Inuvo Inc (INUV) 2005 Q4 法說會逐字稿

And Mr. Weinberg, your line is open. Please go ahead.

Thank you, and good afternoon. Welcome to the MIVA's fourth quarter and full year 2005 financial results conference call. Joining me on the call today are our Chairman and Chief Executive Officer, Craig Pisaris-Henderson; Chief Operating Officer, Peter Corrao; and Chief Financial Officer, Will Seippel. I would like to remind everyone that today's comments include forward-looking statements. These statements are subject to risks and uncertainties, and 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 MIVA's filings with the Securities and Exchange Commission. To comply with SEC's guidance on fair and open disclosure, we have made this conference call publicly available via audio webcast at: http://ir.miva.com/medialist.cfm. And a replay of the conference call will be available at the same URL and on the Company website for 90 days after the call. I would now like to turn the call over to our Chairman and CEO, Craig Pisaris-Henderson. Craig?

Thank you, Peter. Good afternoon, and welcome to MIVA's fourth quarter and full year 2005 conference call. To begin, I'm very pleased with our accomplishments over 2005 and I would like to thank our global team for their dedication and hard work. For us, 2005 was a year of transition, a period where we resolved issues and took proactive steps in an effort to help reestablish MIVA as an industry leader. Among the major transitions for the year, we changed our name from Buymore.com to MIVA, reflecting the integration of our various global assets to a cohesive brand. We added experience to our management team by hiring a new CFO, COO and European Managing Director, and we engaged new auditors. Simultaneously, we were investing in new growth opportunities and extending our product roadmap.

The result was a significant product development effort in 2005 and continuing in 2006 that we expect will begin to bear fruit over the second half of 2006, which I will be talking about momentarily. Change is never easy, but we believe we successfully managed through our fair share of challenges. We are battle tested and committed to the work that still lies ahead. I believe we have the right lead people, solutions and strategy to realize new opportunities in the years to come. Our growth strategy is based on the premise that the technical requirements and product depth necessary to provide competitive performance marketing solutions will continue to increase over time, as automated on-line and ad placement and monetization replaces traditional offline methods, and as the Internet audience continues to fragment.

The key goal of our strategy over 2005 was two advance our publisher and advertiser solutions to ensure we are considered among the best available alternatives in the marketplace through a product roadmap that required measured investment and focused execution. In a logical and purposeful sequence, we introduced two major products, a noteworthy accomplishment during a challenging period. Equally important, we believe we have a progressive pipeline of product introductions planned for 2006. Let me talk for a moment about the strategic investment that we made to serve as critical underpinnings for some of the technologies we developed and deployed in 2005, as well as those planned for 2006. The investment I'm referring to is in a perpetual license to Fast, world-class based algorithmic technology.

Upon securing this license, we established an office in Cambridge, Massachusetts, and began developing our search and directory group. This group was established with a mandate to leverage our Fast license by developing applications on top of the base technology, applications that create value for publishers and advertisers. We launched algorithmic Search in the European market place during June, 2005. In contrast to the one-size-fits-all approach of other certain providers, our algorithmic Search is configurable to our partners' audience requirements, helping our partners to serve the relevant content to their end users. algorithmic Search also provides MIVA with an opportunity to back build algorithmic results with our key word ad, and alternatively, back both key word ad query results with algorithmic results, thus expanding the solutions we can provide to our partners. Our second major product release, MIVAMatch, also leveraged Fast based technology.

MIVAMatch is a search product we expect will provide our advertisers with a greater number of qualified leads by more broadly matching search terms with relevant key words. MIVA Match also gives us the capability to assign contextual attributes to website content, a necessary requirement for a scalable contextual product. MIVAMatch has had a positive effect on [INAUDIBLE], as there are now matches to query, and as a result, [INAUDIBLE], where previously there were none. While we're proud of the work we accomplished around Fast, these products represent a portion of what we accomplished in 2005. For the year, we introduced more products, tools and functionality for our publishers and advertisers than at any time in our history.

