Inuvo Inc (INUV) 2007 Q4 法說會逐字稿

Thank you for joining us today. This call is being recorded. I would now like to turn the conference over to Sloan Gaon, Senior Vice President of Global Strategy and Corporate Development. Please go ahead, sir.

Thank you and good afternoon. Welcome to MIVA's fourth quarter and full year 2007 financial results conference call. Joining me on the call today are Chief Executive Officer, Peter Corrao; Chief Financial Officer and Chief Operating Officer, Lowell Robinson; and Chief Marketing Officer and President, Seb Bishop.

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 from those expressed or implied in the forward-looking statements. 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 begin, 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, adjusted net income/loss, and adjusted net income/loss per share. We believe that adjusted EBITDA, adjusted net income/loss, and adjusted net income/loss per share provide meaningful measures for comparison of the Company's current and projected operating performance with its historical results due to the significant increase in non-cash amortization that began in 2004 primarily due to certain intangible assets resulting from mergers and acquisitions.

MIVA defines adjusted EBITDA as 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 operations of the business. MIVA uses adjusted EBITDA as an internal measure of its business and believes that it is utilized as an important measure of performance by the investment community. MIVA sets goals and awards bonuses in part based on performance relative to adjusted EBITDA.

MIVA defines adjusted net income/loss as net income/loss plus amortization and non-cash compensation expense, plus or minus certain identified revenues or expenses that are not expected to recur or be representative of future ongoing operation of the business, in each case including the tax effects, if any, of the adjustment. MIVA defines adjusted net income/loss per share as the adjusted net income/loss as previously described, divided by the average basic or fully diluted number of outstanding shares of MIVA common stock over the reported period.

For a detailed review of our fourth quarter and full year 2007 results, including the corresponding GAAP financial measures and a reconciliation of our non-GAAP financial measures to GAAP financial measures, please refer to the press release we issued today and to our Form 10-K for 2007 to be filed 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 audio Web cast through the Investor Relations section of our Web site and a replay of the conference call will be available for 90 days after the call.

I would now like to turn the call over to our CEO, Peter Corrao. Peter?

Thanks, Sloan. Good afternoon everyone and welcome to today's conference call. I appreciate having you on the call with us.

Before we get into a detailed review of full year '07, I would like to discuss how we view the Company and its component parts. We maintain three revenue-producing divisions -- MIVA Media E.U., MIVA Media U.S. and MIVA Direct, in addition to our corporate cost center.

First, MIVA E.U., our European advertising network, continues to underperform to our expectations. To mitigate the revenue decline, we have recently taken steps to reduce our cost burden in Europe that we expect will get us to EBITDA breakeven in 2008. The recently disclosed lease amendment from our London office is an example of the type of steps we're taking in addition to consolidating our data centers and reducing headcount. Lowell is going to elaborate on these cost reductions in his comments.

Second, our Media U.S business, our U.S.-based advertising network, appears to have stabilized. We expect this to continue and we have begun development of the new technology platform to replace MIVA Media's 11 standalone platforms.

Third, MIVA Direct, our direct-to-consumer division, has experienced strong year-over-year growth. We're continuing to focus on our strategy of transitioning from our legacy toolbars to our new ALOT brand, and further, we're excited about the debut of our new myALOT homepage.

Last is our corporate overhead. We've materially reduced corporate overhead over the past year. Lowell will provide more details on these reductions in just a moment. Even though these cost reductions have been substantial, we continue to explore opportunities to reduce them and will remain vigilant about our cost structure going forward.

Now let's get into a detailed review of the '07 results. While we're dissatisfied with our consolidated revenues and operating results for '07, we're pleased with the progress we've made in repositioning the Company towards higher margins and what we believe will be a more profitable business line. During '07 we experienced strong growth in our higher margin MIVA Direct business. Our strategy of owning and operating our own traffic and creating direct relationships with Internet users is illustrated by the performance of MIVA Direct. In '07, revenues of MIVA Direct increased approximately 35.5% from 2006 to $51.9 million. On a company-wide basis during Q4 '07, we recorded revenues of $34.6 million and an adjusted EBITDA loss of $2.9 million. The adjusted EBITDA figure excludes the $4.7 million non-cash asset impairment charge and $1.3 million related to a portion of the Lane's Gifts settlement.

