label business, and could you extrapolate on some color there?

And then as I look at your guidance for 2005, if you -- maybe you could just highlight what you expect the seasonal patterns to be? With Q1 generally being stronger than Q2 and Q3, that would imply a fairly strong ramp in Q4. So if you could highlight that. And then if you could just make any sort of comment on what TAC rates were in the fourth quarter? Thanks.

(inaudible). In terms of the sequential clicks, I think it was a combination of things. Certainly the private-labels that we have had have been growing throughout 2004. We expect that to continue into 2005, and just for everyone's benefit those clinics we consider the revenue sort of only our share of the revenue, whereas a clinic that comes through the Espotting network or the FindWhat.com network, we would recognize 100 percent of the revenue, and then have an expense, which is at the share that we give to our traffic partner. Our private-label, we don't have a big revenue and we don't have that corresponding spend. So as a result, clinics that come through private-label (technical difficulty)-- revenue per clinic or cost per click.

(inaudible) that was part of it. In terms of the question about 2005 guidance and the seasonality, I think as Craig described we've taken a little bit of a step back in Q4 and into Q1, so I think seasonality you know for 2005 is not going to be apples-to-apples. We are not going to be looking at an apples-to-apples base of the network from Q4 to Q1 and into Q2, Q3 and again Q4 of 2005. So we feel like there will be -- the second half of the year will be stronger despite what you might see from a typical pattern of seasonality.

And finally, in terms of the traffic acquisition costs or the amount of the (technical difficulty)-- our partners, not a whole lot of changes there. As you compare, for example, to Q3 of 2004 to Q4 of 2004, we were roughly about the same, and again no interesting things to talk about on either side of the Atlantic.

Mark May, Kaufman Brothers.

Thanks a lot. A couple of questions. Just a little more clarity on (technical difficulty) that you just gave. You said the mix between your private-label and your proprietary business was only part of it. So with click volumes being up 12 percent sequentially, but revenues not being up that much, are you seeing some price declines in the core business, that would be the first question, if it is only as you say "only part of it"?

The other question has to do with Espotting. The business really did not grow much sequentially. Can you just talk about what is the driver of the lack of growth at Espotting? Again, when you were talking about the -- trying to improve traffic quality as you started here, that is probably not impacting the growth that we saw in Espotting in the quarter. So can you just talk about what drove the revenue growth there or lack of revenue growth?

And maybe also can you talk about Espotting margins? I think they were in the high single digits the last time we heard. Can you just give us an update on margins? And I had one other follow-up question.

Let's take the Espotting EBITDA margins and then turn the call back over to Phillip so he can further expand on the private-label and speak explicitly to the approach to the core network.

Espotting in Q4 again had great margins, 14.5 percent EBITDA margins, which is very consistent to Q3.

In terms of the first part of your question, the part with the revenue per click, I did mention that part of it was private-label. I would say another part of it was that we are increasingly taking advantage of the various divisions that we brought together. So the best example in how that might impact the price per click is trying to drive traffic through the FindWhat network to some of the Comet brand so that we can increase the number of downloads and (inaudible) that we have through our primary traffic division. We tend to do those campaigns on our own network at lower than average per click prices.

And then we do count those clicks. We have always sort of presented all the clicks, but as you might imagine, the revenue gets eliminated in consolidation where we cannot pay ourselves money and count it as revenue from (technical difficulty)--. So there's a little bit of that as well.

I think also in terms of improving -- this is maybe a little more forward-looking -- but I think in terms of improving the quality of the traffic, our hope would be that that results in a higher conversion rate for our advertisers, which should lead to higher bid prices which over time leads to higher average revenue per click-through. So throughout 2005 we would hope to see that trend as well.

You asked a question about Espotting. Espotting sequential growth from Q3 to Q4 they did have -- there was growth there.

I think if there was one thing through the quarter that was a little bit unusual it is maybe the impact of the sort of last two weeks of the year. You know in both the U.S. and in Europe we expect to see a revenue decline right around December 15, and then that continues through the end of the years as people sort of wrap up the shopping that they can do online. Obviously they need some time to have the packages shipped to whoever they are giving the gift to and then people go on vacation. And again that impact is more pronounced in Europe, but for whatever reason in 2004 we saw a much deeper decline in the last couple of weeks of the year than we sort of have seen in the past.