A brief review is in order. We introduced two fully redesigned applications, Accounts Set Up and Ad Center for our U.S. advertisers, and have used an innovative custom toolbar solution for our publishers, introduced a new expandable paid listing to banner product, launched the Company's MIVA Pay-Per-Call ad service in the U.K. market place, introduced MIVAMail in Europe, launched a series of comprehensive campaign and management tools; launched agency ads that are 1.0 to streamline agency advertising management; launched enhance API Access. Again, as I mentioned at the outset, we continue on an aggressive product delivery path in 2006. On February 21st of this year, we announce the beta release of our third major Fast related initiative, an automated contextual solution.

The automated contextual product is designed to deliver on our broader goal of providing solutions that address the needs of publishers' and advertisers' communities. We expect this solution will help publishers to more effectively maximize ad inventory and provide superior results for advertisers. It is also an example of our leveraging our technology investments to meet the rapidly evolving needs of advertisers and publishers. We believe our contextual solution will provide publishers with significantly improved flexibility and control, enabling them to attract and retain advertisers, and to more substantially monetize their own brands on the web. At the same time, by doing this, we believe we are helping advertisers achieve better results through their key word campaigns to attract more qualified leads. Our advertisers have budget to spend and are constantly seeking new inventory for those budgets. Adding new sources of high quality traffic is a priority and will continue to be a priority over 2006.

We believe innovative products such as Auto Contextual, will help us attract new traffic partners and access new inventory for showing our ads. Recently announced traffic partners include: Mirror Group Newspapers, which signed an exclusive Pay-Per-Click content contact; Blinkx, which signed a global distribution agreement for a delivering contextually targeted ads; Dennis Publishing, which publishes well-known brands such as NASA, Auto Express and PC Pro; The Sun, a leading U.K. publication which renewed its agreement with MIVA in January, 2006: Conde Nast in the U.K., a leading media outlet with some of the world's most recognized publications, such as Glamour and Conde Nast Traveler; [INAUDIBLE], which publishes world-known online magazines in Spain, such as Car and Driver.

Let me now detail our positioning strategy. Last quarter, we talked about the challenges publishers are facing as the search portals they have chosen to work with in the past have become the largest threat to the ongoing success of the very publishers they claim to serve. In short, we believe these search portals are advocating publisher content in an effort to increase the value of their own search portal; in essence, cannibalizing the brand value of the publisher while commoditizing their content. Under this scenario, the publisher is bearing the cost of generating the content without realizing the large share of the benefit. In the case of traditional publishers that have historically relied on off line revenue streams, the problem is compounded in that the offline audience is increasingly going online, and these publishers are not increasing their market share commensurate with the online shift.

An interesting statistic was recently released, stating that for every offline subscriber lost, a publisher must secure 100 online relationships to replace the revenue generated by that one lost offline subscriber. This is yet another obstacle for publishers to overcome in monetizing their brands on the web. At this crossroads, publishers have a clear choice: Continue to work with the search portals that could eventually put them out of business, or seek an alternative. We believe this dynamic has created a competitive advantage for MIVA. First, we believe our growth strategy and our new product initiatives have improved our competitive position in key areas covering publisher and advertising tools, solutions and functionality, so we can now offer many of the same services as these sets portals and aggregators.

Second, we are not focused primarily on aggregating audience and -- in media [INAUDIBLE] for on our own search portal. As a result, we believe we are positioned to help publishers to compete online without threatening them the way search portals and aggregators do. Our objective is to capitalize on this opportunity by developing better publisher offerings, customized to their requirements and specific to their market segment. 2006 promises to be exciting. We believe we have assembled the critical pieces that will enable us to realize greater opportunities and deliver excellent solutions that will help us to support our overall growth initiatives. To these ends, we are currently executing a simple plan to offer progressive new media platforms that incorporate key words, automated contextual, manual contextual, behavioral and demographic attributes, on top of a global infrastructure that optimizes [INAUDIBLE] ad matching.

