Live Ventures Inc (LIVE) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2008 LiveDeal, Inc. earnings conference call. My name is Amed, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode . We will be facilitating 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 presentation over to your host for today's call, Mr. John Evans. You may proceed,

Good afternoon, everybody. Thank you for your interest in LiveDeal. With me today are Mr. Michael Edelhart, Mr. John Raven and Mr. Gary Perschbacher. In addition, most of our financial information has been published either in our press release or in our 10-Q that was filed yesterday. Please note that our remarks today may contain forward-looking statements. The words anticipate, expect, may, believe, will, and similar expressions are intended to identify forward-looking statements. These statements are based solely on our current expectations that involve risks and uncertainties that could cause actual results and the timing of such results to differ materially than those projected in the forward-looking statements. 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 file-- 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 made only on the date of this call and the Company undertakes no obligation to publicly update such forward-looking statements to reflect such subsequent events. This conference is being webcast and will be available on our website for replay following the call. Now let me turn it over to our, Interim Chief Executive Officer, Mr. Michael Edelhart.

Thanks, John, and thank you everyone, for taking the time to listen to our conference call today. I'm Mike Edelhart, I'm the Interim CEO here at LiveDeal. I joined the Board of the Company about three months ago and came in as Interim CEO about eight weeks ago. And I'm glad to be here today to talk about the third quarter of fiscal 2008 and especially excited to discuss what I and the other Board Members and the Company's Management Team see as opportunities for LiveDeal. LiveDeal is a Company that exists in the local Internet space and has a set of unique assets in that space. We are basically the only Company that combines classifieds, which come from our LiveDeal side, and Internet Yellow Pages, which come from the YP side of our business. This combination has given us the ability to reach out effectively to small businesses and to provide them with the web-based customer acquisition services they so desperately need.

We collected net revenues of $5.8 million in the third quarter, which was essentially flat as compared to the same quarter in 2007 in which we collected $5.9 million. This quarter is usually a weak quarter for us and we were not surprised to see this revenue number. This number is also not surprising given the fact that the Company was in a state of transition during the third quarter. It was a quarter that included a significant Management change as well as the implementation of a set of initiatives key to the Company's future growth, which I'll discuss in more detail later in the call.

The most significant part of the quarter for many of you and for us is the GAAP loss of $1.58 million. The Company's net loss for the quarter--for the third quarter of fiscal 2008 was $1.6 million compared to net income of $0.3 million in the third quarter of fiscal 2007. This decrease is primarily attributable to increased operating expenses associated with the LiveDeal acquisition, increased marketing costs and increased compensations costs which included the following items: $496,000 of severance costs associated with the termination of our former Chief Executive Officer, $439,000 of increased stock-based compensation expense associated with the accelerated vesting of stock awards to the former Chief Executive Officer, $297,000 of increased personnel costs associated with the acquisition of LiveDeal, Inc., which took place in June 2007, $465,000 of increased compensation costs associated with the development of certain call center functions in our Las Vegas headquarters, and $5,000 of miscellaneous costs increases. These were partially offset by $281,000 of decreased stock-based compensation expense resulting from an increase in the estimated forfeiture rate on awards based on historical forfeiture experience.

These results are clearly not what you might have hoped for and certainly not what we hoped for. In order to deliver stronger bottom line performance in the future, we have to prepare the Company for new areas of growth. And that is why we've increased our selling and marketing efforts and related expenses to increase customer awareness and use of our on-line marketing-- of our on-line marketplace. And most importantly to initiate new direct sales programs which are the fastest growing of our-- the fastest growing aspect of our business now. We believe these initiatives will improve the Company's performance in the months ahead.

In fact, this is a good time to take a step away from the numbers to discuss Management view of LiveDeal's long-term opportunities. We see the Company as situated in the market providing customer acquisition services for small businesses over the Internet that have remarkable growth potential. LiveDeal brings unique assets to this market. We are the only Company with a known classified platform and a directory platform, a strong technology base, we primarily got from the LiveDeal acquisition, and a demonstrated capacity to reach and sell to small businesses. Traditionally, the Company has derived revenue from selling directory listings to small businesses that are built through the LEC, the telephone billing channel. We remain believers in this customer base for LiveDeal's future. But we do not see it as the engine of growth that will fundamentally change the Company's posture in its market.

Instead we see the Company's primary opportunity lying in direct selling and direct credit card billing, a range of customer acquisition services to small businesses. These definitely include classified and directory services, our historical product. But they can also extend to include search services, basic web services, video services and other services that bring customers and transactions to small businesses that emerged from new technology over the Internet. These sales produce higher transaction sizes, better gross margins, stronger customer connections and significant revenue extensibility that we don't see in the traditional LEC channel.

