Inuvo Inc (INUV) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, thanks for joining us today. This call is being recorded. I will now turn the call over over to Mr. Sloan Gaon. You may begin.

Thank you, and good afternoon. Welcome to MIVA's third quarter financial results conference call. Joining me on the call today are President and Chief Executive Officer, Peter Corrao, and Chief Financial Officer and Chief Operating Officer, Lowell Robinson. 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 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 it's 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 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. MIVA uses adjusted EBITDA as an internal measure of its business and believes 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 second quarter 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-Q 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 webcast through the Investor Relations section of our website, 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. Appreciate having you on the call with us. Over the last quarter, I believe MIVA has made significant progress in our strategy of returning the business to profitability. Among the key highlights for the quarter that I'll talk about in detail on this call are improved operating performance in our MIVA Direct division, launching of our new fully-customized ALOT toolbar and home page products, initiating a restructuring program across our MIVA Media EU division, and releasing a beta version of our exciting new online advertising platform in the United States. With these cost control and growth initiatives, we believe that we have now reached a pivotal point in our turn around plan. In Q4 '08, we expect to narrow the EBITDA loss to .5 million to 1.5 million. We expect this loss to narrow further as we move into Q1 '09; and importantly, for the full year, we expect the business to return to EBITDA profitability and growth.

Before talking about these initiatives in more detail, I want to take a moment to talk about our credit line with Bridge Bank, NA. The credit line is for up to 10 million, and availability is determined by a number of factors, including eligible accounts receivable balances. Using eligible accounts receivable balances as of September 30th, 2008, we would have been eligible to draw down approximately $6.5 million under this line of credit. We believe that this credit line has been structured under favorable terms, and that it further enhances our ability to grow revenues at this crucial time. We expect the credit line will enable to us more aggressively focus on the expansion of our ALOT toolbars and our home page brand, as well as the rollout of our MIVA Media technology platform. I'm going to talk about the initiatives that we're working with across our individual divisions and the progress that believe we have made over the last quarter. As a reminder, our businesses are currently split across the following divisions: One, MIVA Direct, the division that includes our expanding ALOT toolbar and home page brand, and our portfolio of consumer destination sites; two, MIVA Media U.S., our U.S. ad network within which we have begun beta testing our exciting new online advertising platform; and three, MIVA Media EU, our EU ad network, within which we've initiated a major restructuring program that we expect to finalize before the end of this year.

Let's look at the divisions in detail. First, MIVA Media EU. On the last quarterly call, I talked about our focus on reducing costs and returning Media EU, and we believe we have taken significant steps over the last quarter to achieving these goals. On August 21st, we announced the start of a restructuring program across the EU that is designed to consolidate and streamline our operations. This restructuring program resulted in the closure of our German offices in Hamburg and in Munich, and reduction in overall headcount. We expect to complete this EU structuring by the end of '08, and anticipate that once completed the program will result in further office closures and a reduction in headcount across Europe to approximately 25 people, compared to 114 people in Q4 of '07. While we've closed our German offices, we've been able to maintain our Pay-Per-Click network in Germany by transferring and managing accounts from the UK, a move that we believe illustrates our strategy of consolidating and streamlining our EU businesses.

As a result of this restructuring program, we anticipate achieving break-even adjusted EBITDA from MIVA Media EU in the fourth quarter of '08. To put this into context, it's important to remember that Media EU has reported adjusted EBITDA losses for the last several years of approximately 5 million to $8 million annually. We believe that streamlining the losses in Media EU is absolutely central to our strategy of returning the Company to profitability. Another development from MIVA Media EU this quarter is the renewal of our private label paper click agreement with the Nordic Search & Directory Company, Eniro. This new 1.2 million agreement renews an agreement originally signed in 2005. We're excited to continue to be working with Eniro to power it's Pay-Per-Click platform in the Nordic region, and look forward to further expanding our private label business through our new technology platform. Now moving on to MIVA Media U.S., we're extremely encouraged that despite the overall softness in the advertising market, our MIVA Media U.S. operations have delivered stable revenue of approximately 12 million for the last four consecutive quarters. In the first week of October, 2008, we began testing on new online advertising platform in the U.S. This new ad platform has been more than a year in development, and we believe it provides significant potential from the perspective of both delivery and operational efficiencies, and the opportunity for increased revenue.