This is an important part of MIVA's future strategy and a clear differentiator in comparing MIVA's integrated suite of products and services to others in the market hopeful to take advantage of the trends and opportunities I've referenced. As I mentioned, we currently have key word, manual contextual and beta for automated contextual available in the marketplace. The next piece planned for our attribute driven architecture is behavioral. A behavioral marketplace requires scale in order to be effective, and must maintain a balanced approach to user rights and privacy. We believe our MIVA Direct toolbar will provide the requisite desktop footprint, coupled with privacy control features to ensure personally identifiable information, or PII, remains secure on the user's behalf.

We have been aggressively developing our MIVA Direct business over 2005, and we now have 4.5 million active English-speaking toolbar users. Currently, our toolbar serves as a productive traffic source for key word and contextual advertising. We believe MIVA Direct represents a compelling growth asset and a value driver, and a unique key to making behavioral a meaningful opportunity. Based on a February, 2006, study by Neilson/NetRatings, search comprised just under 5% of the total time spent online by U.S. Internet users during Q4, 2005. The majority of the user time is been spent on commerce, content and communication. It's not just about search any more. Clearly, fragmentation of content in audience is a reality; and as a result, it has become increasingly difficult to characterize and monetize inventory.

We believe our multi-attribute platform will enable websites and publishers to maximize their available inventory by matching the right combination of user and webpage attributes with the right attributes for a given end. We believe our positioning will enable our publishers to compete with search portals who are aggregating audience and media spend at a cost to the very partners they claim to serve. By being able to offer an alternative to the search portals and aggregators, we believe we can carve out a growth opportunity.

Over 2006, we will focus on building out a strong global network of leading publisher brands that occupy much of the 95% of the time users are online, rather than simply focusing on the 5% of the time users are conducting a search. With that said, I will now turn the call over to Will, who will be covering our financial and operational details. Will?

Thank you, Craig. Before I begin my review, I would like to acknowledge that I am sensitive to those who would have preferred we reported our financial results earlier. I am personally accustomed to a timelier reporting cycle, and ideally, I would have liked to share our results with you sooner. I can tell you we expect to be in a position to do so in the future. We took more time than typical due to the multiple year end accounting challenges. Let me explain. First, we had several material weaknesses from last year that required adequate review to ensure resolution. Second, we encountered several complex European business and income tax issues that related back to our merger with Espotting back in 2004.

Finally, we required the concurrence of our former auditors in our accounting for certain areas relating to the merger with Espotting. The origin for most of these challenges occurred prior to my joining MIVA; so as the new CFO, I really required adequate time to get up to speed. I am pleased to say the complex European business tax issues are now behind us, and all our material weaknesses disclosed through our 2004 Sarbanes-Oxley audit, have been fully remediated as of December 31st, 2005. To that end, I would like to recognize the hard work and many hours our dedicated team put into solving these challenges. While I am disappointed that two additional material weaknesses were brought to light during the 2005 audit, they are procedural in nature and will be remediated during 2006.

The first is around our internal controls for wire transfers, and we have remediated this weakness during Q1 of 2006. The second material weakness involves our overreliance on spreadsheets in our tax accounting function and the need to move to a commercially supported software application. We expect this will be remediated after we implement our new accounting system, which is scheduled for later this year. It should not go unobserved that in 2005 we took significant steps to steady the business; and I will note, we made a lot of progress. On the operational front, we refocused our spending on the R&D initiatives, made further progress on the integration of prior period acquisitions, and redeployed team members in the critical areas of the business.

On the financial side, while we have more work to do, our cost structure is closer to where it needs to be. We are also continuing to execute against our product road map while we strive to complete our global systems integration. While I will be more specific on quarterly guidance later, we are maintaining our prior guidance on a quarter to quarter revenue growth in 2006, off our Q4 revenue run rate. Before I detail our results, let's review how we measure our financial performance. In addition to the standard GAAP measurements, we utilize certain profitability based metrics to evaluate our period to period and year-over-year performance. They are adjusted EBITDA and adjusted net income. Due to our adoption of FAS-B Statement Number 123-R, effective January 1, 2006, we have modified our definition of adjusted EBITDA and adjusted net income to exclude non-cash stock compensation expense.