These results were consistent with our revenue and EBITDA guidance which contemplated Q4 below Q3. The majority of the revenue decline is primarily attributed to a weaker MIVA Media E.U. third-party ad revenue. The EBITDA shortfall is a function of the lower media revenue.

For the full year, our revenue was $152.9 million compared to $170.8 million in '06. The shortfall was primarily due to the decline in Media U.S. and Media E.U. third-party ad network revenue. Additionally, our decision to scale back our private-label business, which contributed $4.1 million in '06 versus $800,000 in '07, negatively impacted revenue. In addition, we sold our small business division in 2007 which is treated as a discontinued operation.

FY '07 revenue benefited from MIVA Direct's $51.9 million in revenue compared to $38.3 million in 2006, again, a 35.5% year-over-year increase. We believe our fourth quarter and fiscal year '07 results validate our strategy to build and operate our own brands and media properties while we lessen our dependence on our third-party ad network. Our strategy has not changed and our goal to deliver valuable digital audiences to advertisers hasn't changed. We are increasingly focused on growing a scalable, more profitable MIVA Direct business with higher margins and direct relationships with Internet users.

Through MIVA Direct, its toolbars, homepages and our consumer sites, we develop [a] direct marketing relationship with our audience to seek and create value for them and the advertisers seeking to reach them. Collectively, we have built a large base of Internet users whose search, view, read, and interact with our content on a daily basis. As of December 31, 2007, we had 7.1 million active toolbar users, while averaging 180 million monthly searches. In addition, MIVA-owned content sites, such as screensavers.com, SuperHoroscopes.com and Spill.com are averaging 16 million monthly unique users. We believe this large scale places us in a position amongst Internet companies which is often overlooked by the investment community.

We continue to build momentum in this area with our most recent initiative around our ALOT brand. Late in Q3, we've begun to slowly roll out a set of new ALOT-branded products. We currently have 20 customized ALOT toolbars covering vertical topics like news, weather, recipes, movies, casual gaming, and video. Our intention is to continue expanding across verticals in the coming quarters. In Q4, we launched our myALOT homepages, which are currently garnering over 9.6 million monthly visits. Impressively, each user engages on average 14 minutes with our myALOT homepages.

As an example of our recipe toolbar vertical, which encompassed 341,000 active toolbar users as of December 31, '07, is a good illustration of the utility and ease that we continue create for users through toolbars, widgets, homepages, vertical search, and content sites. Every day, thousands of users utilize our recipe toolbar to search for relevant useful recipes. So, instead of visiting a major search portal where a search for Chicken Parmigiana recipes might produce around 0.25 million search results, users of the ALOT recipe toolbar receive 38 kitchen-tested and rated Parmigiana recipes from our well-known recipe content partner. Moreover, we provide users with highly-targeted recipe videos and a cupboard of relevant handpicked cooking related Web sites. We believe that by providing focused content and useful functionality, MIVA will create a strong and lasting relationship with users and our advertisers alike.

Although we modestly grew our toolbar base from 7 million in Q3 to 7.1 million in Q4, we had $0.5 million in higher revenue -- $12.2 million versus $12.7 million. This is a result of seasonality and better monetization of our ALOT toolbars versus our legacy branded toolbars.

It's also important to note that in Q3 '07 we focused our marketing efforts to the ALOT brand and to better-performing verticals. This coupled with our change in monetization partner resulted in a lower number of toolbars but higher revenue in Q4 2007 versus Q4 '06.

A recent success to our division in owning and operating our own traffic is Spill.com, which is focused on the movie vertical. The Spill.com site offers users a full range of social networking features. Users can create their own profile pages, build and maintain network of friends, and upload videos and pictures. Users can also access over 626,000 pages of movie-related information from film synopsis, cast lists and user-generated content pages through to a comprehensive database of actors. Although it was launched out of beta midyear, the Spill site has continued to grow quickly in its page views, unique visitors, video content views, and in the Hitwise's movie category rankings has moved itself from 1049 to number 57 in less than four months.

Now, moving on to our advertising network businesses in the U.S. and the E.U. We believe our Media U.S. business has stabilized and we continue to make progress rebuilding our publisher and advertiser base. Notwithstanding the progress we've made in the Media U.S. business, the Media E.U. business continues to represent a challenge given the competitive marketplace in Europe. We recently took steps to reshape the business by reducing our operating expenses going forward and sharpening our focus on revenue and higher-margin partnerships.