So that impact impacted both sides, but I think it impacted Espotting a little bit more heavily. It did sort of -- as we have seen in the past, we did see a bounce back early in the year as people get back to their computers and get back to work. So I think nothing more complicated than that.

Jordan Rohan, RBC.

Two questions. First, can you remind me where the revenues from the Verizon and Lycos private-label deals are categorized?

The second question is, I want a clarification. Did you intend to give the impression that $70,000 a day of revenue times 90 days or about 6 million plus in revenues was eliminated on purpose from this quarter? Or was there the intention to eliminate 2 million in gambling revenues and another 4.3 million came along with it as collateral damage? How do you think about that? That is the question. Thanks.

With regard to all private-label revenue, all private-label revenue is classified and reported in FindWhat.com network, and Craig will speak to your second question.

Sure. Actually very specifically. gambling aside I think again that was more or less a reminder for individuals that we have eliminated a source of revenue that in the prior quarter produced $2 million of topline, and so we actually went cold so to speak on that particular source.

But the elimination is totally different actually. You know we're seeing integration of all the assets that we have gone through and purchased (technical difficulty)-- in the call. We had complete visibility, so we can actually see which traffic is converting. In knowing this business very well, if you can eliminate a portion of the clicks that are not converting at the same level as others, you will see a responding kind so to speak on the RPC or revenue per click.

As we look at 2005 and now we've got all the pieces of the puzzle together and as we put them together, we feel very confident that putting those together gives us better visibility. So it's not necessarily implying what it does in Q4. What I am very specifically saying is we are looking at those traffic sources, looking at the revenue that if we had left it in our revenue or excuse me within our traffic mix and distribution, it would be producing approximately and actually it is probably slightly over $70,000 of revenue on a daily basis.

Colin Gillis, Adam Harkness.

Regarding some of the elimination of traffic sources, do you think that is going to be a process we are going to see ongoing? Have you sort of scrubbed through some of the traffic systems on the Europe side, or was it -- I know most of the focus was in North America in this quarter. Do you think we might see some sources fall off in Europe going forward?

Sure. I think in the long-term, and this is one of our deeply held beliefs, in the long-term this marketplace is going to go towards a CPA. And the ultimate goal from FindWhat.com's perspective is to provide multiple buying opportunities for all advertisers. And what that means is some advertisers like to buy in CPMs, some of them like to buy CPLs, which is cost per lead obviously or cost per click. Regardless of the buying mechanism or the buying offer they want to choose, we are going to offer it to them, because that is the way they are comfortable buying.

But with this medium specifically, everything can ultimately back into a per acquisition type of a measurement. We're doing that on behalf of the advertisers. We are the only company that is putting all these sources into one bucket and basically looking at an advertiser's intentions online and saying, well, we know that you want or you are willing to pay X amount on a per click basis today as long as you are getting X conversions, and we're going through and eliminating the traffic that we feel are not aligned with our advertisers' goals and objectives.

So I hope that answers your question. We do believe that the marketplace in general is going towards more of a CPA type of measurement. Whether or not that means people will buy strictly in CPA, I don't think so. But we're definitely going to allow people to have enough transparent or visibility, excuse me, into our services to allow them to be able accurately measure their -- our products and services versus the others in the market.

Stewart Barry, ThinkEquity.

Just a few questions. To what extent did you expand your relationships with search agencies during the quarter, and to what degree did they drive the increased focus on quality of traffic?

And then secondly, is there any correlation between higher quality traffic and paying higher TAC rates to distribution partners?

: Actually let me -- and I apologize. I did not finish answering the previous question, so just quickly. As far as the focus on Europe, it is our intention to be able to leverage our assets on a global basis. Have we done that yet? No, we have not. Would we -- are we going to continue to deploy these assets? Yes, we will. Does that mean there could be, I think the reference was fallout on the European side?

Potentially, but it is actually a different mix in terms of their distribution networks. I don't think there is necessarily the same types of issues or opportunities is a better way of looking at it in the European marketplace that we saw on the U.S. side. But to the extent we can, we would love to see our very high RPCs in the European marketplace continue to just go higher.