Our U.S. and EU MIVA Media divisions currently operate across 10 district technology platforms, and the objective of our new platform is to provide a single unified solution. By operating just one platform, we expect to realize savings in software, hardware, and further personnel costs. Additionally and importantly, we expect our new ad platform will deliver an enhanced user experience for both advertisers and publishers. We believe when fully launched, the new platform will offer industry-leading targeting, management and reporting tools, and we expect the increased value that the platform delivers to our advertisers and publishers should translate into increased revenue opportunities for our Media business. The rollout of the new technology platform is expected to continue in the U.S. over the coming quarter. We're encouraged that the new platform is already attracting interest from third parties who are potentially interested in white labeling the technology to run their own online ad platforms, and we intend to aggressively pursue these opportunities. We continue to offer significant scale and reach within our MIVA Media operations. Together, Media U.S. and Media EU deliver over 140 million clicks to advertisers each month. We maintain relationships of thousands of advertisers, and our Pay-Per-Click ads are displayed across thousands of web properties that make up our publisher network. We believe that our new ad platform will provide us with significant potential to leverage the scale that exists within this advertiser and publisher network.

Now moving on to MIVA Direct, I want to first remind you how our toolbar and home page business is structured. In Q4 '7, we launched our ALOT toolbar and home page products, which were introduced to replace our legacy [Star War] product. ALOT was launched following detailed consumer research, and it's designed to make the Internet easy by aggregating the best of the web content within vertically-focused toolbars and home pages. Allot to designed to perform an enhanced user experience, and in turn deliver greater monetization than our legacy Starware brand. Coinciding with the launch of ALOT, we have also been working diligently towards optimizing our consumer acquisition strategy -- or put another way, we have been focusing on ways to acquire higher value toolbar users for less money per user. Let me put it into context by talking about MIVA Direct's performance over the third quarter. In the third quarter, we increased MIVA Direct's gross margin, including ad spend, to 31% compared to 25% in Q2 '8. The significant margin increase was the result of optimized acquisition strategy I discussed earlier, and the higher value being delivered through our ALOT brand. We expect this higher margin to be sustained into the fourth quarter and beyond into 2009. Over the quarter, we increased the number of ALOT toolbar users by 15% from 2.9 million at the end of Q2 to 3.3 million at the end of Q3; and as of November 7th, 2008, we have increased this ALOT user base to 4.1 million active users. We are encouraged to report a toolbar user base of 4 million for a product that's still under a year old.

Also encouraging is the fact that ALOT continues to outmonetize our legacy toolbar brand by 67%. Contrasting the growth of ALOT, we have seen a continued and yet anticipated decline in the live users of our Starware brand over the quarter. This expected decline is the result of us our focusing our consumer acquisition strategy exclusively on ALOT. Overall, we finished the quarter with 5.6 million toolbar users, which represent a 12% declines from 6.3 million overall users at the end of Q2. The increased value of our ALOT toolbar brand is reflected due to the fact that despite the reduction in overall toolbar numbers, revenue for the Direct division remained essentially flat from Q2 '08 to Q3 at 10.4 million and 10.8 million, respectively, and our gross margins, including ad spend, increased significantly. Importantly, we have now reached a point where we are adding higher value ALOT toolbars more quickly than the attrition due to our legacy brand. This should result in us increasing in our overall toolbar user base in Q4 2008, in contrast to the decreases we've seen over recent quarters. On October 9th, we announced the launch of our new customizeable ALOT toolbar and home pages.

We believe that this exciting launch is a significant step in the ongoing development of the brand. As part of the launch, we released the first version of ALOT Buttons, a website that contains a portfolio of widgets that ALOT users can add to their toolbars and home pages. We believe that adding this level of customization to our product offers two main benefits. First, we believe that it should enhance the overall user experience and in turn stickiness in retention rates; and second, we believe it opens new potential revenue streams. Each of the widgets within the ALOT Buttons portfolio can or could be sponsored, and we believe this is -- new widget adds could deliver incremental revenue above and beyond our core revenue that currently comes from our type insert traffic. Examples of this third party agreement can be seen through three announcements we made over the last quarter, specifically sponsored toolbar agreements with Reader's Digest and (Inaudible), and a sponsored widget agreement with accuweather.com. Alongside the launch of our customizeable ALOT products, we are also continuing to focus on introducing new toolbar verticals. This vertical focus us helps us broaden the demographic reach of the ALOT brand, and also underpins our customer acquisition strategy.