Earlier I talked about our new media technology platform that we're developing. Throughout this coming year, we will be focusing intently on our plan to develop and launch this new platform by year-end '08. The stabilization we believe we have achieved in our Media U.S. division has in part been due to our strategy of offering advertisers a broader range of ad targeting options be they run of network, vertical or customized ad buys. Our new platform should help further build on this strategy and give us a springboard to offer additional opportunities for advertisers and publisher partners in the future. While we appreciate the challenge of this project, we believe this technology is critical for the media business to increase our operating efficiencies and grow our business.

So, while 2007 was a challenging year for our U.S. and E.U. media businesses, we believe our current initiatives will enable us to improve our performance. Importantly, we remain bullish about our efforts in MIVA Direct. Our Direct business grew 35.5% year-over-year and we continue to focus on increasing the percentage of our revenue that comes from owning and operating our own traffic.

With all that said, I will now turn in the call over to Lowell, who will cover our financial results and outlook for 2008. Now Lowell, let me turn it over to you.

Thank you, Peter. Our consolidated Q4 2007 performance was consistent with our guidance of below Q3 2007 results in revenue and EBITDA. However, as Peter said, despite an overall disappointing year, we are pleased that MIVA Direct generally performed to our expectations as a result of our strategic decision to focus on profitable ALOT toolbar growth.

MIVA's consolidated revenues were $34.6 million in Q4 2007 compared to $36.4 million in Q3 2007. The revenue decrease was primarily due to performance for our Media E.U. and Media U.S. divisions partially offset by an increase in our Direct business. EBITDA was a loss of $8.9 million in Q4 2007 compared to an EBITDA loss of $1.7 million in Q3 2007. Q4 2007 EBITDA included a $4.7 million non-cash tangible and intangible asset impairment charge related to our Media U.S. business and a $1.3 million charge for a portion of the Lane's Gifts settlement. Q3 2007 EBITDA included a $1.4 million non-cash goodwill impairment charge related to our Media E.U. business. Adjusting for the non-cash impairment charges, Lane's Gifts and restructuring charge credit of $200,000, our Q4 2007 EBITDA loss was $3.1 million compared to an EBITDA of $200,000 positive in Q3 2007. After excluding the non-cash comp expense of $200,000 in Q4 2007 and $1 million in Q3 2007, adjusted EBITDA was a $2.9 million loss in Q4 2007 versus approximately $800,000 positive adjusted EBITDA in the third quarter of 2007.

Cash and cash equivalents increased at year-end December 31, 2007 to $29.9 million from $24.8 million at the end of Q3 2007. The increase was due to the timing of several large payments which went out in early January. Adjusting for these, cash would have been approximately $25 million.

Consolidated gross margins were [$52.3 million] (sic - see press release) in Q4 2007, below the 52.8% we reported in the third quarter of 2007. Direct's gross margins before advertising spend were 95% in the fourth quarter, comparable to Q3 2007 and Media E.U. gross margins decreased from 34% to 27% from the third quarter 2007 to the fourth quarter of 2007, while Media U.S. gross margins decreased 2 percentage points from 31% to 29%. The Media gross margin decrease was primarily due to the increase in revenue share through our partners or traffic acquisition costs.

MIVA Direct contributed 36.7% of total revenue in the fourth quarter 2007 compared to 33.6% in the third quarter 2007 and 24.1% in the fourth quarter 2006. We continue to expect the mix of MIVA Direct revenue to increase as a percentage of the overall revenue for full year 2008 due to expected full-year growth in the Direct business and a decline in the Media E.U. business.

MIVA Direct generated $12.7 million in revenue in the fourth quarter 2007 above Q3 2007 revenue of $12.2 million. The total number of active toolbar users increased from the 7 million to 7.1 million over the same period. The increased revenue is the result of seasonality and better monetization of ALOT toolbars versus our legacy branded toolbar. Q4 2007 revenue from MIVA Direct of $12.7 million was 21% above fourth quarter 2006 of $10.5 million. This is directly attributed to the higher monetization from our change in search partners in January 2007. MIVA Direct's gross margin was approximately 95% in the fourth quarter 2007 which is comparable to the third quarter of 93%. MIVA Direct's gross margin excludes advertising spend of $7.5 million in the fourth quarter 2007 and $7 million in the third quarter of 2007 which is included in consolidated operating expenses within the marketing, sales and service line. Including the advertising spend, MIVA Direct's gross margin was 34% in Q4 2007 compared to 35% in Q3 2007. We expect to increase ad spend in Q1 2008 over Q4 2007 as we focus on increasing ALOT toolbar distribution.

