Live Ventures Inc (LIVE) 2007 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the First Quarter 2007 YP Corp Earnings Conference Call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to Mr. John Evans. Please proceed sir.

Good afternoon. My name is John Evans. Thank you for your interest in YP Corp. With me today are Chief Executive Officer of YP, Mr. Daniel L. Coury. Sr, and the Chief Financial Officer, Mr. Gary Perschbacher. They will be discussing the company's financial results for the first quarter 2007. At the conclusion of their prepared remarks, we'll open the conference for questions.

Some of the discussions today will involve forward-looking statements, and I will now read you the following warnings about reliance on forward-looking statements. During the course of this presentation, we may discuss YP Corp.'s business outlook, which contains forward-looking statements. These particular forward-looking statements and all other statements that may be made during this presentation that are not historical facts are subject to a number of risk and uncertainties, and actual results may differ materially.

Please refer to our periodic filings on Forms 10-K and 10-Q made with SEC for more information on the risk factors that could cause actual results to differ. Important factors that could cause actual results to differ materially from the company's expectations include but are not limited to those factors that are disclosed under the heading Risk Factors and elsewhere in the company's documents filed from time to time with the United States Securities and Exchange Commission and other regulatory authorities.

Forward-looking statements made during today's call are only made as of the date of this conference, and the company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events.

Let me introduce Dan Coury, the Chief Executive Officer.

Thank you, Don, and welcome to everybody to our conference call. This conference is being webcast and will be available on our website for replay following the call. The year 2007 continues to be a year of transition YP Corp. On this call, we're going to explain our strategy to sustain this performance over the long term.

For the first quarter, we generated a profit of $485,000, approximately $0.01 a share on a diluted basis. Please refer to our press release, which is posted on our Investor Relations web page. Gary will go over the financials.

This quarter included the effect of the Attorney General's settlement, which helped to reduce our average listings for the quarter on a sequential basis, but up on a year-over-year basis. Customer attrition not directly attributable to the Attorney General's settlement was at its lowest point of the year. However, the terms of settlement prevented us from processing and following up on at least 18,000 potential sales, which combined with the higher than expected response from the approximately 14,000-plus at -- paid accounts to the mandated refund offer abnormally elevated attrition and clearly impacted the results for this quarter.

As we said in our last call, the Internet Yellow Page market that we operate in is expected to grow as more companies see the advantage of an Internet Yellow Page ad versus print Yellow Page ad. We believe that we can grow with these markets, and with our Web 2.0 and strategic relationships, we hope to increase our market share over time. It is important to note that the consumers spend around 80% of their income within 50 miles of home, and about 30% of all Internet searches are commercial.

Research shows that about 25% of all searches on the Internet are looking for local companies. These are the poised to transact customers that small businesses are looking for. Our goal is to increase the number of small to medium-sized businesses who have YP.com Yellow Page listing and drive customers to those businesses. We believe that given the price points of our product and their value to these customers it is hard not to show value-add to these customers.

Today, we are also announcing for the first time, a relationship with Web.com in which we will be jointly marketing our products to each other's customers. Every time Web.com acquires a new customer, they will be offered the YP.com Yellow Page listing and will have an opportunity to take advantage of our features and products.

At the same time, as we add customers, we will offer Web.com's web-hosting products to our customers. As we have said in the past, many of our customers are not on the Internet, but know that they need an Internet Yellow Page presence as well as an Internet site. In this way, we have teamed up with the best-in-class solution to expand our product offering to customers. Web.com has created over 4 million websites, and we are excited about the opportunity and expect this to help both companies over the long time.

As you know, as you all know, during our fiscal 2006, we received inquiries from the Attorney Generals' offices of several states that was investigating our use of a check mailer for customer activation. On October 30, 2006, we voluntarily ceased the use of the check mailer. On December 14, 2006, we again voluntarily entered into a settlement with 34 state Attorney Generals to address their inquiries and bring finality to the process.