Over the third quarter, we've increased the number of toolbar verticals we offer from 34 to 39 by adding new verticals such as politics, sodoku and our entertainment news verticals. Within our MIVA Direct division, we also operate a portfolio of consumer destination sights, including screensavers.com and school.com. Over the third quarter, we relaunched the screensavers.com site. The site has traditionally been an important source in toolbar downloads for MIVA Direct, and we offer toolbars as part of each screensaver download. As such, we expect the relaunched screensaver site could become an important part of our ALOT customer acquisition strategy over the coming quarters. Our spill.com movie review and entertainment site also continues to experience strong growth. In Q8 '08, the site attracted 4.3 million unique users, a 258% increase compared with the 1.2 million uniques in Q1 of 2008. Finally, in MIVA Corporate, we are continuing to look at ways to realize savings within our corporate cost centers. Over the course of 2008, we have reduced employer related costs by approximately 38% annually, excluding non-cash stock compensation, and over the coming quarters will continue to focus on achieving additional savings. Our corporate costs have been burdened by higher litigation legal experiences than expected.

I want to take a moment now to talk about our financial forecast, which Lowell will walk you through in a minute in more detail. As a result of the EU restructuring program I detailed earlier on in today's called, we are today presenting a revised forecast for full year 2008. We are currently forecasting 2008 full year revenue of 116 to 117 million, and EBITDA loss of approximately 11 to 12 million, excluding restructuring charges and litigation settlement. It's important to note that the decrease in revenue over the third quarter and our decreased revenue forecast for '08 is primarily a result of the expected decline in Media EU revenue as we consolidate our operations into a much smaller footprint. So in summary, we believe this has been an important quarter om our turnaround plan. We've taken significant steps to reduce losses in our Media EU operations through our restructuring program. We further developed our ALOT brands to launch as a customizeable toolbar and home page products, we've increased gross margins within MIVA Direct, and we've begun beta testing our new MIVA technology platform in the U.S. Further, we have secured a credit line that we believe enables us to more aggressively focus on our ongoing growth initiatives.

Look forward to updating you know on these initiatives over the coming quarters. With that said, let me turn the call over to Lowell, who will cover financial results and the revised 2008 forecast. Lowell?

Thank you, Peter. As Peter mentioned, this has been an important quarter in light of our EU restructuring initiatives. With this consolidation, total media -- total MIVA headcount at the end of September was 139, and we expect this number to drop to approximately 130 at the end of Q4, leaving approximately 25 people staffed remaining in the EU. We have struggled with and have had significant losses in our European business for the past several years. Following this restructuring, we expect to be adjusted EBITDA profitable in the EU, but with a small smaller footprint. Importantly, as we announced today, we received a two-year line of credit from Bridge bank, NA. The credit line is for up to $10 million, and availability is determined by a number of factors, including eligible accounts receivable balances.

Using eligible accounts receivable balances as of September 30th 2008, we would have been eligible to draw down approximately 6.5 million under this line of credit. We expect that the credit line will enable to us more aggressively support the growth of our ALOT toolbar and home page brand, and will also be used for other general corporate purposes. Also in September, we were also able to finance 1.6 million in equipment for our new MIVA Media technology platform, which appears on our balance sheet as debt. In October, 2008, we received an adverse summary judgment ruling in our litigation with the shareholders' agent for the former shareholders of comet Systems, Inc., a company we acquired in March 2004, and which became our MIVA Direct business. The judgment relates to an earnout payable to the former shareholders of Comet under the acquisition agreement. We reserved approximately 2.4 million for this judgment as accrued expenses in our condensed consolidated balance sheet as of September 30, 2008. We are evaluating our appellate options regarding this matter. We believe our accruals established for this matter are adequate.

