Live Ventures Inc (LIVE) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the LiveDeal fiscal-year 2011 second-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions).

As a reminder, this conference may be recorded, and now I will turn the program over to Autumn Wofford.

Good afternoon and thank you for joining us for the LiveDeal fiscal-year 2011 second-quarter earnings conference call. My name is Autumn Wofford and I am pleased to introduce today's call.

Here with me is Kevin Hall, the President and Chief Executive Officer of LiveDeal, as well as Larry Tomsic, our Chief Financial Officer. During our call today, opening statements will be made by Kevin Hall, a financial results discussion will be led by Larry Tomsic, and at the end of the call, a Q&A will be allowed.

At this time, I would like to pass the call over to Kevin Hall for a brief introduction. Kevin, would you please lead us off?

Yes. Thank you, autumn. I would like to remind you that the discussion we are having today will include forward-looking statements within the context of federal securities laws. These statements involve risks and uncertainties that may cause actual events, results and/our performance to differ materially from those indicated by such statements.

We undertake no obligation to update forward-looking statements. These risks and uncertainties include those outlined in today's call as well as any other risks identified from time to time in the Company's public statements and reports filed with the SEC.

Please note our press release and scripted remarks will be available on our website following the call.

I am pleased to present to you the fiscal 2011 second-quarter results, and especially excited to discuss LiveDeal's ongoing transition towards new opportunities that I and the board members and the company's management team see as significant. We have a number of significant recent developments to discuss with you today.

To begin with, it is important that we put into context where we are today and look back a year ago to the situation the company faced when I came on board as interim COO. At that point, the company had seen several quarters of shrinkage in revenue from its direct sales and yellow pages directory and classified businesses as well as ever-increasing costs, resulting in G*A increasing from $1,506,834 in January 2009 to $1,602,548 in December 2009. The company remains subject to an ongoing [dilutive] litigation related to various aspects of its yellow pages directory business. Cash was low and falling. The situation looked quite bleak.

Today we have adapted and adjusted our company goals to reflect the latest online trends with the aim of reaching as many small and medium-sized businesses as possible. In March 2010, we adopted the strategy of developing successive products to our directory business and rebuilding our customer base through mass-market sales using less billing channels. In addition, we moved away from the higher-end direct sales products offered through Local Marketing Experts, Inc., which focused on search engine marketing and website creation services together with additional add-on advertising products.

Since July 2010, the line of business historically known as a yellow page directory service, which we now call B2B, was rebranded and upgraded to the InstantProfile product and marketed under our subsidiary, Velocity Marketing Concepts, Inc.

This new product, which is part of the InstantAgency suite of products, provides online subscription tools and services to broadcast information about a business to the top Internet directories, search engines, social media networks, and the leading navigational device databases. This ensures that our customers are distributed to sites such as Google, Yahoo, Bing, Facebook, Twitter, and others through our distribution network.

Additionally, customers will see the communication suite that allows both conference call hosting and electronic fax services together with other add-on products. This strategy has culminated in the cessation of all new sales under the Local Marketing Experts, Inc. subsidiary onto December 1, 2010, and a final shutdown of all business activities in that subsidiary on April 30, 2011.

Based on the fact that sales of the InstantProfile product have exceeded our expectations, we are now focusing our efforts on increasing our sales under Velocity Marketing Concepts, Inc., and expanding the range of products offered to the market through this sales outlet.

Revenue produced by our (inaudible) operation continues to grow as planned. By the end of December 2010, we have begun building a new customer base that now exceeds 6700 customers in a few short months. With each month, the revenue from this line of business will be a larger percentage of overall revenue. As this channel grows, it brings greater revenue, predictability, stronger margin performance, and much improved cash performance. We have simultaneously implemented cost reductions related to our recent shift in strategy.

G&A, which, as I previously mentioned, had reached $1,602,548 in December 2009, its peak, now stands at approximately $436,000 per month. We have settled all but one of our litigation matters that arose in connection with past business practices and related contractual disputes.

Employee count has been right sized from 118 personnel in December 2009 to 14 today. We also continue to emphasize cost-containment in our B2B business and are building a foundation that allows us to scale that business while still containing costs such as headcount.

As we move forward with these plans, the net margin of the B2B channel will grow and so will its contribution.

In addition, we have secured financing from the Everest Group with the closing of a $1 million loan on May 13, 2011. LiveDeal received the loan proceeds on May 16, 2011.