The Company took its first steps toward developing this new approach in the third quarter. The initial return from these activities was positive. We expect direct monthly contact sales in the fourth quarter to continue to grow and to grow all through calendar 2009 and our fiscal 2009. And we see no near-term limit to that growth. We believe direct selling of customer acquisition services to small businesses over the Internet can resolve in operating profitability in 2009 and can drive growth both top and bottom line for LiveDeal well beyond what we've seen in fiscal 2008. Combined with a prudently-managed LEC business, this direct selling approach can energize LiveDeal's business and bring our growth in line with that of our market as well as deepening and stabilizing our net income potential.

So looking forward the Company has a three-pronged strategy. First, maintain our LEC listing business and manage it for maximum bottom line return. We'll have telemarketing aimed at LEC in both Nevada and the Philippines, and we see it as a stable business with many customers but with limited upside that we need to manage for the greatest near-term benefit. At the same time, second, to grow our small and medium business direct premium and paid Internet services business which is being handled right now out of our Las Vegas call center. We see classifieds as a door opener in that business and as a form of real estate and syndicatable content that we can use to increase customer volume and traffic volume in services of our direct sold paid business.

We see new products coming into that business and the first of those is a product called LiveClicks which allows us to help small and medium businesses optimize the search performance of any asset they have on the Net to get the greatest number of customers aware of them, responding to them and available to them. And in the services of moving this direction we recently became one of the few companies that is a certified reseller of Google's ad services, so we can now bring that experience to bear for our small and medium business customers.

The third aspect of our strategy is to increase our own footprint across the Internet. We do this, first, through our own sites, our classified sites and our directory site which will be going through a significant upgrade in their look, feel, functionality and [SEL] posture in the current Q4. We also intend to much more aggressively syndicate our classifieds out to other sites so that we can begin to use their real estate in the service of fulfilling our obligations to our customers. And we see opportunities to use our technological skills derived from LiveDeal and from the YP side to create an instant hypervertical Internet real estate in key areas that we intend to focus on for sales. So as an example, if our sales activity we're going to be focusing on Internet capabilities for limousine drivers, we could create specialized real estate available to search engines and available to customers who are looking for limousine service in support of our own sales.

The history of our business has been very much centered around the local exchange listings. If you talked to us a year ago we would have have said customers do business with us and they get a listing on the Internet and it can be charged on their phone bill. That remains a fundamental part of our business. It's supported by our telesales group, it's stable, it's profitable, and it has brought us a large universe of customers. But we don't see a lot of future growth in that business. We see it as a legacy business that we can manage and use to spur new activities that have characteristics that I and the team think will be financially, and from an audience point of view, more positive for the business.

And the new businesses are driven by premium and search-base services that to a significant degree are beginning to replace traditional, directory and now YP services in helping small businesses find the customers they need where and when they need them. And we intend to develop and sell directly those kinds of services outside of the LEC channel. We intend to do this both from the classified side where you will see more and more packages from us related to our classifieds as an aspect of bulk sales of inventory and delivering inventory availability and those kinds of things. And you'll also see us making offers to small businesses that go well beyond classifieds and directories, such as search services, simple websites, simple videos, all of the kinds of tools that small businesses want and need to drive customers to their capabilities.

As we-- as I just mentioned a few minutes ago, we are now a Google reseller, which means we're actually one of the small numbers of companies who are experts in helping folks get what they need from not just search in general, but from this particular 2,000-pound gorilla that greatly dominates the search, and search continues to greatly dominate the customer acquisition efforts on the Internet. You will see us more and more in the marketplace using the assets that we have to grow a real estate base that we have control over and can use to surface the messages from our customers and to fulfill their customer acquisition needs.

Going forward, you'll see us moving in the direction of becoming a network of sites, mini sites, aspects of sites across the Internet all in the service of customer acquisition for small and medium business. We're doing it this way because while we see the business that got us here as profitable and one that we probably understand better than anybody, we don't see how it can represent on its own the future of the Company. In LEC, increasingly our folks are not only offering a traditional, direct elect channel, yes I'd like it on my phone bill. But even in our LEC activities we're beginning to offer ACH and credit card payment options through our Company right at the initial point of contact. This gives us both more account control and also more opportunity to communicate directly with the customers, which is something that in some of the LEC relationships which happen through layers of intermediaries, can be different.