In our total MIVA Media third-party ad network, we recorded 413 million total paid clicks in Q4 2007, up from 352 million in Q3, 2007 and up from 332 million in Q4 2006. Q4 2007 revenue for our total Media third-party ad network was $21.9 million compared to $24.1 million in Q3 2007. The approximate $2.4 million decline in total Media revenue was primarily due to Media E.U. In Media E.U., average revenue per click was $0.12 in the fourth quarter compared to $0.14 in the third quarter. In Media U.S., average revenue per click was $0.04 in the fourth quarter compared to $0.05 in the third quarter.

In our Media U.S. business, revenue was down approximately $0.5 million sequentially from the third quarter 2007, and this was approximately half the $1.1 million decline from Q3 to Q2. The lower revenue was attributable to the lingering effects of quality-related traffic cuts that were made in late Q3 that impacted revenues early in Q4. However, revenue ramped up significantly in the latter half of Q4 as we did not experience the usual effects of seasonality until very late in December. Media U.S. gross margins were 29% in the fourth quarter, below the 31% in the third quarter due to higher traffic acquisition costs.

In our Media [U.S.] (sic -- see press release) business, revenue of $9.5 million was down $1.7 million sequentially from the third quarter of $11.2 million. Quarter-over-quarter revenue was down generally across the E.U., but most notably in France and Spain. This was primarily driven by a slight drop in the live advertiser account and an earlier than expected seasonal drop in partner traffic in November and December. While most of the gross margin drop was in a direct result of the lower revenue level, the drop was further exacerbated by higher traffic acquisition costs. Media E.U. gross margin in this segment decreased from 34% in the third quarter to 27% in the fourth quarter. Q4 2007 to Q3, 2007 traffic acquisition costs were up as a percentage of revenue from 58% to 66% which continues to represent a challenge.

The changes to our Media E.U. cost structure undertaken in the first quarter 2008 should allow us to operate at breakeven on lower revenue for 2008. More specifically, we renegotiated our London lease, consolidated several E.U. data centers and reduced headcount by approximately 20 people. This equates to approximately $7 million on an annualized basis.

Total operating expenses were $29.1 million in Q4 2007 compared to $23.3 million in Q3 2007. This includes the Q4 2007 $4.7 million non-cash tangible and intangible Media U.S. asset impairment charge in Q4 2007 and the $1.3 million for a portion of the Lane's Gifts settlement. Q3 2007 had a $1.4 million non-cash E.U. intangible asset impairment charge. Including these, operating expenses were $23.1 million in the fourth quarter and $21.9 million in the third quarter of 2007. The $1.2 million increase is a function of a $0.5 million higher Direct advertising span and $800,000 Perot transition expenses that we expected to be expensed in 2008 but are included in Q4 2007. Excluding these, operating expenses were flat quarter-on-quarter.

Adjusted EBITDA was $2.9 million negative in Q4 2007. This excluded the $4.7 million non-cash impairment charges, $1.3 million Lane's Gifts legal settlement, the restructuring charge credit of $200,000, and the non-cash compensation expense of $200,000. This compares to adjusted positive EBITDA of $800,000 in Q3 2007 which excluded the non-cash impairment charge of $1.4 million and non-cash comp expense of $1 million.

For the full year 2007, revenue was $152.9 million versus $170.8 million in 2006. Most of the shortfall was in Media E.U., which declined from $67.5 million to $46.2 million. Media U.S. declined from $65 million to $54.7 million while Direct grew from $38.3 million $51.9 million, or 35.5%.

Gross margins were 52.4% in full year 2007 compared to 47.9% in fiscal year 2006 due to MIVA Direct being a higher portion of total revenue. Operating expenses were $117.1 million in fiscal year 2007 compared to $169.5 million in fiscal year 2006. In 2007, total operating expenses included $20.1 million in non-cash goodwill and tangible and intangible asset impairment charges related to our MIVA Media division and $1.3 million related to a portion of the Lane's Gifts litigation settlement. In 2006, total operating expenses included $63.7 million related to non-cash goodwill and tangible and intangible asset impairment charges related to our MIVA Media division.