So at any rate, I wanted to conclude the previous question (technical difficulty)-- search agencies and quality. Let me first take the higher TAC, and I will turn the call over on the search agencies and quality to Phillip.

TAC is interesting. What it basically comes down to is if you have a product that is paying higher than other competitors, obviously you can offer a lower TAC. Historically we have maintained a 50 percent traffic acquisition cost, and it seems like for the last three years people have asked, how can you do that and continue to grow the business? And as much as we explain it, it seems that it has been very difficult for people to comprehend how we can do that. The fact of the matter is our TAC is staying the same. Does that mean that we may have a relationship that may be higher than 50 percent? The answer is yes.

We actually do have relationships with various distribution partners where we go and incentivize them with a higher TAC so to speak or higher revenue share if they produced more quality traffic, and that is really the advantage. That is the point of our second phase. We are now in the position to look at distribution partner A and distribution partner B. We are in the past in our other systems. All we really measure them by were how many clicks they delivered.

(technical difficulty)-- we don't look at those partners anymore. Now we say distribution partner A. We see the quality of your traffic from a convergence perspective. We're willing to give you 50 percent TAC. For distribution partner B, you are at 45 percent now. If you can increase your quality, we maybe willing to give you additional revenue share, possibly incentivize you by an additional 5 percent if you can exceed a certain quality metric or volumetric based on again quality traffic.

So really we have maintained and will continue to maintain our approach in the marketplace as going out and developing 50-50 type of revenue share relationships.

In terms of the search agencies, I don't think there is anything new there. We have worked with different kinds of agencies over the years. I think there are more of them today than there ever have been before. I think that more and more advertisers are realizing that this is a part of their advertising campaign that they need to be exposed to. A lot of them are realizing that they need help. That there is some intricacies to buying search and to figuring out the different networks and what works on which network.

So I think we have always had agencies, and for as long as we have had them, they have focused on quality and convergence and the return that we can give to their clients. So no, I don't think there has been any increased focus, but I think there is a trend that more and more advertisers, especially the larger advertisers or the larger advertising agencies, are making sure that they have search expertise in-house or someone that they can rely on outside to help them manage their (inaudible), and I think we have always welcomed that.

Those are some of the best relationships we have. Historically they have been able to give us some of the feedback on quality and on conversions, and we have always taken that to heart. I think some of the things that Craig has been talking about is being able to do that analysis on a much more widespread basis, much more click basis in terms of automated solutions where we can sort of get a sense of that on our own.

Just one other follow-up point on the publisher's side specifically. One of the reasons why we can maintain the TAC that we have maintained for now the last several years is because we are not just offering one product that is directly competitive as it is erroneously been looked at in the past with other companies.

What I mean by that is when we sit down with a publisher, especially the larger distribution partners that we are now bringing on board, we are not just offering a pay click solution. What we are offering them is a strategic advantage in getting into -- in some cases getting into the business themselves private-label; where in others, paid clicks, Pay-Per-Call, branded tool bars, and now again as I stated in our prepared remarks section, we have a relationship with FAST, and we are able to get people algorithmic capabilities that are specifically tailored to what they want, not what we feel they should want but specifically what their users are asking for.

So our competitive place in the market, our competitive position in the marketplace is not because we are that proverbial one trick pony is because we actually have multiple products and services that move our publishers towards full-page monetization. So this is a very different position and product offering, which is why we have been able to come out and announce some relationships this past year that surprised a lot of people.

We announced relationships as an example with Biz Journal (ph), which I think pretty much everyone knew that that was a highly competitive negotiation process where there were three players in the room and we walked away with it.

Just recently, we announced the Sun in London. Again, that was already a relationship that was already owned by one of the other large media companies out there. Many people were surprised we were able to announce these relationships, and quite frankly, it's not because we are sitting down saying we're going to pay you more cash. That is the game that a lot of people play. We don't. We say we're going to get your relationship and earn your relationship because we're going to show you how to make more revenue from your traffic.

So it is not -- from our perspective, the TAC game is a losing game. We have kind of seen that story already once in the marketplace. What we think is a winning game is going out with multiple products and services that help these companies build a sustainable business themselves.

Derek Brown, Pacific Growth Equities.