With our August 2008 EU restructuring program, the June 2008 Company-wide restructuring and continued focus on our growth initiatives, we anticipate being EBITDA profitable in 2009. Like other businesses in these challenges economic times, we see some economic pressure on our business. MIVA's consolidated revenues from continuing operations -- excluding Italy, which is a discontinued operation -- were 28.2 million in Q3 2008, compared to 30.2 million in Q2 2008. EBITDA was a loss of 7.9 million in Q3 2008, which included a 1.2 million non-cash compensation expense, 2.7 million in restructuring charges, and 2.4 million for a one-time litigation judgment, compared to an EBITDA loss of 5.2 million in Q2, 2008. Q2 2008 EBITDA included $800,000 in restructuring charges, $700,000 in non-cash compensation expense, and approximately 0.2 million in litigation settlement charges. Excluding Q3 2008 1.2 million in non-cash compensation charges, and 2.7 million in restructuring charges, and 2.4 million for the Comet judgment, adjusted EBITDA loss was 1.6 million.

In comparison, in Q2, 2008, excluding $700,000 in net non-cash compensation, 800,000 related to restructuring charges, and approximately 200,000 in litigation settlement, adjusted EBITDA loss was 3.5 million. The Q3 non-cash compensation charge included approximately $600,000 of a one-time charge related to the departure of a former executive. Cash and cash equivalents decreased from 17.2 million at the end of Q2 2008 to 11.2 million at the end of Q3 2008. The $6 million decrease includes expenditures related to development of the new platform -- approximately $1.4 million, restructuring charges -- approximately $1 million, and the EBITDA loss. Consolidated gross margins were 50.7% in Q3 2008, better than the 50.4% in Q2 2008, adjusted for discontinued operations. Direct's ross margin before advertising spend was 94% in the third quarter 2008, comparable to the second quarter of 2008. Media EU gross margins decreased 20% in Q3 2008, compared to 27% in the previous quarter. Media U.S. gross margin increased from 28% in Q2 2008 to approximately 30% in Q3, 2008. MIVA Direct contributed 36.8% of total revenue in Q3 28, compared to the 34.2% in Q2 2008.

MIVA Direct generated 10.4 million in revenue in Q3 2008, slightly above Q2 2008 revenue of 10.3 million. The Direct business was below our revenue expectation in the third quarter, primary due to higher than anticipated attrition of our legacy toolbar brand. This led to a decline in the overall user base from 6.3 million toolbars on June 30th 2008, to 5.6 million toolbars on September 30th 2008. However, the ALOT brand as of September 30th, 2008, constituted over 70% of our toolbar revenue, and monetizes at a higher rate with lower attrition. As Peter mentioned, as of September 30th, 2008, we had 3.3 million ALOT toolbar users and 2.3 million users of our legacy toolbar brand. And, as of November 7th, 2008, the number of ALOT toolbar users increased to 4.1 million. The monetization rate per thousand live users for our allot ALOT toolbars, or RPMLU, is currently 67% per higher than our legacy toolbar brand. MIVA Direct's gross margin was approximately 94% in Q3 2008, which is comparable to Q2 2008 of 95%. MIVA Direct's gross margin excludes advertising spend of 6.5 million in Q3 2008, and 7.2 million total paid clicks in the third quarter of 2008, an increase from 410 million clicks in the second quarter 2008, and up from 352 million in the third quarter 2008. The increase in paid clicks partially offset the lower revenue per click. Q3 2008 revenue for our MIVA Media third party ad network was 17.8 million compared to 19.9 million in Q2, 2008. The approximate $2.1 million decline in total Media revenue was primarily due to the Media EU restructuring, which was anticipated. As expected, the Media EU business has continued to erode, but this was anticipated as we focused on returning the business to profitability with a reduced footprint. Revenue in the third quarter was $ 6million, versus 7.9 million in the second quarter 2008, and is expected to decline in Q4 2008 to approximately the 4 to $5 million range. We expect the MIVA Media EU business to maintain the Q4 revenue level in each quarter throughout 2009, and to be EBITDA positive in 2009.