Excluding the $20.1 million non-cash impairment charge and $1.3 million related to a portion of the Lane's Gifts litigation settlement in fiscal year 2007, and the $63.7 million non-cash impairment charge in fiscal year 2006, operating expenses were $95.7 million in fiscal year 2007 and $105.8 million in fiscal year 2006. The $10.1 million decrease is primarily due to the effects of restructuring initiatives conducted during the year to align the revenue and cost structures of the business. Importantly, Direct advertising was $6.5 million higher in 2007 than 2006 and we had a $2.8 million restructuring charge. Excluding these, our operating expenses are down approximately $19 million year-on-year, largely due to headcount reductions.

EBITDA for the full year 2007 excluding restructuring impairment charges was negative $4.6 million versus a loss of $11.6 million in 2006. Adjusted EBITDA, which also excludes non-cash compensation, was positive $0.5 million in 2007 versus an adjusted EBITDA loss of $6 million in 2006. GAAP net loss was $3.7 million, or a loss of $0.11 per basic share in Q3 2007. This compares to a GAAP net loss of $11.5 million, or $0.36 per basic share in Q4 2007.

As of December 31 2007, the Company had an active base of 230 employees, roughly the same as September 30, 2007 of 229, but well below the December 31, 2006 level of 401 active employees. The decrease from December 2006 is due primarily to the Company's Q1 2007 restructuring plan and the Q2 outsourcing to Perot Systems.

As you will recall, we decided that for 2008, we will provide annual guidance instead of quarterly guidance. We believe it is critical that we focus our attention on achieving our long-term objective for shifting into owned and operated traffic, rather than on short-term results. We plan to update the annual guidance on a quarterly basis.

The Company is forecasting for 2008 revenue of between $145 million and $155 million and EBITDA at breakeven, ex-restructuring charges. We expect revenue to be stronger in the second half of 2008 compared to the first half of 2008. We expect EBITDA to be a loss in the first half of 2008 and EBITDA to be profitable in the second half.

The revenue forecast anticipates growth in MIVA Direct, Media U.S. revenue slightly down from 2007 and the Media E.U. revenue below 2007. As we said earlier, we anticipate being at breakeven in the Media E.U. business with the recently undertaken cost initiatives.

I will now turn the call back to Peter for some concluding remarks.

Thanks, Lowell. So in conclusion, we're encouraged with the fundamental performance of MIVA Direct, the rollout of the ALOT brand and with the progress we've made in executing our new strategy of owning and operating our own consumer traffic. We took key steps during 2007 to reshape our business and we look forward to updating our progress in the coming quarters.

So, now let me turn it back over to Sloan for Q&A.

Thank you very much, Peter. We would like to open up the floor for questions.

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

The outlook for the 2008, I'm not sure -- I caught the E.U. is going to be below where it was in 2007 on the revenue side. Did you talk about profitability for E.U. in 2008?

No, we said that E.U. for 2008 would be break even based upon the recent cost initiatives that we took in the first quarter of 2008.

Okay, so breakeven on a full-year basis or an exiting quarter basis?

No, full-year basis, in aggregate.

Okay. And then, the growth rate for MIVA Direct, really terrific in 2007, up 35%. What -- it kind of leaves it wide open to say that it will be better, that it will grow in 2008. Are we talking about a continuation of that growth rate? Does it decelerate? Is it more like a 20% growth rate? Could you give us -- just narrow that range a little bit for us?

Well, we think it will be significantly up versus 2007, but it's sort of too early in the year to peg it, whether it's 35% or 40% or 25%. So, we're only 2.5 months into the year and it's too early to tell based upon some of the success we've had with the new ALOT toolbar.

Okay. And just on MIVA Direct, you have had now, because I know it sort of fired off in January of '07, at least for the month of February, you do have a February '07 versus a February '08. Is there anything you can tell us about MIVA Direct there? Because the monetization partner is exactly the same as it was a year ago.

I think we will go into that, Eric, when we do our first quarter call in May.

Then a housekeeping item here. Your guidance for EBITDA breakeven -- that does ignore the stock-based comp?

That's correct. It's not adjusted, which excludes the stock-based comp. That includes the stock-based comp.

Okay, so if we used last quarter's roughly $240,000 stock-based comp, there would be potentially $1 million positive adjusted EBITDA?