As a part of the AG settlement, we were to provide only if requested by the customer two months worth of refunds to any subscriber that was acquired solely through our direct mail marketing program. Refund notices were mailed in mid December and will be available to the subscriber February 28th of '07. During the quarter, we received the initial effect of the refund, and as we said in our last conference call, the inability to utilize activation checks hurt our customer count for the quarter. However, we have seen great progress on our telemarketing efforts. And in fact, as I said before, excluding the effect of the settlement, customer attrition was at an all-time low during the quarter.

As we continue to reiterate, most of the Internet search business has been focused on search outside of the local market. Only about 1% of the businesses are search advertisers today, and a small percentage of the small to medium-sized businesses hit today have any web presence or an Internet Yellow Page listing. We have a directory of about 17 million small to medium-sized businesses in the US, of which a small percentage are advertising on the Internet. These numbers show we are still at the very beginning of Internet Yellow Page growth and local Internet search.

We are pursuing other strategic partnerships like Web.com, which will provide an opportunity to cross-sell into each other's customer base. We plan to collect fees for each customer placed on our directory from these partnerships as a part of the cross-selling process, upsell additional services also from both companies.

Now, let me turn it over to Gary Perschbacher, Chief Financial Officer, to discuss the financials.

Good afternoon. As Dan indicated, we had a net profit in the quarter of $485,000. Cost containment was the main -- can everybody hear me? Again, the profit was $485,000. The reason for the profit was cost containment. And we'll get into that a little bit later. Right now, net revenues for the quarter ended up at $7.8 million versus $7.6 million for 2005, same period. The $7.8 million is roughly a $2.8 million drop in the fourth quarter of fiscal 2006, again, mostly reflected by the results of the AG settlement.

Cost of services was $1.5 million versus $1.16 million in 2005. The increase here is largely the result of us utilizing LECs in a greater percentage than we did in 2005. Currently, one of our goals for this year was to reduce the -- our reliance on LECs. We have seen some indication of that going down. If you look at fiscal 2006, fourth quarter, LECs accounted for roughly 64% of our business. This quarter, it was roughly 58%, so we're on track to reduce our reliance on those and reduce our dilution costs and other billing costs associated with LECs.

Gross profit for the month was down, 6.3 versus 6.5, again, largely a result of the LEC billing and decreased revenues. General and administrative expenses were $3.1 million versus $3.7 million, almost $3.8 million in 2005. The reduction here is in compensation and direct mailing costs associated with customer services. This is offset somewhat by professional fees for consultants in our operational areas and some professional fees for executive search.

Sales and marketing expenses were down significantly, for the three months period just ended, $2 million versus $2.8 million in 2005. Here again, is the result of marketing efforts and where we no longer utilize direct mail campaigns. Also, the telemarketing costs were slightly down from what it was in 2005. You should also note that in that $2 million for fiscal -- the first quarter just ended in 2006, the -- we had a $1 million charge in there for some mailings that we did in October prior to the settlement with the AGs. As Dan indicated, there were a significant number of customers who cashed our checks during that period that we were not able to activate or to bring on as customers, and we absorbed that $1 million and still ended up significantly lower than prior year.

Depreciation costs were also down, largely because of fixed assets being fully depreciated. And consequently, operating income was $700,000 versus almost a $400,000 loss in 2005, again, all -- mostly cost containment. Net income, again $485,000 or $0.01 a share versus $327,000 loss for 2005 or also a penny a share.

And now, I'd like to open up the conference for the questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of John Nobile with Taglich Brothers. Please proceed.

Yes, good afternoon Dan, Gary, just a couple of questions please. First quarter results, what does that do to the guidance that you issued last quarter?

They did what? Excuse me.

You issued guidance last quarter, I think you gave a range of numbers, your top line operating income and net income. I was just wondering if you've rethought those guidance figures in light of the first quarter's results?

At the present time, we are holding with those numbers. Of course, we'll re-look at it as we go. But, with the processes we have in place --

Yes.