We define adjusted EBITDA as the EBITDA, earnings before interest, income taxes, depreciation and amortization, plus non-cash compensation expense, and plus or minus certain identified revenues or expenses that are not expected to recur or be representative of future ongoing operation of the business. We define adjusted net income or loss as net income or loss plus amortization, plus non-cash compensation expense, and plus or minus certain identified revenues or expenses that are not expected to recur or be represented as a future ongoing operation of the business, in each case including the tax effect of the adjustment. With that said, let's discuss our results and expectations. In Q4 2005, MIVA achieved revenues of $43 million compared to $44.7 million in Q3 of 2005. After adjusting Q3 2005, or approximately $1.5 million of revenue that the Company received for resolution of disputes with certain European distribution partners, revenue was essentially flat from Q3 to Q4 and in line with our guidance.

As we have previously indicated, it is our goal is to provide additional insight into the businesses that becomes meaningful to do so. Knowing that our previously announced traffic quality initiatives were fully reflected in our Q3 2005 results, we believe now is an appropriate time to have investors understand our detailed click trends, with the clean sequential comparison of Q3 to Q4. We recorded 219 million total [INAUDIBLE] click throughs in Q4, 2005, compared to 206 million in Q3, 2005. In the U.S. media network, excluding private label and B-to-B, paid click throughs were up 11% sequentially from Q3 2005; however, the increase in U.S. paid clicks was offset by a corresponding decrease in average revenue per click or RPC. To some extent, we expected an RPC decrease, given the initial launch of MIVAMatch during Q4.

MIVAMatch has had a positive effect on click volume, but because there are clicks occuring in circumstances where they were not previously. The effect on RPC has been negative because the [INAUDIBLE] click carry lower RPC than exact match clicks. On balance, MIVAMatch has thus far provided us with an incremental lift in revenue across those distribution partners where it has been implemented. In the EU Media Network, paid click throughs were down 2% sequentially from Q3 2005. Within consolidated EU, U.K. paid clicks were down 20% sequentially and the average RPC also decreased moderately over the same period. The reduction in paid click throughs impacted the U.K.'s overall sequential contribution to consolidated EU paid click throughs; and because the U.K.'s RPC is considerably higher than the rest of our other EU countries, the resulting mix shift has an exaggerated impact on the consolidated EU average RPC.

The softness in the U.K. occurs largely in December, which ran contrary to the trends we reported in our other EU countries, but seems to be consistent with the commentary we heard from the industry. Based on our preliminary review of 2006, year to date consolidated revenue is up from December 2005 on a per-day basis, due largely to an expected seasonal rebound in the EU and the U.K. specifically. Directionally, RPC is down marginally from December 2005 to February 2006; and the EU went down slightly, more in the U.S. compared to the EU over the same period. Overall the U.S., which includes the media network, private label, B-and-B, MIVA Small Business and MIVA Direct, reported $24.4 million in Q4 2005, or 57% of total revenue, while the EU reported $18.6 million, or 43% of total revenue.

The mix shift in contribution to consolidated revenue was the result of the previously mentioned Q4 decrease in the EU network revenue, magnified by the strong performance of MIVA Direct, and to a lesser extent, B-and-B over the same period. In the aggregate, B-and-B, MIVA Small Business and MIVA Direct recorded revenue of approximately $11 million in Q4, 2005, up 42% from the $7.8 million recorded in Q3 of 2005. This compares to approximately $6.1 million recorded in Q4 of 2004. Before I continue I want to highlight several exceptional items that occurred during Q4 in addition to the tax related issues I mentioned at the onset. The Company recorded approximately $500,000 in expenses related to certain legal settlements and also recorded severance charges of approximately 200,000 in connection with this cost realignment. Severance charges will reoccur in Q1 and Q2 2006, as our cost realignment effort continues. Operating expenses were $25.7 million in Q4 2005.

