Live Ventures Inc (LIVE) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2007 YP Corp. earnings conference call. My name is Shantalay and I will be your facilitator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Mr. John Evans. Please proceed, sir.

Good afternoon. My name is John Evans, and thank you for your interest in LiveDeal's third-quarter conference call -- LiveDeal, until today known as YP Corp. With me today are Chief Executive Officer of LiveDeal, Mr. Daniel Coury; Rajesh Navar, President of LiveDeal, Inc.; Gary Perschbacher, CFO; and John Raven, COO.

Some of the discussions today will involve forward-looking statements. I will now read to you the following warnings about reliance on forward-looking statements.

During the course of this presentation, we may discuss LiveDeal'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 risks and uncertainties, and actual results may differ materially. Please refer to our periodic filings on Form 10-K and 10-Q made with the 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 call, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events.

This conference call is being webcast and will be available for replay following the call.

Please let me turn it over to Daniel Coury.

Hello, everyone. As many of you know, YP Corp. has been a leading provider of nationwide Internet Yellow Pages and related services, with more than 16 million business listings. Today, we're pleased to announce that YP Corp. has changed its name to LiveDeal, Inc. Now the new LiveDeal Inc. includes the oldest Internet Yellow Page URL, YP.Com, our state-of-the-art Philippine call center that we acquired in June, and the leading online classifieds.

LiveDeal is one company with one vision -- to provide small and medium-sized businesses and professionals with the opportunity to connect to customers on the Web. Our goal at LiveDeal Inc. is to be the leader in the local classifieds and Yellow Pages advertisement market, which is essentially the local search market, a $90 billion market opportunity.

This quarter was important because it includes the month in which we hit our bottom in customer count, and we bounced back to 76,000 customers from a low of 70,000 that we talked about in our last conference call. As of now, we have exceeded that number, continue to grow advertisers both in basic subscription product of around $340 per year, as well as our higher-end product that sells for over $2000 per year.

On a revenue basis, the last month of the quarter, June, was our best month since November of 2006, the month before the effect of the marketing changes -- $2.3 million versus $2.4 million. We expect revenue to grow from here. This is important for us. This shows that we have made marketing changes and continue to expand the products and traffic that will make this the first-in-class website for small and medium-sized businesses to advertise on.

We're working on a model that includes margin and net income targets in our business to make it easier for you to analyze and track our progress in the future. As revenue increases and the average revenue per customer grows, our margin should grow as we leverage our platform and costs for a larger group of customers. We will do this with a more profitable platform that should allow us to increase our EBITDA and our net income margins to bring them in line with other Internet companies.

In addition, since our last conference call, we purchased our Philippine call center for about $4.5 million. This allows us to save money and control our telemarketing. Along with our growing Las Vegas call center that focuses on the high-end $2000-plus marketing and advertising sale, we believe that we should continue to see growth in our customer base for the foreseeable future.

Our expanded telemarketing team now have products targeted at vertical and geographical segments that make a compelling case for small business owners to advertise.

Let me turn it -- excuse me -- first, going forward, we have also announced a 10-for-1 stock reverse, which will bring us to about approximately 6.7 million shares outstanding.

Now let me turn it over to Rajesh Navar, President of LiveDeal, Inc.

Thanks, Dan. As Dan talked about, we have been combining the operations of LiveDeal.com and YP.Com into a combined classifieds and Yellow Pages platform. According to the latest comScore Media Metrix, as a combined company, LiveDeal has seen a 10% increase in unique listers over the past month. We expect to continue on this growth path in the upcoming months and throughout the year.

Additionally, according to comScore Media Metrix, LiveDeal consistently remains one of the top 10 most visited online classified sites. As we have said before, LiveDeal.com is now covering the classified and Yellow Pages for a growing number of first-tier websites like the Philadelphia Inquirer and all of the CBS websites.

Our strategy is to continue to build such partnerships with leading publisher websites. This allows us to create a local community that leverages great brands and our ability to market and add value. We believe that this will help us grow our brand and our Web traffic to continue to make LiveDeal.com and YP.Com the local marketplace of choice for consumers and businesses.

For companies, not only will they have a Yellow Page listing, but the opportunity to upload all of their products on our classified platform online. For the consumers, they will be able to find real-time products and save time and effort and see us as more than just a Yellow Pages website.

In addition, LiveDeal's innovative technology platform allows us to power our four principal marketing channels -- directories, mobile services, classifieds and advertising/distribution networks -- into a first-of-its-kind hyper-local marketing solution for businesses and consumers.

LiveDeal offers such industry-leading classified functionality as fraud protection, identity protection, listing enhancements, photos, community-building, package pricing, premium stores, featured Yellow Pages business listings and advanced local search capabilities.

LiveDeal's technology also lets consumers search or browse for items in a particular city, state or zip code and sort by distance. As a profitable, strong classifieds and Yellow Pages company, LiveDeal will continue to invest in and provide the best possible user experience for local consumers and businesses. What matters to consumers and businesses is results at an affordable cost, and we will provide that.