Media EU gross margins were 20% in Q3 2008, and 28% in Q2 2008. Q3 traffic acquisition costs increased to 74% versus 64% in Q2 2008. In our Media U.S. business, revenue was down approximately $200,000 sequentially from the second quarter of 2008 to 11.8 million. The lower revenue was attributable to some softness in our network business in July of 2008. Media U.S. gross margins were 30% in the third quarter of 2008, compared to 28% in the second quarter of 2008. As mentioned earlier, Media U.S. revenues have stabilized at the $12 million level for the past four quarters. We expect revenue to increase in the latter part of 2009 with the introduction of our new technology platform, which was launched in beta in Q4 2008. Total operating expenses were 23.3 million in Q3 2008, compared to 21.5 million in Q2 2008. Total operating expenses in Q3, 2008, after adjusting for nonrecurring items, was approximately 17.6 million, compared to Q2 2008 operating expenses were approximately 20.5 million.

Nonrecurring items in Q3 2008 included 2.4 million for the previously discussed litigation settlement, $2.7 million in restructuring charges, and 600,000 in accelerated stock-based compensation related to the departure of an executive. In comparison, nonrecurring items in the second quarter in 2008 included $800,000 in restructuring charges, and $200,000 for a litigation settlement. On an adjusted basis, the approximate $3 million decrease in operating expense is a function of lower employee costs, lower ramp and (inaudible) charges, partially offset by higher consulting and state franchise taxes. Adjusted EBITDA loss was significantly reduced in Q3 2008 to 1.6 million compared to 3.5 million in Q2 2008. Adjusted EBITDA loss in Q3 2008 excludes 1.2 million in non-cash compensation charges, 2.4 million in litigation judgment fees, and 2.7 million in restructuring charges. Adjusted EBITDA loss in Q2 2008 excludes $700,000 in non-cash compensation expense, and $800,000 in restructuring charges, and $200,000 for a litigation settlement. The Company is currently forecasting fourth quarter 2008 revenue of approximately 25 to 26 million, and EBITDA loss after restructuring charges of .5 million to $1.5 million loss. For Media U.S., we expect fourth quarter revenue to be about $12 million.

For Direct, we expect fourth quarter revenue at approximately $9 million, and for Media EU, we expect fourth quarter revenue of approximately $4 to $5 million. For full year, we expect revenue from continuing operations will be 116 million to $117 million, and EBITDA loss from continuing operations, excluding restructuring charges and litigation experiences of $11 million to $12 million. 2008 has been a transformational year for MIVA with respect to restructuring our EU business, reducing corporate costs, obtaining a line of credit, and resolving several outstanding litigation matters. The growth of the ALOT toolbar with its higher monetization, revenue from the new technology platform and lower corporate expense, is expected to lead to improved revenue and positive EBITDA performance in 2009. I will now turn the call back to Peter for some concluding remarks.

Thanks, Lowell. So in summary, our immediate priorities for the business are to focus on completing our EU restructuring program, continue to roll out the new MIVA Media technology platform, and continuing to make the Internet easy through the expansion of our ALOT toolbars and home pages. With that, let me turn the call back to our operator for questions -- a Q&A session.

Thank you. (OPERATOR INSTRUCTIONS). And we'll go first to Eric Martinuzzi, Craig-Hallum.

Thank you. Curious to know about the outlook for Q4. It looks like you've got -- the only business that you have growing sequentially is the U.S. Media business. That Direct decline, is that attributed to the Starware falloff? Is that what it is, or is there actually a decline in the ALOT Q3 to Q4?

Actually, there's not. We're expecting an increase in the ALOT toolbar from Q3 to Q4. Remember we -- in my script, Eric, I actually put out that ALOT toolbars were actually up right now already over the close of Q3 to 4.1 million as of last Friday, and it's strictly a reflection of Starware trending and ALOT picking up; and of course, we think -- as you heard, we think that the margin on the ALOT toolbars will be dramatically better, and we think that the profitability will continue to increase and we'll have better ROI than ever on those.

Okay, and I guess it's a positive point on the on the U.S. Media business, but why is that up sequentially?

Well, it's basically stable, Eric. You know, we're forecasting roughly 12 million. We did 11.8 in the third quarter, and I think 12 million in the second quarter. So to me, it's all 12 million.