Normalized operating expenses, excluding a 1.1 million non-cash stock compensation charge, $700,000 in legal settlements and severance charges, and $700,000 in European business tax issues, were $23.2 million in Q4 2005 compared to $22 million in Q3 2005. Excluding the impairment charge and the one-time gain of approximately $600,000 related to the sale of the ESpotting Scandinavia AB assets to [INAUDIBLE] AB, amortization expense in Q4, 2005, was $2 million compared to $2.2 million for Q3 2005. Amortization expense included $1.4 million for acquired intangible assets and $600,000 for capitalized new purchase software. We recorded a GAAP net loss of $4.7 million or $0.15 per diluted share in Q4 2005. This compares to a GAAP net loss of $3.5 million or $0.11 per diluted share in Q3 2005. We recorded a GAAP net loss of $130.2 million or $4.23 per diluted share in fiscal 2005.

For full year 2005, we have an income tax benefit of $600,000. This is a result of our ability to take credits for our tax losses on some countries offset by tax expense in those countries that were profitable. Also, the non-cash impairment charge of $143.2 million was for the most part not a tax deductible item. We reported adjusted EBITDA of $1.2 million in Q4 of 2005, excluding the effect of the European business tax issues. This compares to adjusted EBITDA of $1.9 million, excluding $4.3 million a non-cash impairment charge, $1.5 million for resolution of disputes to certain European distribution partners and a one-time gain of approximately $600,000 related to the sale of Espotting Scandinavia.

We recorded an adjusted net loss of $0.02 per share in Q4, excluding European business tax issues and tax expenses related to the adjustments and net operating losses carried over from entities acquired in 2004. This compares to adjusted net income of $0.04 per diluted share, which excludes a non-cash impairment charge for Q3 2005. Now, turning to our balance sheet review, our cash, cash equivalents and short-term investments at December 31st, 2005, totaled approximately $38.4 million, a decrease of $3.3 million from September 30, 2005. The decrease is primarily due to $1.6 million in earn out payments related to prior year acquisitions and approximately $1.7 million in capital expenditures. On a year over year basis, cash, cash equivalents and short-term investments at December 31st, 2005, totaled approximately $38.4 million compared to $54.2 million at December 31st, 2004.

The change in our cash balances during 2005 includes the impact of payments of $8 million for the patent settlement with Yahoo, and $4.1 million associated litigation costs and earn out payments of $7.2 million related to companies acquired in 2004. Cash, excluding the previously mentioned factors, would have increased approximately $3.5 million year over year. The Company expects additional earn out payments to be paid in Q1 and Q2 2006, totaling approximately $2.8 million, but no earn out payments are owed thereafter. At December 31st, 2005, the Company balance sheet reflected an income tax receivable in the amount of $7.1 million compared to $1.6 million at December 31st, 2004. The Company anticipates receiving approximately $5.9 million in federal tax refunds during 2006 from operating losses generated in 2005 and carried back to prior years. This anticipated refund will cover the additional business taxes in Europe and the aforementioned earn out payments.

In connection with our cost realignment efforts, the Company's employee count was reduced throughout Q4 2005, and into 2006. As of December 31st, 2005, we had an active base of 483 full-time employees, down from 515 at September 30, 2005. As of January 31, 2006, we had an active base of 477. In addition to reducing our employee accounts, we have undertaken a number of initiatives to reduce our expenses, including: Renegotiation of our New York City lease resulting in a cash statement of over $900,000 over the original term of the lease; relocating our Santiago office; moving our tier one and two MIVA Small Business customer service function to a lower cost area; and outsourcing certain software development projects for MIVA Media. In terms of efficiency, on the system side, we finished the implementation of SAP Business One in Europe during 2005. And we are now busy standardizing work flows among our at EU countries.