We have begun to announce some of the new Web 2.0 features and functionality that we discussed on our last call. In the last month, we announced Feedback 2.0. This is a next generation of our feedback system. Consumers can search over 13.5 million local businesses such as restaurants, plumbers, [breeders], etc., and rate their experience from a range of 1 to 5. These feedback ratings will be propagated across and be visible to other consumers on the LiveDeal Yellow Pages and classifieds platform.

Community Board 2.0 -- this enhanced credit forum allows users to generate, to create topics and invite other community members to contribute to adding content. Over time, these forums will result in user-generated content around interesting topics and categories. In less than a couple of weeks since launch, topics such as how do I find a vet, or which is your best movie, have been created and discussed on.

This quarter we will announce the launch of LiveDeal Video. This will enable businesses to upload videos of their stores and products on their Yellow Pages and classifieds platform. Our unified Yellow Pages platform that will power both YP.Com and LiveDeal Yellow Pages will also be launched. In the next quarter, we will add other features focused around our mobile distribution platform.

LiveDeal will continue to innovate and add value to consumers and businesses. Now let me turn it over to Gary Perschbacher, the CFO of LiveDeal. Gary?

Thank you. Net income for the three months and nine months ended June 30, 2007, was approximately $266,000 and $1.4 million, respectively. During the same periods in 2006, the Company reported net income for three months and nine months ended June 30, 2006, of approximately $826,000 and $630,000, respectively. For the nine months, this represents an approximate increase of $748,000 or an increase of about 119%.

A favorable spending variance of $1.9 million for the quarter and $6.5 million for the year to date in operating expenses more than offset the shortfall in gross profit.

Net revenue for the third quarter was approximately $6 million, which was basically flat with our second-quarter number versus $8.6 million for the third quarter of 2006. It should be noted that returns and allowances for the quarter were approximately $1.5 million less than fiscal 2006 and net revenues for the third quarter, year-to-date net revenues, were $19.2 million versus $23.6 million in 2006.

On June 6, the Company completed its acquisition of LiveDeal, Inc. The results of operation included LiveDeal's operating loss for the period of June 6 through June 30 of approximately $150,000. The Company anticipates benefits from the LiveDeal acquisition will begin to be realized during fiscal 2008. These benefits are expected to come from increased revenue growth as marketing campaigns mature and through cost reductions as operational groups are optimized.

Our balance sheet and liquidity of the Company remain strong. At June 30, 2007, cash, cash equivalents and short-term investments exceeded $10 million. Today, it sits at $5 million due to the impact of the Philippine acquisition. During the nine months ended June 30, 2007, net cash provided by operations increased approximately $524,000 when compared to fiscal 2006 year end. And we had working capital in excess of $15 million, again at June 30, 2007.

At close of the acquisition on June 6, it was reported as a stock purchase amounting to $12,741,000. The aggregate purchase price consisted of approximately $12,328,000 of stock-based consideration and approximately $413,000 of acquisition-related expense. The value of the 16,750,061 shares of common stock granted in the transaction was determined based on the average closing market price of the common stock over the two-day period before and after the effective date of the transaction.

And I will turn it over to John Raven, our COO.

Thank you, Gary. As we mentioned last quarter, we're very pleased with the telemarketing progress that we have seen so far and have expanded our operational footprint from Las Vegas, Nevada, and Mesa, Arizona, to now include Manila, Philippines; New Delhi, India; and Santa Clara, California.

In addition to the merger between LiveDeal.com and YP Corp., we've acquired the assets of one of our major sales outsource partners. We did these acquisitions because it supports our mission to rapidly grow our Company andto provide cost-effective marketing solutions for subscribersmembers.

To be competitive and achieve the scale we intend to deliver, we needed to own our own technology and sales centers. By owning an operating engine that generates sales and acquires subscribers, we not only control costs, but also control our destiny as a major marketing service provider.

As Dan mentioned, in our Las Vegas office, we have set up a team that has been marketing to the premier small -- big business segment. In that segment, we have been able to sign up customers for an average of $2300 per year or about $200 per month. That translates into a 7x multiple to our current and past customers.

This quarter, average revenue for these customers increased to $3000 per year or $250 per month. This effort will continue, and you can expect further expansion in this area over the next year.

As we continue to build out this business, we hope to see a growth in the number of customers and these businesses increasing in our overall average revenue per unit. We expect individual unit sales to continue to increase in the medium- to high-end sales market as we continue to restructure our basic monthly subscriptions. In the past, the basic monthly subscription included a city-wide search result. As we mentioned in previous quarters, the subscriber now pays a basic fee for each zip code to be included in.

We will continue to develop additional products and deliver a fused offering of Yellow Pages and classifieds to the market.