Thank you. Two questions. First of all, why -- I'm curious what your opinion would be about why other leaders in the sector are or seem to be growing so much more rapidly than you, number one? And number two, there seems to be a heavy weighting on your expectations for revenue performance in the back half of the year. So I'm wondering what exactly are you doing today that you think will be driving the revenue performance in the back half of the year, and how confident are you in the (inaudible) to that?

First, on the last portion, I think we get the gist of it. Let me jump in. Why are other companies in the sector growing faster right now?

A couple of reasons, and let me just talk specifically I think Google has done a phenomenal job expanding the marketplace. In fact, their efforts -- and by the way, this Google and Yahoo!, again I think you were really talking about a sector that has three primary players. That being said, I think Google and Yahoo! has done a tremendous job expanding their reach into the Asian marketplace specifically. In other words, they are actually growing the market and doing a great job.

We talked about this in the past. In effect, Google's success and Yahoo!'s success is very helpful to us because they are kind of like the advanced salesforce. They go out, they make sure their heads stay in the marketplace, and what ultimately happens is we see the positive benefits of that educated marketplace in a lot of respects because they were looking for other sources of high-quality traffic. So that's the first part.

Why are some of the leaders growing? Quite frankly, they are just growing their own market faster. What is interesting, and some of those other leaders, again those two are the ones you are speaking about, they are actually growing their own networks faster -- or excuse me, their own primary networks faster than their partners. So in other words, you are actually seeing (technical difficulty)-- two specific companies growing faster than the people that they are working with, which means by definition they are taking market share and they are taking market share from their own partners.

So it is an interesting search war for those people to watch. We don't play that war. We have kind of got front row seats, but it is very interesting to watch. That is specifically why I made a very strong statement in my prepared remarks saying, look, we do not believe that that is a sustainable business model. In fact, I feel very confident in saying just in the next couple of quarters I think we will see some very large names outside of Microsoft in their efforts and Verizon in their efforts. But some very large names, taking very proactive steps in defense of their business. Because that's exactly what it is, defense of their business.

So again, I want to give credit where it is due. I think these companies, those other companies have done a great job continuing to expand the marketplace, and we are very excited because that opens up additional opportunities for us to grow.

In terms of the back half revenue growth, a lot of what we have done and put together in 2004 and started to employ into Q3 and Q4 and going into Q1 is based on building all of the services that puts us in a very strong position for our publishers. And at this point, we have had quite a history of sitting down looking at what is realistic and what we can achieve and putting it out to the marketplace. I don't want to go back and do things over and over and over again. But we are looking at 21 consecutive quarters, 22 consecutive quarters of topline revenue growth, 14, 15, 16 consecutive quarters of bottom-line EBITDA and consistently coming out to the marketplace growing our top and bottom-line. This is not a new story for us.

So why do we feel confident? Because we have done the work necessary to sit down and understand what publishers need, how we can monetize the traffic at a higher level than we ever could before and, therefore, create additional revenue for ourselves. So that is about as simply as I can state it.

Richard Fetyko, Merriman & Company.

Just a follow-up. Can you guys sort of cover the FAST search relationship? I noticed that you also talked about putting together a group that focuses on that initiative. Just strategically what do you find accomplished there? And also in terms of P&L impact, is it all capitalized?

And then I have one more question. Basically I'm trying to figure out what are you trying to morph into? What is the long-term strategy of this company? Are you trying to -- who are you going to (technical difficulty)-- be a year from now?

Thanks, Richard. I will take the second part of your question and then hand it over to Craig. The FAST license is $7 million, and we are going to be capitalizing that license over a period of five years. However, in addition to that license, there are other significant costs, and we did not detail out those costs. But as we noted, it will be part of our lower EBITDA margins in the first half of this year. Those costs are significant capital expenditures associated with the FAST technology that will be depreciated, and it will be, as you mentioned, we developed a office in Boston where the product developers will be located who will be working on the FAST technology. So you will have infrastructure costs and you will have ESP (ph) costs associated with that project and product. And I will turn it over to Craig.

The first part is talking about FAST specifically. As we put in the press release, we are doing a number of things with FAST. It is interesting. FAST, as many of us will recall, not too long ago produced a couple of products that are now owned by Yahoo!. The reason for that is they were some of the best products produced.