No, in the fourth quarter we had some adjustments, one related to someone that was terminated and the restricted stock non-cash comp got factored back in, and then there were some other changes. So I would assume roughly about $1 million a quarter for stock-based compensation.

Jim Leahy, Morgan Joseph.

Just a quick question on the European business. It's good to hear that you're thinking it's going to get back to breakeven in 2008, and that's based mostly on the cost initiatives. What can we look for on the top line of that business? Is that business going to get reignited going forward, or is that just -- is the success going to be limited there?

In MIVA Media E.U., I think we're taking the prudent approach, which is to say, look, that's a business that has been on the decline from a revenue standpoint. We don't think the decline will be as steep as it has been the past six or seven quarters. But we are sort of anticipating that business to continue a slightly downward trend. In anticipation of that, last quarter and some into this quarter, we took a substantial amount of money out -- cost-related money -- out of the business. All that was in an effort to get the thing back to EBITDA breakeven, as Lowell was just talking about for the year. So, we're not anticipating that that business' revenue would go up. If it did, it's very late in the year, and that would be on the back -- that would be on the back of our new platform coming out.

Secondly, we've put some new management into our largest country there, which is MIVA Media UK. UK itself is our biggest one of our five European operations. We've got new management there, new sales management there, and we really have good hopes that he will be able to turn that around. But in general, we're thinking flat to down on revenue, but cost substantially out of it, which we [pulled] last quarter in this quarter.

(Operator Instructions). Colin Gillis, Canaccord Adams.

Are you seeing any changes in your customer acquisition costs for a toolbar customer?

Yes. The customer acquisition costs for ALOT is actually higher than it was for our Starware brand, and that's mostly the effect of all of things that we have to do to keep compliance with our new partners at Google and what we can do with them, and also to keep our trustee certification up to date, which we didn't have, as you know, for the Starware brand that we're exiting out of. It's too early to really start to pin a number on it, but the costs have been dropping dramatically for us from the beginning of an ALOT launch to today. We've got hopes that we might end up somewhere in the 10% to 15% increase for an ALOT toolbar as opposed to a Starware toolbar, but still a little bit too early to say, Colin. So it is higher, but we're hoping that the increased monetization along with the higher cost will leave us with a better margin in total. We've been loath, though, remember, to forecast the new margins on the ALOT brand because we haven't lived a lifetime of them yet. And I can tell you now, they behave dramatically different than our Starware brand did. So we have less turnover in them by far. They seem to be lasting longer. But until we have a whole life lived on them throughout a year, we're still sort of loath to come back and say exactly what the cost is of getting ALOT brand and exactly what the ultimate lifetime value is. But all the early indications are good on both fronts.

Are you seeing any surprises in terms of monetization strength in any particular vertical that you could comment on?

Less on verticals and I would say more on countries. We're starting to learn more and more about our expansions into other countries. So, remember, we've now rolled out 20 verticals, but that's really as of just last week. We're up to 20 verticals. That's -- virtually all of them in the United States that we had before plus some have been converted into this new Starware brand, and again the monetization on them, we've got pretty dramatic increases in monetization but they all look like relative increases compared to their Starware counterparts, if that makes sense. So, nothing to stand out there.

The UK toolbars in general out-monetize anything we've ever seen in the U.S. across any of the verticals. So, virtually every vertical that we've introduced into the UK is out-monetizing its counterpart in the U.S., and yet the costs in the UK tend to be comparable to the U.S. So, there's one place we can say for sure that the margins are better. Our other four European countries in -- by the way, Australia would hold the same as the UK -- more -- inexpensive to get into and a monetizing at or better than the U.S. levels across all the verticals. Where we've got still sort of a toss-up and where we study daily on a by-vertical basis is all of the other European countries. The basic algorithm there is that we can buy in way more inexpensively, but they also monetize way more inexpensively across the board, both Starware an ALOT. So, Lowell in particular, myself and our analysts work daily with the guys there to make sure that we know what the margins are. So what we're shooting for in all of the other European countries is higher margins, but I can assure you they're lower total dollars than the non-English-speaking European countries in total. $[30] across-the-board -- we haven't really seen any bad news, if you will, in the ALOT buy side or the ALOT sell side.

And what was that FTE at the end of the year?

230.

And Lowell, any comments on the outsourcing agreement with Perot?

No, it's going extremely well. We're very happy with them as partners. We've been working diligently with them on the specs for the new platform and Nevada has gone extremely well. So Peter and I and the management team are very happy with the outsourcing to Perot.