Okay. And then --

But, specifically, Eric, on that front, we haven't -- you know, with all of the banter out there, with the ad space sort of falling apart, it looks like, from an RPMOU basis on our Pay-Per-Click, which ties to our monetization partner, that that gain continues. You know, the revenue per 1,000 live users per day from ALOT continues to way outbase the old legacy brand; and again it outpaces at that 67%, so we're confident that we've got that piece of the puzzle figured out again. All we have to do now is let time and more ALOT toolbars and home pages queue up, and we know that that will continue to deliver through, and we're not seeing any fall off at all, as of even today's numbers for the RPMOU for the ALOT toolbars.

No, that's terrific to see that continued progress there.

And then secondly, in the MIVA Media U.S. business, you know, EU is falling off simply because we've retrenched, and we expected that to happen, and -- only because we refused to lose another penny in Europe, and will not lose another penny in Europe. MIVA Media U.S., however, we still have this supply/demand curve where even today, from the advertiser base we've got, we've got way more supply than demand that we can feed them from our publisher base. So pretty much if we've got traffic, they're consuming it, and we don't see a falloff in that business in the foreseeable future either.

Okay. And then just one more on the outlook. Your guidance for Q4, you did give an EBITDA number. The adjusted EBITDA number, what are the add backs for both Q4, and then your commentary about a positive EBITDA number in 2009? Are we talking about that 1.2 million that we saw in Q3? Do we annualized that to come up with an '09 non-cash compensation number? Or --

No, remember, there was $600,000 in the third quarter for the acceleration of restricted stock for an employee, so the 1.2 less six is about 700 to 800,000 in non-cash compensation expense. So if you take the $.5 million loss and back out the 700,000 adjusted EBITDA, will be positive 200,000, to a range of about 800,000 negative.

Okay, and then that same number holds true for '09? That 700 to 800 non-cash?

Exactly.

Per quarter? Okay. Thank you.

(OPERATOR INSTRUCTIONS). We'll go next to Ross Koller with Diker Management.

Hey, guys.

Hey, Ross.

Peter, can you give us the status of the Google relationship?

Yes, that's a good question. Thanks, Ross, for asking that. So as some of you may know, we're coming up on our two-year anniversary with Google. I think it lapses January -- early January or late December of this year. We're working in real-time with Google on our new agreement. Our new agreement will run concurrent with our existing agreement. It will run concurrent with the existing agreement for two years; and I wish I had something to announce today, but we are working in real-time, but you should expect an 8-K to be out from us and announcing something here in the next couple of days.

Great. And can you give us a little bit of color on the early feedback you're getting on the ad plat form, and can you take us through basically the timeline of rolling that out in the U.S.?

Yes. So the new ad platform in the U.S., we launched to beta with some friendly clients and friendly partners, now -- Alex, what, three or four weeks ago, right? We are three or four weeks into that. We stress-tested it with lots of volume, meaning we didn't pick small partners to bring onto the platform. We actually brought in some of our real friendlies in that had very large volumes. We are rolling -- we went from beta to confidence that we could actually roll it out, Ross, and I think the latest the guys thought that we would actually be completed before Christmas. As you know, I was only -- cared about getting the beta done and tested before Christmas, and then we going to actually launch and try to have it done after Christmas. But we actually went to full scale launch today, and the latest I heard was that we would have everybody transitioned over by the 27th of this month.

And can you take us through what that does to both the cost and the revenue side of the Media U.S. business?

Yes, on the revenue side, we haven't specifically forecasted anything, other than I have talked publicly about revenue leakage problem that we had. While I don't want to exaggerate the numbers, but we anticipate a leakage to be in the 9 to 13, right?

About 10%.

Around 10% with a range of like 9 to 13%. The revenue leakage was simply they're using this old, clunky platform that was ten years old. We were -- we had certain situations that I won't bore everybody with how it happened, but we've had, forever, certain situations where partners needed to be paid a rev share on revenue that we knew we would never be able to collect from the advertisers, mostly because of time and motion. We had situations where advertisers had day parted (inaudible) to shut down their feeds, and by the time we could do it, they consumed some incremental space on our publisher sites. That left us having to pay the publisher, and yet not being able to collect from the advertiser. We believe, with our partners at [Parow] that what's fully deployed, which would be December and early next year, that that could have, again, around a 10% favorable impact on revenue, just from fixing a leakage problem, and of course that would only be for the states only. And then on the cost side; again, we haven't forecasted costs because we're going to run parallel systems until we get virtually everybody transitioned over in the states; but to give you a sense, we currently are in six co-data centers in call locations around the world.