And in the new businesses we're looking at, it will be us that is packaging and delivering a product to the customer, us that will be selling the product to the customer, us that will be billing the product and controlling every aspect of the customer relationship, and we see that as healthy on a number of fronts. First, we own 100% of the customer revenue. We will not have indirect sold businesses the kind of step-down, hold-backs and other limitations that have been associated with LEC. Second, we're finding even in the early stages that the price points for direct sold transactions are far higher than those we have been able to get from LEC. And I'll talk about that a little bit more in a minute. We can make a more complex, higher-value sale right at the first point of contract-- first point of contact than would have been possible with LEC, where we can essentially only offer a product through a direct-sold business, we can offer a suite of products, and that suite can be modified based on the needs of particular segments that we intend to target.

Third , the financial results are much more favorable for us. There is no wait time when we sell direct. We get the credit card right then, we get to clear it right then. We have the credit card on file for future billings. We get automatic renewal and a host of benefits of that sort. So we get cash on day one, whereas it can take weeks, sometimes months to get cash from the LEC channel. And we get substantial deferred revenues subscription-like contract capability from these new relationships that make our business more and more stable going forward.

So what you'll be seeing from us is not only the product that you've seen from us in the past, but increasingly new product that are going to be brought forward to market through this direct sales channel. And you just started to see that in Q3 and you'll see a lot more of it in Q4 and next year. So we're selling today premium directory services, not only directories on our real estate, but directories on what's beginning to become a network of sites and avails. You're seeing quick services from us as we can get very simple websites up right there on the phone with customers, get them a URL, get them basic eCommerce and you'll see more and more of those going forward. We're just starting now to actually dig into these activities and you'll see more from us going forward.

So eventually what we become is the best partner, small and medium-sized businesses can have for achieving customer acquisition over the Internet. We're there to do the same thing that companies like ours have traditionally done with Yellow Pages and other tools in the past. The verities don't change. Small businesses still need to find customers in the location they serve, at the time they want to buy, without taking their eye off the ball of doing what they need to do to make money. It's just a different tool set. So we're now there to help you from a limited company, a contractor, get the customers you need over the Internet officially, understandably, without taking any more of your precious business time than necessary, because we're the partner who can help you do it. And as we've started bringing that message forward, I can say it's working. We've been selling along these lines now for a number of months and it has taken on better characteristic with each month.

Going back to the spring, the Company began seriously direct-selling and now it's already about 10% of our activity in just a few months. And we see the potential that the equal the activity we've gotten from LEC and developed over a rather long period of time in a much shorter frame. There's a big need for that in the Company. Our customers are in in the market. Our customers are responsive to being approached this way. And our sales team has proven trainable, appropriate and effective at bringing these kinds of transactions forward.

We also like this approach because it's expandable in terms of the number of products that we can bring into it. Today it's directory and click services and simple websites. But going forward it will be video, e-mail, various kinds of value-added exchanges as new technology makes new ways to bring customers forward to small businesses, we can be partners in making that happen. So we're rather excited about the capabilities in the direct selling will bring to the Company.

What it means is that going forward our business will begin to change in a number of ways. One is that the amount of money we enter per customer should rise. We're already seeing significantly higher returns with per customer direct sales transactions approaching $2500 in the third quarter and average direct sale transaction sizes today going into the fourth quarter are over $3500 on average. And we've seen a handful of transactions that exceed $10,000 in individual size. In fact I heard just before the call today that we had a transaction today of nearly $25,000 direct sold out of Las Vegas. Our yield from the Las Vegas direct sales operation continues to grow and it's grown from a negligible amount in the beginning of the year to over $400,000 in projected contract value sales this month.

You should see our very heavy reliance on the LEC business as a result, gradually decrease. Not because the LEC business is going down, because (inaudible) stable and other activities are going to grow much faster around it. You should see the universe of customers that we can bill go up and up, and we believe that as we go through this transition we become a different kind of business, one that has multiple products, multiple revenue sources, all being driven by our telesales efforts largely coming direct to our own channels of control. So we'll sell our listings, we'll sell clicks around those listings and search capabilities to fulfill those clicks and ad distribution that will have subscription and cost per click aspects and potentially even some services revenue in there in selected markets to support this activity and that changes the make that you see today, which is very heavily based around basically as being subscriptions and LEC billing.

In summary, we're a Company in transition. A strong Company we think can become even stronger with new Management in place and new ideas, and a plan for how to move the Company forward from its traditional base. The one that got us here into essentially blue water where we think we can grow much, much faster than you've seen us grow over the last few months. Now having gone through that overview, I'd like to open it up to questions for myself or Gary Perschbacher, our CFO, and John Raven, our recently named President and COO, who are all on the phone here with

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Jon Hickman of MDB Capital Group. You may proceed.