-- relationships we are, we are not changing them at the present time.

Okay, that's helpful. Also a question on the sales and marketing expenses, the $1 million that was spent for those mailings. Now are we saying that going forward here, that's $1 million that's totally out of that line? Because, that would be quite an improvement in your sales and marketing expenses. Is that -- should we dial that in?

Well, it's certainly an expense that we're not going to have going forward. That entire expense was incurred in October, again, prior to the settlement with the AGs where they -- we stopped with the check activator.

Yes.

Some of that money is now going to be geared towards telemarketing efforts and, in most cases, towards obtaining better leads lists, if you will.

Okay. So, the money's not going to go in the bank? You're basically just going to just redeploy it, you're saying?

To a certain extent, yes. Not fully and not to the extent of $1 million, no.

That's helpful, Gary. One last question, it's sort of a guidance question also. Could you tell us what your plans are currently for the year for capital expenditures and expenditures, for example, for software licenses? Because, I was expecting a lot more in the quarter, and I don't know whether you just pushed them back or you've otherwise modified your thinking on that.

Well, some of it has been modified, obviously. But, we have expended monies this past quarter on software.

Yes.

They're not totally complete that in you'll see more -- well, I know you'll see more expenditures in the second quarter on it.

Okay.

We have not yet started depreciating any of it because it -- we haven't gone live with the systems that we acquired. It's mostly customer service.

I see.

Software, we also put in a new accounting system that we're -- it's now installed, but we need to run dual systems at the present time to verify that we have all the data in there correctly in the accounts and the set-ups correctly.

Okay. Do you have any full-year guidance numbers for CapEx and for intangibles expenditures?

Currently, we're reviewing those. The one we had in for the initial guidance was roughly about $7 million.

Okay.

And you'll -- I think we'll see a reduction in that going forward.

Okay. This was $7 million for both? Or, just for the one?

That was total cap.

Okay. Okay. All right, that's helpful. Thanks very much. I'll get back in queue.

Your next question comes from the line of Rick D'Auteuil with Columbia Management. Please proceed.

Hi, yes. Just on the -- I think I heard you say your telemarketing expense was down. I don't know if you were referring to that as a sequentially -- as sequential decline or year-over-year. And I guess given that we're not doing the mailings anymore, I'm surprised to hear that that aspect isn't ramping up.

Well, you shouldn't be. If you looked at our guidance during the last quarter, we had indicated that the telemarketing expense was going to go down. When we got into telemarketing in fiscal 2006, we were kind of babes in the woods, and we got taken, where we were spending roughly almost $250,000 a week on telemarketing and most of the customers dropping off. We're now spending maybe $75,000 a week acquiring more customers and they're sticky, more of a sticky customer than what it has been in the past.

So, it's just more efficient spending? It's not that the effort has declined?

Exactly.

Okay.

Going forward, we -- with the new list that we're acquiring, the efficiency should go up even more.

Okay. The reference to the 18,000 checks that I think you took the $1 million -- 18,000 mailing prospects that you took the $1 million charge for --?

Yes?

Is there anything to prevent you from now targeting that list for telemarketing purposes?

We're putting a campaign together right now to do exactly that.

What --?

It's a different a campaign than what we would do with -- what we traditionally did, which was cold call, because these customers actually cashed our checks. And it's pretty much a soft lead, and we're going to handle it a little bit differently than, again, the traditional sale.

One of the things we did in the negotiations is, basically, they came to the agreement that we did have FTC approval and so on, on our piece. But, they just didn't like it. So, when we came to the agreement so that they -- this could be taken care of, we have the rights to remarket to them whatever it takes. And we are putting that plan together. We have a stack of -- a copy of every check that went out, every one that actually accepted money from us. Some of them called back up and re-signed anyway. They just took the money and then went ahead and hooked on, a few.