To date, the operation continues to perform according to plan. The key to sustaining sales growth in the future is to have enough territory and market to generate sales. We mentioned last quarter we needed to reopen all territories closed since the summer of 2004. We also mentioned last quarter that after a stringent approval process, review of our sales cycle, product offering and customer management process, we received approvals from both Qwest and Verizon to sell in their territories. This quarter, we received approval from the last major carrier, Southwestern Bell, to market directly into their territories.

We are successfully ramping up our telemarketing sales effort. In addition to what Dan said, at this point, we are over 76,000 subscribers and expect to be near 80,000 at the end of the current quarter and in excess of 85,000 by calendar year end.

At June 30, 2007, LiveDeal, Inc. had 2362 paying classified ad customers and 682 paying premium store customers. For the month of June, LiveDeal generated approximately $150,000 in net revenues.

Now I would like to turn it back over to Dan Coury, our Chief Executive Officer.

Thank you. Thank you, team. That was great. What I would like to do now is open it up to questions and then we will field them in whatever area that we can.

(OPERATOR INSTRUCTIONS). Juan Noble, Taglich Brothers.

Just a few basic questions here, okay, if one might. First of all, your sales, as you pointed out, were sequentially flat second to third quarter, yet your receivables were up by about $1.2 million, $1.3 million. And I was wondering what caused that. Were there any unusual transactions late in the period that made your receivables jump?

Let me pass that on to Gary on the receivable end of it. Gary?

As you know, Juan, our receivables are really dependent upon the channel that we utilize. And depending upon the LEC you're with, it could take as little as 30 days to get settled or it could take as much as 120 days to get settled. As John said, we have brought on some new territories and we're just getting used to those. So there is at least a 60- to 90-day wait on those receivables.

Does this mean that from this point forward, since you are expanding and all that, that we should look for a higher DSO number?

I think that the number will be higher, but all the numbers will be higher. So there will be marketing done in every area, such as on the credit cards. It's settled quicker. ACH is settled faster. So I think every area, we will see it grow as our marketing expands. But the one thing with the LEC billing, there's always a little bit of a lag as far as the receivables, whether it be 30, 60 or 90 days.

The other problem we have, Juan, is the fact that if you go back to last year, our ACH was significantly higher as a percent of our sales channel. And when we had the settlement or did the cessation with the check activators, a lot of our customers that we lost were ACH customers. So when we look at our receivables today, it's roughly 65% LEC versus 35% ACH. If you look back a year ago, it was almost the reverse of that.

I noticed in the Q, Gary, that you are right -- your LEC percentage did go up in 2 and 3Q. But this might be more coincidence than anything else, but in the same periods, your gross margins also became elevated. Now, I recall some discussion about LEC margins or LEC processing being a little bit more economical. Therefore, that leads to --

Yes, what happened there is we have lower fees. And the other part of it is because of the quality assurance programs that John has implemented, we're having less and less inquiry fees and we have certainly a lot less unbillable accounts.

Okay, so the trend, really, towards higher LECs is a positive, certainly, from a margin standpoint.

I believe so. We need to optimize those channels, obviously, because it does have a tremendous impact on our cash flow.

That's good. Last question on the telemarketing. As John pointed out, you're really doing a lot of work here. And I know that the primary focus here is to -- well, to put it simply, increase your revenue. But there has also been discussion at the same time of how more cost-effective this will make your sales and marketing efforts.

I'm just trying to tie that into the numbers that you have reported in recent quarters. For instance, I think in the past quarter, it was like 1.3, a little bit less than that in the March quarter. What should we be looking at here in light of your stepped-up telemarket -- especially that acquisition in the Philippines? Are these numbers going to go down, stay about the same, or will they rise with your business level? I'm just trying to get a handle on what we should be looking for going forward.

I'm hoping that they will rise as we begin to market and build the customer base. At the present time, what it does, we get a savings because we own the center. And the saving was in the neighborhood of $1 million per year, a little more than that.

The real savings, though, was the fact that the negotiations were going on at the end of the contracts we had to raise our per hour cost from $16 to $20 per hour because of the success that these marketing centers were having with our products. So if you put in the potential new costs, it would have been -- our savings is in excess of $2 million per year, based on those marketing.

Now, since we have closed on the center and looking at the marketing that has been going on within the center since we owned it, we see really a positive, not only in the cost savings, but the amount of customers and the quality of customers that we have been able to bring. We've raised the level of our quality control there at that center. And that is part of the reason you see that the LEC is not costing us more money, but helping to add really good long-term quality customers.

Now going forward, we may do additional telemarketing using other centers with a lot of the new products as we begin to test products and keep our center focused on our core products.

That is helpful, then. Thanks very much. Looking forward to seeing how those programs that Rajesh just went over unfold here in the next several months. Good luck to you guys.

(OPERATOR INSTRUCTIONS). At this time, there are no further questions in queue, and I would like to turn the call back over to Mr. Daniel Coury. Please proceed, sir.

Well, I want to thank all of you for listening to our conference call, and I really do appreciate it. And if you have any other questions that come to you later, please feel free to give us a call or give John Evans a call. His contact information is on our site. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a wonderful day.