We expect to begin implementation of SAP Business One in the U.S. during Q2 2006, and close fiscal year 2006 with one common system. In January of 2006, we closed using our new global chart of accounts for the first time. The Company has an active global product development pipeline and plans to introduce additional publisher and advertising solutions throughout 2006. In Q4 2005, our product development expenses totaled 8% of revenue, or $3.3 million. This compares to 7% of revenue, or $3 million for Q3 2005 and 3% of revenue in Q4 2004. We believe continued investment in R&D is critical to attaining our strategic objectives, and expect 2006 product development expenses to continue in line with our 2005 spending. Beginning in 2006, new accounting rules require us to expense the fair value of stock options.

The Company's net income guidance includes anticipated impact of this new stock compensation expense, which is estimated to be approximately $1.5 million in the first quarter of 2006. Consistent with the presentation of Q4 and fiscal year 2005 results, the following Q1 2006 adjusted EBITDA and adjusted net income guidance excludes non-cash stock compensation expenses. As we indicated on our Q3 earnings call, we are expecting quarter over quarter sequential topline growth off our Q4 base of 2006. Our Q1 2006 expectations are for revenue -- Q1 2006 estimated revenue of $43-$45 million. GAAP EPS, Q1 2006, estimated range of -$0.10 to -$0.07 on 31.2 million shares outstanding. Adjusted EBITDA Q1 2006 estimated range, zero to $1 million. Adjusted EPS Q1, 2006, estimated range, -$0.04, to -$0.01 on 31.2 million shares outstanding.

In summary, after adjusting Q3 2005 for nonrecurring revenue, we delivered a sequentially flat Q4, consistent with our guidance. In addition, we are today providing Q1 2006, guidance that is an increase off of our Q4 run rate -- again, consistent with commentary provided on the prior conference call. We have achieved greater control for improved processes, and this has enabled us to improve our analysis of business trends, better manage our cost structure and, we believe, plan appropriately for growth opportunities in 2006. We believe these are all indications that we are well along on our plan for turning around the business.

Thank you, this concludes my review of our Q4 2005 and full year 2005 financial results and our Q1 2006 outlook. I will turn the call back over to Craig.

Thank you, Will. As you can see, we have made significant progress on multiple fronts to set a strong foundation for 2006. We have identified a definable and sustainable position in the marketplace, focusing on the needs of the publisher, the advertiser and the individual. Our publisher focus is different from that of our competitors, and is something on which we intend to build. We expect our new products and sales effort around our new solutions will begin to bear fruit over the second half of 2006. Our product road map also positions us to capture more share of the increasingly fragmented online advertising market so that we can aggressively pursue inventory represented in the 95% of the time people spend online that is not search related.

By effectively leveraging technology investments like Fast and focusing on delivering solutions to help publishers compete more effectively, we believe we have a very strong foundation for driving growth. Thank you all again for joining our Q4 and full-year 2005 conference call. I will now turn the call over to the operator for questions.

[OPERATOR INSTRUCTIONS]. We will go first to Colin Gillis with Canaccord Adams.

Yes, good afternoon, Craid, good afternoon, Will.

Good afternoon, Colin.

Hey, Craig, so it seems like you're getting some good traction on the publishing side. Can you just talk a little bit about, you know, what change is happening in that dynamic that's going to, you know, refocus on your sales effort or if it's just, you know, a little bit more of a residents to publishes with your message?

Actually, I think it's --there are actually a few things. Number one, with actually having the capability internally to offer them the right solution, we historically -- we were -- we could obviously provide key word to key word matching functionality; but really beyond that, provide automated contextual solutions and things that publishers that are creating a tremendous amount of content really, really neet. It's just not something that was part of our suite of products and services. Well, obviously, we have taken very proactive steps to provide that particular product that allows us to work more closely with publishers. I would say that's one area. But two -- and this may be the larger trend that we're starting to see -- there is a realization in the marketplace, by content creators/publishers/companies that just have traffic in general, that they need to figure out a strategic relationship with a partner that's not cannibalizing their content or, quite frankly, directly competing with them for market share. But you know, you cannot do that unless you can show them some path towards monetizing at approximately the same level as the current relationships. And to kind of uncomplicate that statement, the long and short is MIVA had to get itself in a position through technology that we could provide the products and services publishes need, and show them a path of monetization that's equal to or potentially greater than those relationships they have today. That's an area that we are aggressively focusing on. And quite frankly, you know, we go in the marketplace, we're seeing those publishers looking for an alternative. And really, MIVA is one of the companies that's positioned to have that integrated suite of products and services that can fill their needs. And that's the overall trends that we're seeing that's allowing us to be more successful in terms of the relationships we've announced in this call.