Mike, Gary, I don't know who wants to answer this, could you give us some sense of what the break-even, well or maybe this is better-- going forward your-- you had a number of one-time expenses in the operating line, so going forward could you guesstimate at what operating expenses might look like on a more normal basis? I've just-- guessing here it looks something to me more like 6--maybe $6 million a quarter. Maybe not quite that much. Could you elaborate?

Gary?

Hi, John, this is Gary. Right now we're in the process of looking at a number of cost inhibiting measures but-- and we should have that completed within the next couple of weeks and have a new budget out for fiscal 2009, and I can give you a call then and discuss it with you on a more detailed level. But your $6 million is probably an accurate number at this point.

Okay. So break-even for the Company is-- okay like, never mind I can do that. So you-- it looks like from your press release, that you guys did something like maybe $600,000 to $700,000 in revenues in Vegas for the quarter and you're on a run rate right now for the quarter of something maybe more than $1.2 million. Is that accurate?

On the quarter that just ended we did $662,000, actually.

In Vegas.

Gross sales from the Las Vegas operations. Most of those contracts are 12 months so, gross revenues versus earned revenues that are recognized on the financial statement, significantly different.

Yes, but I understand (inaudible).

Yes, going forward the $1.2 million is reachable.

Okay. So what is-- what does it take in, I don't know, quarterly revenues in Vegas to cover the Vegas marketing, sales and marketing sector?

This is Mike. I think we see the Vegas operation, it's growing just about 25% month-over-month. Now, it will essentially cover its own costs of at right around $500,000 and monthly contract value, if that were stable across the year, it would cover its own costs. We see it hitting that point very soon. Certainly early next year, possibly even before then. I'm confident that it will be a profitable area of business for us in fiscal 2009, and I believe that we will have a profitable Q4 in fiscal 2008.

Talking back to one of the things Gary mentioned, we're looking at every aspect of our business from both an expense point of view. We want to eliminate every unnecessary expense and maximize every area that produces return and from a revenue and particularly bottom line maximization perspective. So we've looked at our traditional business and believe going into fiscal 2009 that we can maintain stability into that business and squeeze a good bit more margin out of it than we have this year. I don't think you'll see that a lot in Q4, but we're far enough along in that process that I'm relatively confident that that will be something you'll see in our fiscal 2009 plans and our fiscal 2009 activity.

Yes, I had a question about on the LEC side didn't you guys have a customer like go bankrupt or one of your intermediaries or something, didn't that cost you a certain amount of revenues over the past few quarters?

We've been accruing for it and, Gary, you may want to talk to the--

What you're talking about, Jon is an aggregator, a go between us and the LEC and it was IGT and that company is-- has now been sold, apparently. At least we think it's been sold.

Out of a bankruptcy refereeing.

Out of a bankruptcy situation, yes. And we lost some customers because we moved that traffic over to two other aggregators that is now stabilized and you shouldn't see any more drop in revenue because of that. It's more of a drop in-it would be more of a natural attrition situation at this point in time. John Raven can speak more of what's going on with that bankruptcy because he sits on creditors' committee's meetings I don't. But we've, from a bad debts expense scenario we've allowed for what we anticipate to receive once this bankruptcy is settled.

Okay. Do you have any idea of like was it a couple hundred thousand dollars in revenues you lost? I mean, moving the traffic. Or was it $500,000 or--?

John, can you respond to that? I don't remember how many customers we lost but--

That's correct, Jon. The-- what happened was, in October of 2007, IGT, one of the clear-- one of the three clearinghouses we moved traffic through had filed Chapter. At the point that happened we did have contingency plans in the event-- of that type of event. So we had actually had primed our pipes with another more steering-- stable clearinghouse and start the movement of that traffic as early as October of last year. So the fall-off in revenue you saw was the few-- a handful of accounts. We're talking probably 1,600 to 2,000 during that period that we could not move to a more stable clearinghouse. And any time you move that you will incur dilution, moving customers from one clearinghouse to another. And then as you know, as part of our LEC business the aggregators will accumulate reserves hold back for a period of time in anticipation of future charge-backs. And so what we had written off over the course of the year was the, largely a lot of those reserves and hold-backs that was due to us, which I think covered probably about an 18-month period. Does that sound right, Gary?

Sorry, I had it on mute. Yes. We reserved roughly $600,000 against what the outstanding receivable was at IGT through the third quarter. And that's our best guess at this point in time. Obviously those numbers could change going forward, because the finality of the situation isn't close at this point.