(Operator Instructions). Ross Koller, Diker Management.

Can you talk a little bit about Spill.com and some of the other owned and operated sites and how those are growing -- how you're monetizing them and what's sort of the roadmap for developing new sort of [niche-y] sites going forward?

Sure. You know what I think I will do with that Ross, is let me let Seb talk to you about it. And, Seb, if you would, talk about our sites both as acquisition sites for acquiring more toolbars and as aggregation sites for us to ultimately create more real estate on.

Sure, Peter. I mean effectively, if you look at Spill, Spill was primarily built to try and capture vertical social networks. So, when you sort of read about the Facebook's and the MySpace's having large amounts of traffic but struggling to monetize it mainly because advertisers aren't interested in sort of wide mass media untargeted traffic where we're sort of targeting is the thought base around verticalizing that traffic and actually creating niche social networks within those particular communities where advertisers can buy into. Primarily, we're actually looking and we've been testing and playing around slightly with video advertising [pre-rolls] and some of the Spill video stuff. And we've also obviously with all the sort of CPM banner stuff that we're seeing. And then, we're also allowing ourselves to place those videos and potentially sort of expand some of that content to other sites that are looking for that same content. The Spill content, the videos and the reviews that we post, primarily are getting very good reviews. The members of Spill, the membership is growing. And that sort of irreverent star that we sort of manufacture and we put out there is starting to actually get quite a following and people are actually starting to ask us if we can actually use some of that content which is a new area of the business that we've sort of -- it's new to us, which is interesting.

And primarily what's nice about these sites is that we get to leverage off not only the MIVA media platform, but also they cross-pollinate across our toolbars and some of the other sites that we operate on. So, what's important to know, I think I used this example in the past. When you look at a major TV channel, it's not uncommon for them to promote other programs that same evening, saying, watch this program later on tonight, and we can do that with the MIVA Media business. We can still direct certain levels of traffic through to some of our sites and actually give them a kick-start, whereas maybe other media owners aren't able to do so.

Seb, if you would, just spend a minute too on sites like screensavers where we not only sell CPM advertising, but also use them as traffic sites to drive toolbars.

Sure. So, again, I don't know whether you've spent anytime on screensavers, but more and more what's also -- it is isn't a straight -- on the toolbar side, it's not a straight sort of go out there and buy. What we're also very good at is actually creating content that consumers want, like screensavers.com, and then obviously being able to ask them and ask their permission whether they would want like one of our star pages as part of the bundle or whether they would like to toolbar as part of it. So again, we use the content that we create to leverage and help push other products within the family.

Can you talk little bit about the kind of uniques that you're driving to Spill or WeatherStudio or screensavers? Because if you look at the business, there's really not a lot of enterprise value associated with it, yet you've got some pretty popular consumer brands. So if you could talk about how you go about monetizing them going forward?

Off the top of my head, I can't remember the number that we gave out with the traffic numbers associated to Spill and screensavers.

Sure, this is Sloan Gaon. I will comment a little bit more on that. Just on Spill in particular, we have 2 millions page views this past month on Spill.com. That's up significantly from just a couple of months ago. It's also interesting to note that not included in the 2 million page views is last month alone, we had close to 1 million views of our video content that we've produced for Spill off-site, or outside of the Spill.com. So, these views would take place on sites like YouTube and MySpace, [Depot] and Yahoo!. So, our strategy is to have a distributed one where we post our content on other sites that have large user concentration, and then drive them back to Spill and ultimately monetize them.

Can you talk a little bit about WeatherStudio and screensavers, what kind of traffic those are driving?

Sure. I don't have the specific numbers off the top of my head. A majority of the page views that we're seeing come from the myALOT homepage, which last month I think totaled about to 9 million or so. And then, there's a high concentration of uniques and page views to screensavers.com.

But I think, just to add on WeatherStudio, I think it's important to know, we drive a large number of toolbars -- a large number of users download our weather toolbar. And then, rather than actually passing that traffic off to other weather sites, we can actually drive those users to WeatherStudio, and again, retain the double-whammy. So not only do we monetize them through the toolbar, we also monetize them through the site that we direct them to. So you can see that we're actually starting to build a family of sites that each are complementary with each other and each of the business units.

And the relationship we saw with Starpulse recently whereby you're driving ad revs off the myALOT home page, should we see more partnerships? And also, on the toolbar side, will you have more branded toolbars, like you do on the help side?