But, we are going to be marketing to them with a special telemarketing program. Once the whole list is in, we're going to be taking that and going back to them. Since they spent our money, they know who we are. And because we came through with the money, we'll have a high credibility with them as a company that comes through. When we offer something back, we actually come through and put money where our mouth is. And so, we feel that's a great list to market back into.

So, there's no -- the AG agreement did not have any kind of standstill where you couldn't reapproach the same customer base?

No. That was one of the things that I made sure of. We can approach every single one of them.

Oh. Roughly, I see -- I don't how much was from the AG agreement, but I think the subscribers were 130,000 at nine -- at September 30th, down to 100,000 now. How many are being retargeted?

We will -- we're going to retarget all of them as we go forward. We have other lists we're marketing to at the present time. But, we will be targeting -- retargeting them. And we hope to get a good percentage of them back.

Okay. And lastly, I think on the call that was in early January, there was a reference to upgrading -- not upgrading the service, but upselling the service and also having an ability to move the price -- pricing up on a monthly basis. Is that still in the works? Or, where do you stand on that?

Yes, it is.

Okay, same kind of parameters that you talked about at -- on the January 4th call?

Yes.

Okay, all right. That's all I have, thanks.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of [Reed Ferma] with [Guten Associates]. Please proceed.

Hey, Dan. Hi, Gary.

Hi.

Hi, Reed.

Hi, there. A couple of questions, could you talk a little bit more about this Web.com and what kind of expectation you might have for additional clients from that source?

Sure. Web.com have built websites for about 4 million customers. So, this is a good long list. They are at the present time, hosting approximately 150,000 customers that they're in contact with on a monthly basis. We will be marketing directly into them, and we feel that this will be a very good thing for both Web.com and us, an offering that we'll also be offering upgraded packages, not only for the web services to our customers that we're marketing to, but they're offering our service to them. And there'll be a press release on it that should be out in the morning.

Okay. Good, sounds like a good association for you guys. What kind of net adds are you experiencing currently on a monthly basis, or on a weekly basis?

At the present time, we are in the process of -- just like always, of stopping the attrition, which we have down -- other than this Attorney General thing, we have it down to its lowest it's been, and continuing to add new customers. And the telemarketing, we've been turning it up as we go. And that has been increasing. On a weekly basis, we are attaining more customers weekly, because we're doing it very, very carefully, very smart, and making sure that we have customers that will stick.

I don't have it in -- I can't give you an exact number of how many on a weekly basis is our increase, but it's definitely working. The telemarketing is working great, and the upselling has not even begun yet. We're just in the process of that, and we really look to bringing in a lot of revenue from that also.

Do you have a target for the number of customers you'd like to have by the end of the fiscal year?

There's -- we're not really as focused on the number of customers as we are on the gross revenue and net revenue. And we do have targets in there that you saw in some of our forward-looking statements. And we're proceeding in that direction and also in acquiring additional listing relationships that won't be really our customers, but relationships where we're getting listings and servicing other companies, just something similar to the Web.com deal.

Good, well it sounds good. I know you're glad to have that -- have the last year behind you and the last couple of months behind you. And good luck this year.

Thank you, very much.

Your next question comes for the line of [Stuart Forth] with [Scott Helt]. Please proceed.

Good afternoon, Dan. I'm still a little confused about the clean slate date. And that's what I'm trying to say -- I'm trying to suggest that -- is there a date in which the slate was cleaned? And from there, we're looking at all of the issues with the past management being behind us, and simply looking forward from here so we can have a date by which we can assess the progress of a clean slated company?

Well Stuart, it looks like the past is behind us, and --.

You're still -- you're not seeing any effect still of the AG ruling or the AG settlement and -- with attrition, that's still coming in and -- or impact on the books and having to do what -- continue to do grant refunds et cetera?

Well, the refunds I think -- for the most part, we've hit our peak. And from the reports I'm seeing, other than when a certain Attorney General did her own mail campaign, has a little spike up for a couple of days. But, the bulk of it's over. And we're -- up until the mail campaign by the AG, we were down to roughly an average of about 55 to 60 requests a day. And I totally expect this whole thing to settle out somewhere right around $1 million. It's more than we have spent in past mailings or the customer refunds, but it's less than what we anticipated in the 10-K for fiscal 2006.