Jon, this is John Raven again. Did you-- did that answer your question?

Yes, so basically that's over, right?

That's correct.

Okay. Now, just two more quick finance questions. What was the stock-based compensation number for the quarter, and what was depreciation for the quarter?

Stock-based compensation in total?

Yes.

Oh, boy. I don't have that number right with me because that is hidden in our total compensation costs. I can certainly get that to you, Jon.

It'd be nice if you'd break that out in your next press release.

We will.

Yes, we will do that.

How about depreciation?

Depreciation and amortization.

Well, you can get back to me. Okay?

It was 525.

For depreciation?

Right. And amortization.

Yes. Okay. And you'll call me with the other one?

Yes, I will.

Okay. I'll get back to queue but I would like you to address the fact about your low stock price, are you guys considering any kind of buy-back that's tender or anything like that?

This is Mike. The-- we think, the Board, that the share price is significantly undervalued. We're not in a position to bring forward any specific plans about a tender offer today, but it's a subject being actively discussed by the Board. We have confidence in the Company and confidence in the plans, and it is a topic on which you may be hearing from us in the relatively near future.

Okay. Thank you.

Yes.

Your next question comes from the line of Amy Rae of ZipLocal. You may proceed.

Hi, there, I have three questions for you. Just wondering if you can give me a little bit of insight on your fees for your LEC and your ACH aggregators? Number two, the length of your contracts, are they always 12 months or with the LEC are they not 12 months? And three, just a little bit of color on your call centers in the Philippines. You talk a little-- quite a bit about the Las Vegas operations, but not much about the Philippine call center.

Okay. The-- it may be getting a bit detailed for everybody on the call and you may want to set up a separate conversation with John Raven and me to sort of dig into the particulars. But John maybe a high-level go-over some of those-- some of those metrics?

That's correct. On the LEC, typically that's a monthly charge, so that's not on contracted terms. So that's a recurring monthly charge, it's approximately-- it's been trending about $30 per month. The fees we incur are roughly about 25% of the total fully-loaded fee across the board, across all aggregators and clearinghouses in terms of our LEC business, is the customers acquired with that method has roughly been trending in the 25% or 30% range of face value of transactions. So in other words, if you're pay $30 for a -- or you're billing for $30, you're going to pay roughly 25% of the face value of that transaction in terms of total fees to process that transaction through the aggregator. Secondly, the purpose of the-- we primarily been employing the Philippine operation and the direct acquisition of those $30 monthly subs each month, we're at this point, we're refocusing their purposes more towards a inbound lead generation towards our premium sales effort hosted in Las Vegas.

Okay.

And just to give you, there are about 100 seats, little bit over 100 seats flexibly in the Philippines and it has the advantage for us of being low cost, good English and tied by technology into the rest of our operations here in the US.

That's correct.

Okay. So they're mainly lead generations, are they doing any customer service or collections?

Actually we do have a small portion of the customer center that is focused on maintaining customer service for our current embedded LEC customer base.

But the customer service for the direct sold products will largely be handled here in the US because it's a more sophisticated environment and we view every customer contact in that universe as an up-sell opportunity.

Okay. And, three, just to circle back to your contract length. So they are primarily month-over-month-- or monthly contracts with the LEC and so when you do a direct sales then it's a 12-month contract. Is that correct?

Yes, on the direct-- I think on the particulars of LEC you may want to have a separate conversation with John who really knows every aspect of that business inside and out. In terms of the direct sell business, it's a nominally a 12-month contract but we're generally doing credit card with automatic renewal option, which means it just keeps rolling forward. We have been at this for less than a year, so we have not gone through the first cycle of extending, but in other areas where I've done this sort of thing it tends to mute the end of contract turnover that one gets because folks will tend to keep going, unless there's some particular reason they want to stop.

Okay. Great. Thanks.

That concludes the question-and-answer session. I would now like to turn the call over to Mike Edelhart for closing remarks.

Well, I want to thank everyone who took time today to listen to our call, and to emphasize to everyone that we are not just here to talk to you once a quarter on formal calls like this, but speaking for myself, and I know for all of the Management Team, we look forward to active engagement with all of you on any subjects of interest. So I'm M. Edelhart in light to you of that comment, I would like to hear from anyone who is interested in Company. We feel good about the future and we look forward to future conversations where we can bring you more information about how we are seizing the opportunities in front of us and growing this business. And on that, I'll say everybody have a great weekend and thanks for coming out to listen to us on a Friday.

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