I would certainly hope to say yes, that's exactly where we're sort of hoping to sort of take the start page with the home page business in widgets, or ad widgets, with the sort of amount of news that they're sort of generating now and the value to advertisers and the amount of advertisers that are now generating and creating their own widgets. It's not unusual for them to start seeing. And hopefully, we'll be able to announce more deals like the Starpulse deal. Remember, it's valuable to Starpulse to have a widget on a Star page, right? So if you have your own Star page, rather than having to go through a various number of sites, you can get the information from you home page, and then you're able to click through to the Starpulse results and get your entertainment news. And more and more of those types of advertisers are looking for new ways to engage those users and to drive them into actually creating long-term relationships with users, which they can do so through home pages.

And obviously, Starpulse is one of, I hope, more deals that we can sort of try and broker in that same way.

Ross, it's also important to remember that as we look to expand the verticals of our toolbars, we're also looking to partner with best-of-breed companies to provide not just a brand, but also content. So, one such relationship is with eMusic. So, instead of coming out with a music toolbar, we come out with an eMusic toolbar which automatically gives you legitimacy within the marketplace and with users. So, eMusic relationship that we have for which we're distributing thousands of toolbars, we see extending that to other brands and other distribution points.

And, when you are partnering with brands such as eMusic that consumers know, are you seeing decreased churn on those toolbars?

Yes, for sure. Decreased churn and increased uptake, by the way, both.

That's a good combination. Thank you.

By the way, one of the things -- we don't release what the percentage is today, Ross, but a substantial percentage of Direct's -- or, when I say substantial, meaning not an insignificant amount any more of MIVA Direct's revenue, and not an insignificant of revenue that channels back through our traffic in our Media networks is coming from all of these other applications that you're questioning about us now.

So, beyond our relationship with Google and pure type-in search, which they're getting off of our various toolbars and which they're getting off of our home page, a substantial and a meaningful amount of revenue is beginning to show up outside of Google with our own advertisers that are buying into widgets, CPMs, CPA and CPL on our other sites, and/or showing up inside of traffic in our MIVA Media divisions. And it won't be long, I'd guess a couple of quarters, Lowell, we'll start talking about what those percentages are that become more and more relevant to the Company.

My last question is -- why aren't you building out more sites like Spill and WeatherStudio and screensavers? Because it sounds like the economics and the traffic they drive is --?

Good question. It's simply resources. So as an example, the effort to switch from domestic-only at one time not too long ago, just eight, 10 months ago, eight or nine toolbars to a complete change, a complete re-write of 20 toolbars into seven countries has just been a big effort for us, all while we were switching monetization partners, and all while we were switching the brands, and all while we were out getting a trustee certification. So a key component to drive an exaggerated growth in our own sites and type-and-search back through either our home pages or our toolbars is going to be expansion of more toolbars, and not the least of which -- remember, too, this addition of a while labeled NetVibes toolbar for us came at the expense of a lot workforce to get that out, and it too has become a significant amount of our revenue and part of why we think we can pin our hopes on exaggerated growth in MIVA Direct throughout next year as well.

So, we think we are releasing a lot more, and it has been a big turnaround to get to all we have, where today we're fully vetted in a lot and we really don't have the legacy of Starware to be advertising against anymore.

With no questions in the queue, I would like to turn the conference back to our speakers for additional or closing remarks.

Thank you very much. This conference call contains certain forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E of the Securities and Exchange Act of 1934. Words or expressions such as plan, will, intend, anticipate, 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 expectations contained in the forward-looking statements. Key risks are described in MIVA's reports filed with the U.S. Securities and Exchange Commission, including the Form 10-K for fiscal 2007. In addition, past performance cannot be relied upon as a guide to future performance.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements -- the risk that we are dependent on our ability to establish and maintain relationships with advertisers and advertising agencies; the risk that we have made significant investments in new initiatives that may not meet our expectations in terms of viability, success or profitability or such initiatives; the risk that we will not be able to continue to enter into new online marketing relationships to drive qualified traffic to our advertisers; and the risk that our average revenue per click has been decreasing over the past few years, which could materially adversely affect our revenues and results of operations.

That concludes our call today, and we thank you for listening.

Thank you, everyone, that does conclude today's conference. We do appreciate your participation. Have a great day.