So, on a going forward basis, what date would you say is the date from -- we can compare on a clean-slate basis?

February 28th to submit a request, and again, most of them -- we already we received -- actually, 14,000 requests to date. As long as those requests are postmarked the 28th, we have to honor them.

Okay.

But the amount coming in right is now is minimal, and is -- we track it and we graph it, and the slope is definitely in a downward --

So any expense associated with the AG settlement would be reported in your second quarter?

Yes. So, to maybe answer your question a little clearer is, third quarter on --.

Yes.

Is the next generation.

Okay. And do you what your customer count is today?

Not off the top of my head. The last report I saw, had a dip down into a little less than 90,000.

Okay, an additional $10,000 -- 10,000 decrease?

Yes. But again, the telemarketing is bringing is customers in the house. We're having a meeting with him -- our telemarketing guy offshore, early part of next week. He anticipates ramping up what he's doing by adding more seats to our efforts. And we have also some price increases going through there too. So again, we're focused more on the gross revenue than the customer count. And as we go forward, some of these deals that Dan's been talking about, I think customer count is going to become less and less an issue.

Thank you.

Thank you.

Your next question comes from the line of Tony Tristani with Astral Capital. Please proceedl

Hi. Good afternoon, just a couple of questions. On Web.com, when does that actually start? When do you guys feel you'll have plans together and actually could start co-marketing and generating new customers?

That was just put together. And so now, our IT people will be getting together to put it into play. So within a few weeks, we should be able to get something started and get it up on our sites, get to where they can click through on the sites. The information and the customer list will begin to be streamed to us. And then, we will put together the strips, and we'll begin the telemarketing as soon as we get it on course, but that has just begun. So, we're going to go forward as quick as we possibly can to get that process going.

Okay. Is the relevant number the 150,000 customers, I guess, they're currently hosting, or the 4 million website number? Can you -- I don't understand the difference there. And which number would you be marketing to?

We're initially going to market to the 150,000. We're going to begin there, starting to take 10,000 at a time and begin marketing to them, and then testing our strips. The 4 million is where they've sold and people have used their sites to build a website, but are not having it monitored by them. So, that's additional list. But, we've got 150,000 that are very, very aware of the Web.com value and name that we're going to go after first.

Okay. On the -- in the Philippines, your telemarketing, do you have a plan on a monthly basis to start ramping that up? Is it more seats? Or, do you -- is the plan to more effectively use the current seats of, I guess, 100 or so or whatever -- how many seats you have in the Philippines?

Both.

Yes, it'll be both. That we are getting more seats. And then also as you know, we test, test, test. And so, we're always testing the price points. We're testing the verbiage. We test the strips, and that is becoming -- it's becoming better all the time.

Okay. To kind of hit the bottom line numbers you kind of put out, obviously, it's going to be a ramp into the second half of the year. And do you think that's going to -- do you think that's going to come from -- where's the majority of the impact going to come from? Do you think it's the Web.com? It's better lists to the Philippine or outside telemarketing? Or, do you think it's going to be also ramping up your in-house Las Vegas operation? Maybe, you can kind of give us how that's going to ramp over the next six months? So obviously, it's a second half -- pretty big ramp, I guess, going --.

Yes. It's going to be all of them. What we're trying to do, one of the things that I'm driving here is to not be dependent on any one area. And so, we have enough things going on to where the accumulation of all of them will help us attain all of our goals. And so, we feel there's going to be positive -- a positive growth from all of these different areas. And that's our direction is to keep it not where we're just totally dependent on overseas or totally dependent on the telemarketing in-house or totally dependent on the Web.com and the additional deals we're putting together. They're all going to play a part in going forward.