What is nice about FAST is FAST (technical difficulty)-- they still have the algorithmic, many of the algorithmic, if not -- I should say many of the algorithmic capabilities, if not better algorithmic capabilities, because now we are on generation two or three in some cases throughout (technical difficulty)-- catalog to our publishers. That (technical difficulty)-- they also have a unique capability to be able to look at things from a contextual standpoint and understand what is relevant, what is not.

When we look at contextual products and, quite frankly, a lot of the algorithmic products that are in the marketplace right now they are basically substandard. They are not producing the results that publishers and advertisers are looking for, at least not at the level that they are looking for.

So our relationship is really based on a couple of things. One, sitting down with our publishers, listening to what their needs were, and over and over again we have certain things come up which had been outlined in our press release, which is why we're developing these products, and it also puts us in a more competitive position to sit down with large publishers online and offer them a full suite of products and services that no one else is offering today.

So there is the best of rationale behind FAST. (technical difficulty) what are you morphing into? Actually, Richard, we are not morphing. We're doing the exact same thing we have been doing for the last few years, building one of the largest performance-based independent -- I have got to qualify it -- but the largest independent performance-based marketing company in the world.

You know what is interesting we have a lot of conversations with various people, and it is interesting how often people say, well, you are the search company. We are not a search engine. Now we are building search catalogs for publishers specifically that specifically address their needs or requirements, but we are still not a consumer facing product. We never have been. What we are, to be very candid, very specific, is a very large performance-based marketing company that is now going from online to also the off-line environment with new products.

So in terms of our strategy and our vision, it has remained the same. We are going to continue to develop the large performance-based marketing company on a global basis that we have been developing for the last few years. What is interesting now is now we have the excess that we have been talking about in the years past. We have them under the roof so to speak, and now we are integrating them and putting them out to the market.

So I hope that gives you a better idea that it is interesting, one other point I will make. When looking at comps in this space and a lot of people ask us, well, if you're not a search engine, then why are you compared with this company? Why are you compared with that company? I cannot answer that on the analysts behalf. But I want to bring that up specifically because when you look at what we are, we are an online marketing company that is executing very well.

Roxanne Peverti (ph), Susquehanna Financial.

You have several new initiatives in the ramp-up stage, Verizon, Mitsui, Pay-Per-Call. Can you comment at what point might we see these initiatives at a level that would be material to earnings?

As we mentioned in our last press release -- I think it was Q3 -- we said that the private-label initiatives were expected not to exceed 5 percent of revenue and 5 percent of EBITDA in 2005. At this point, we're going to stay with that. They are maturing. They are all maturing nicely. Some are doing better than others, but not to exceed 5 percent, and 5 percent of revenues are relative moving into 2005 (technical difficulty)-- is quite a number. So 5 percent of that is material for an issue that is still somewhat immature.

Thank you and now I would like to hand the floor back over for any closing comments.

I just wanted to thank everyone for attending our Q4 and full-year 2004 conference call. And I would also like to thank all of our team members on a global basis for your 100 percent effort and dedication to continuing to build our large performance-based marketing company. Thank you.

This conference call contains 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 or 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 report filed with the United States Securities and Exchange Commission, including the 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 forward-looking statements. Potential that the information and estimates used to predict anticipated revenues and expenses were not accurate; potential (technical difficulty)-- internal controls that could cause us to be unable to accurately report our financial results or prevent fraud; potential that demand for services will not continue to increase; the risk that we may not be able to continue to enter into new online marketing relationships to drive qualified traffic to (technical difficulty)--; risks associated with our ability to compete with competitors and increase competition for distribution partners; political and global risks attendant to our business; other economic, business and competitive factors generally affecting our business; the risk that operation of our business model infringes upon 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 acquired businesses and private-label initiatives; the risks that we may not be able to effectively manage our growth; the risks that new technologies could emerge that could limit the effectiveness of our products and services; risks associated with the operation of our technical systems including system interruptions, security breaches, and damage; risks associated with Internet security including security breaches which if they were to occur could damage our reputation and expose us to loss or litigation, and finally risks related to regulatory and legal uncertainties both domestically and internationally.

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