And we'll take our next question from Eric Martinuzzi with Craig-Hallum.

Good afternoon, gentlemen. My question has to do with your announcement on January 10th. At that time, you announced that you were pursuing some strategic opportunities. I would like you to address, A, why you did it and B, what sort of progress have you made?

Sure. I mean, the logic behind it, as the press release stated, was to take a look at a wide range of opportunities on behalf of the board to see if there were strategic opportunities that we just hadn't quite captured internally. So that was the statement that we put down at that point in time ,and the statement still holds true today. The progress, there is really no progress report. In fact, during that release we made a statement we'd update the Street if there was anything to update. And to date, there just isn't anything material, other than I will tell you they continue to look at strategic opportunities to for the Company that cover anything from potentially making an acquisition to, quite frankly, potentially being acquired. I mean, they are looking at all sorts of scenarios on behalf of the board.

We'll now take our next question from Youssef Squali, Jefferies & Company.

Thank you very much. Could you expand a little bit on what happened in the EU, particularly in the U.K., saw a decrease of 20%. Is that, again, related to the -- to further cleanup of traffic that you started several quarters ago? Is that related to a loss of account or accounts? And I think you came back and talked about year to date consolidated revenues. Can you revisit those numbers again?

Yes, actually, just to give you a general, the Click count was actually up over quarter over quarter, RPC trending was down -- and we can follow-up after words -- actually, it sounds as though it's in line with what others in the marketplace saw as well, in the European marketplace, an overall decrease in RPC and in the U.K. market place, specifically. Also, as we'll point out, we saw that that was running contrary to what we were seeing in the continental European portion of our business. But nevertheless, I hope that answers your question with more clarity.

We'll now go to Christa Quarles of Thomas Weisel Partners.

Hi, couple of questions. First, on tax rates, can you just indicate whether or not that they remained relatively stable? Second, you know, I noticed -- you know, obviously, you've -- you had some severance charges in the quarter. Could you outline what one-time costs you expect in Q1, and you know, when you believe your cost base will be sort of a normalized rate that we can factor in as we go forward? Thanks.

Looking at Q1, there certainly will be -- and we are managing to move our headcount down a little bit. I think it's appropriate that we just keep focusing; and I believe this needs to be at every company, how do you do things more efficiently? And you know, clearly, we are looking at some of the talents that we need going forward are different from the ones we were successful in getting us here in the past, [INAUDIBLE] go through. I would imagine that over as the next two quarters these will be things that we really we focus on. And I would hope that by the end of Q2 we pretty well will have gone through that.

And Christa, just to follow-up with you on the tax, so yes, I can confirm the tax is relatively stable. That being said, I will [INAUDIBLE] repeat what we have been repeating on for years, and that is, we always anticipate to see taxes go up a little bit. I'm saying that a little forcefully on this call, and we are aggressively pursuing relationships literally as we speak, and we hope to announce in the near term, with companies that could potentially have higher tax associated with them that is commensurate with the quality of traffic that our advertisers are looking to pay more for. So the long and short of it is tax is relatively stable, but we always put a cautionary note out there it could go up 100, 200 basis points on any given quarter. And just like pricing, we're going to be pursuing some other aggressive deals that could take those up -- the tax rate up by 100 to 200 basis points.

And we'll go now to Michael [INAUDIBLE], ThinkEquity Partners.

Good afternoon, guys. Forgive me if I missed it, but you talked about, I believe, breakdown between EU and the U.S., and you gave specific numbers -- what are those again? And maybe discuss the weaknesses in the EU?