We operate in those six co-locations and data centers, which are all offsite -- none are in our facilities anymore. We operate them with around 1,800 servers. The new Parow-designed system, once we completely transition onto the new system, is 86 total servers in three worldwide co-locations, so between CPU costs, footprint, hardware cost, attrition of hardware, and everything else, you can imagine how much more favorable it is for us to be in three locations with 86 servers running, you know, about six time the capacity that we have today, versus 1,800 locations -- I mean, sorry, 1,800 servers in six co-locations, so it will be a pretty dramatic savings for us on the cost front. But we will not achieve that savings until virtually every customer in the states has transitioned over and we can actually get out of the redundant costs. Until then, we'll run the new 86 servers, plus the old 18, and I would think we'll be out of that right at the first of the year, huh, Lowell?

That's correct.

It'll be done -- by around Christmas time, we'll get out of the old 1,800 and into the new 86 completely.

Right. And lastly, Peter, just a few months ago, we had a bid up at $1.20, and we're currently looking at a stock price in the low 40s, and another board turn down the $1.20 bid. Just trying to get a handle for how you're viewing the value of the business, and we we go about generating something increased value for the Company.

Well, so, you know, we were very public about the $1.20 bid that we got from Blinkx when we got it. As you recall, we -- the board immediately responded that we were not satisfied with the $1.20, and part of our response wasn't simply the price, part of our response wars that Blinkx didn't say where they were going to get the money from, and Blinkx had only offered to come in and do due diligence. We've been very public about our willingness to listen to legitimate offers from Blinkx and/or anybody else, and my board doesn't believe we've had a legitimate offer from Blinkx and/or anybody else that we could have really responded to, and that's why we responded so quickly. Having said that, the market in general has fallen apart since the Blinkx offer, which came in around August 7th as I recall, or 9th -- something like that. The market in general has fallen apart. Our space in particular, if you look at the comps, has continued to be beat up. But I can tell you, our Company is in much better shape today than it was when we received that offer, and I think if we just keep our heads down, spend our money wisely, continue to get the cost out, get this thing returned to profitability, and be delivering cash on cash instead of what it we've been doing, which is burning, then we'll be able to get interest going again. And maybe -- in fact, not only maybe, but I would hope that we'd be ahead of the curve and towards the getting value back in; because while some companies in our space are just now looking at some of their cuts, we're really on the tail end of this, talking about 130 people in total at the Company, talking about getting down to 20 people in Europe, or 20 -- whatever actual numbers -- 25 people in Europe -- you know, refusing to lose money in Europe anymore.

We think we've got virtually all of our losses at an operating level behind us. We also have been slapped around a little bit with some of these litigations, which are way old and finally coming due, but we're -- as we're able to get out of those, I think we've got great prospects for the Company as we move forward. By the way, we're going to continue to operate the Company as if it's a standalone. We're not aggressively pursuing trying to sell the Company. You know, we've been clear about that for a long time. But we intend to have a Company that should have value either as a standalone for our shareholders or as an acquisition candidate for somebody else that they don't have to do a lot of clean up work to if we were to be integrated into somebody.

Great. Thanks, then.

It does appear there are to further questions at this time, so I'll turn the call back over to management for any closing or additional remarks.

Thank you. This conference call contained 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 planned, 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 the 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-Q for the third quarter 2008. 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 risks 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 the viability, success or profitability of such initiatives; the risk that we will not be able to continue to enter into new online marketing relationships to drive qualified traffic to out advertisers; 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; and our bank loan agreement imposes significant restrictions. Failure to comply with these restrictions could result in the acceleration of a substantial portion of our debt, which we may not be able to repay or refinance. That concludes our call today. Thank you very much for listening.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may disconnect at this time.