Okay. Any -- I guess what I'm trying to do is understand your confidence level in -- it looks like you have an opportunity to market to a lot of customers, a lot of new customers and also market smarter if you get better lists. But, can you kind of give us some help about your -- your ramp in the second half is predicated on the confidence in -- confidence of all of this stuff happening, because as of right now, you're kind of flat to down with your customer base. You're transitioning over to higher ARPU customers because telemarketing's higher ARPU than -- $39 versus $29 of whatever direct mail stuff that's [attriting] off or churning off. But, can you give us some confidence that in the second half -- why you're confident with these initiatives that you'll get there and start ramping up subscribers and/or your average -- your ARPU?

The fact that we're doing more customer products and the testing we have done is where our confidence comes from. And so, we feel as we implement the new marketing that we're doing and do it to a higher level with more seats along with the relationships we're putting in place, our testing shows that this should be very good.

Yes. It looks obvious. You look at churn and gross adds and stuff. It seems that you'd have to, in the second half, to start showing some really good earnings momentum, you'd have to get to like 10,000 a month kind of gross adds, and it seems like with more seats, better lists, Web.com and then in-house telemarketing, you should get there. But, am I thinking about it the right way that that's what you need to get up to? Because, in order to start really adding subscribers at higher ARPU, you're going to have to kind of get into those kind of numbers. Is that -- am I in the right ballpark of thinking?

Well, let me just state this. You notice John Raven's not here with us today on the phone.

Yes.

And the reason is because I have him -- at the present time, he is currently developing new partnerships also. So, we are getting done what needs to be done, and we're doing it in to date to continue to go forward with the direction that we've had on plan. And we think with the new partnerships, the new products and the new price points that we're in the right direction.

And let me just sum up with one final. It seems that all these initiatives that as you get into the second half of the year, you should be getting in front of at least twice as many potential customers as you are now. Is that a ballpark kind of statement?

I don't know that it needs to be twice as many.

Yes.

I don't know. It just depends on which one of these products ends up bringing the most to the bottom line.

Okay.

And some of the products are at a higher price point, and they're showing that they work.

Okay.

And so, I don't know what a specific number would be in that case.

Right, right.

Or not.

Okay, all right. Thank you, very much.

Thank you.

Your next question is a follow-up from the line of John Nobile with Taglich Brothers. Please proceed.

Yes, hi. I don't want to seem myopic or too short-term oriented guy. But, you mentioned that the last numbers you have seen showed a customer count or average billings number of about 90,000. So, before we see that ramp up in the second half, are we looking possibly at a sequential decline in your top line for your second quarter?

It depends on how quickly this -- these new relationships ramp up. We still have opportunities again, that John Raven is working on today that could significantly alter -- that could alter the revenue projections for this -- that quarter that we're in currently.

Yes.

And we're also seeing the uptick in the telemarketing sale. I think we bottomed out, and you're going to start seeing the count climb again real shortly.

Okay. Since you mentioned the telemarketing guy, I think last quarter, you indicated that you were working towards 40 seats in-house and about 1.25 overseas. Where are we now in relation to those numbers?

We're at the 1.25 overseas, and they are absolutely working more efficiently than what they have in the past.

Okay.

The in-house one, we're not at the 40 seats.

Okay.

We've --.

How far away are you, if you can tell us?

We could be at the 40 seats tomorrow if we allowed them to go, but we're moving that very slowly to get only the very, very best.

Okay.

And monitoring our testing, so we're going to try to hold it down for a little bit longer at about 15 to 20 and continue to do our testing before we take it and grow it to the next level. Then, we can take it way beyond 40 seats, but I want the -- I want the specifics and the keys and the costs all analyzed before we take it to the higher growth in the local level.

Okay. That makes a lot of sense. Thanks very much, guys.

Thank you.

There are no additional questions at this time. I would now like to turn the presentation back over to Mr. Dan Coury for final remarks.

I just want to thank everybody for coming on the call. And we appreciate your interest in the YP Corp., and we're looking forward to talking to you all again next quarter, if not sooner. Thank you, very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.