The EU, we were particularly light with the Click rate that we talked about in the U.K. specifically. MIVA Direct did very well in the fourth quarter, and we covered that, that they had very good growth. I don't know if you want to add more, Craig?

Sure. I mean, we can talk a little bit more about the RTC. And as noted, we did see a decline in RPC on the European market side -- or excuse me, in the U.K. marketplace specifically. I think you were looking at percentage of U.S. and EU revenue that was actually referenced a little bit earlier. And just to reiterate that, that was part of Will's prepared commentary. Basically, we saw in Q4 '05, 57% of total revenue within the European -- or excuse me, U.S. marketplace -- it was EU coming in at 43% -- I believe that was the question you had asked -- and like we said, we did see a decline in RPC commensurate with what others apparently saw as well over this past quarter.

[OPERATOR INSTRUCTIONS], And we'll take a follow-up question from Colin Gillis.

Hey, just Will, what do you [INAUDIBLE] of the 10K? And any comments about head count and if you think we are the right sized yet? You know, or just anything along the cost structure lines?

Well, again, I think it's a constant challenge for companies in this day in age to go back and look at, you know, are you doing things as efficiently as you can? And you know, particularly in MIVA Small Business, we had experimented with all taking our tier one and tier two support on the help desk out, and that certainly went well. We implemented through the -- I think last week -- switched over the primary calls to the new provider. So I think it's a constant challenge for businesses today, how do you do more with less? And SAP Business One will certainly give us the ability to scale quite a bit, with getting common work flows and processes throughout the country and the world, and all of the different companies. And I would that hope even as we grow, we don't need more resources, particularly, in the accounting area that we are sized right. So you know, these are things that are just a constant challenge. We are looking at different opportunities as we go, and we will either adjust or grow accordingly.

I mean, well, what may be a good solid comment on that point is, you know, our effort -- or our shift and our focus has shifted a bit. That might be a fair way of characterizing it. As an example, at the beginning of the year, we started focusing our resources for our Cambridge office, to build out our search and directory group, which previously we did not have.

You know, that being said, we're obviously looking at the behavioral marketplace very closely, and aggressively pursuing our contextual [INAUDIBLE] behavioral solution for publishers, which would constitute new types of resources that we haven't had historically. So I think to a large degree, we are seeing a shift in where we need to grow the Company from a head count going from roughly 515 to 470 -- or 480 as of this past month. I think it shows a clear intent to make sure the Company has the necessary resources to continue to grow; but more importantly, the right resources in the right area.

And at this time, due to time constraints, we would like to conclude today's question and answer session. Mr. Weinberg, I'd like to turn the call back to you for additional closing comments.

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 and 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 MIVA's report filed with the U.S. Securities and Exchange Commission, including the Form 10KA for fiscal 2004 and its most recently filed quarterly report on Form 10Q. 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; the risks associated with the fact that we have material weaknesses in our internal control over financial reporting may prevent us from being able to accurately report our financial results or prevent fraud;

the risks that we have in the past and may in the future incur good will impairment charges that materially adversely affect our earnings and our operating results; potential that demand for our services will decrease; the risk that we will not be able to continue to enter into new online marketing relationships to drive qualified traffic to our advertisers; the risk that our distribution partners will use unacceptable means to obtain users; risks associated with our ability to compete with competitors and increased competition from distribution partners; political and global economic risks attendant to our business; risks associated with legal and cultural pressures on certain advertisers' service and product line;

other economic, business and competitive factors generally affecting our business; the risk that operation of certain of our technology 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 risk that we will not be able to effectively manage our growth; the risk that new technologies could emerge, which could limit the effectiveness of our products and services; risks associated with the operation of our technical systems, including system interruptions, security breeches and damage; risks associated with Internet security, including security breeches, which if they were to occur, could damage our reputation and expose us to loss or litigation; risks relating to regulatory and legal uncertainties, both domestically and internationally. That concludes our call for today, thank you for listening.

Thank you for your participation in today's conference; you may disconnect at this time.