This is a challenging quarter and a challenging year, and a challenging year and a half that represented the essential steps in transitioning back to and reinventing the company's traditional lines of business while moving away from the direct sales business, which proved to be burdened with high personnel and infrastructure costs and never produced the results we had hoped for. We are encouraged by the continuing growth of the B2B business during difficult economic times. We believe these changes give us a healthy foundation for future growth and value creation.

Now, I would like to turn the call over to Larry Tomsic, our CFO, to discuss the financial results for the quarter and the decisions we have made about adjusting the value of some of our assets. Larry?

Thank you, Kevin. In March 2010, the company reevaluated its business and adopted a new business strategy.

As Kevin has already described to you, the company's management made significant changes to its business strategy during fiscal 2010. Management decided to move the company's strategic focus away from its direct sales business. Because of this change in direction, the company discontinued all new sales in the direct sales division in December 2010 while continuing to focus all its resources on building the B2B business.

These strategic changes impacted the company's condensed, consolidated financial statements during the second quarter of fiscal 2011 in the following manner -- the company entered into a plan to discontinue its direct sales business and initiated shutdown activities of all new sales in December 2010 and has reflected the operating results of this line of business as discontinued operations in the March 31, 2011, 10-Q. The company's new strategic focus is on providing online subscription tools and services to small businesses. These services are sold via telemarketing on a subscription basis and supported by our internal marketing and product development capabilities.

I would like to review the financial results for the second quarter of 2011 and for the six-month period ended March 2011 and compare them to the same period in the prior year.

Net revenues for the second quarter of fiscal 2011 were $1,118,165, up from $1,101,816 during the same period in fiscal 2010. The change is due to an increase of approximately $329,000 in Velocity sales, which offset the $313,000 decline in legacy sales.

Net loss for the second quarter of fiscal 2011 was $2,314,700 or $3.70 a share versus a prior-year net loss of $1,773,520 or $2.96 per share.

Net revenues for the six months of fiscal 2011 decreased to $2,112,787 from $2,209,340 in the six months of 2010 for similar reasons. The company expects revenues to continue to migrate to our B2B business.

LiveDeal's change in net revenues for the second quarter of fiscal 2011 reflects the continued shift in the company's focus towards adding new customers in its B2B (technical difficulty). This line of business has grown from no revenues in the second quarter of fiscal 2010 to 29% of revenues in the second quarter of fiscal 2011.

Cost of services increased $1,330,186 in the second quarter of fiscal 2011 as compared to the second quarter of fiscal 2010. The increasing costs surrounding our B2B products was consistent with our revenue growth and its velocity line.

General and administrative expenses in the second quarter of fiscal 2011 were $1,611,382 compared to $3,138,052 in the second quarter of fiscal 2010, which is a $1,526,670 or 49% decrease, primarily due to the following reasons -- decreased compensation costs of approximately $816,000, which reflects the reductions in force due to the restructuring activity and a decrease from 56 employees in March 2010 to 23 employees at March 2011; decreased professional fees of approximately $484,000 related to decreased IT consulting of $175,000; legal expenses incurred in response to legal action brought against the company of $128,000; investment banker fees of $95,000; accounting fees of $87,000; and marketing and consultants of $50,000, partially offset by increased sales service professionals of $24,000 and miscellaneous consultants of $27,000. The decrease of approximately $28,000 of depreciation and amortization expense since the company wrote off retired assets and has not purchased any additional fixed assets during this fiscal year.

Other decreases of approximately $199,000, including but not limited to reduced rent and utility, office and supplies expenses, office closures, and travel and entertainment and other miscellaneous expenses in connection with our cost containment initiatives.

General and administrative expenses decreased from $7,099,942 to $3,583,951, which is a $3,515,991, 50%, decline in the first six months of 2011 compared to the first six months of 2010, primarily due to the following -- decreased compensation costs of approximately $2,121,000, which reflects reductions in force due to restructuring activities and a decrease from 111 employees at September 2009 to 23 at March 2011; decreased professional fees, approximately $520,000 related to decreased legal fees for legal matters which were resolved of $292,000; investment banker fees $146,000; IT consultants $112,000; accounting fees $77,000; and marketing consultants $37,000, partially offset by increased sales service professionals of $109,000; and miscellaneous consultants of $35,000.

There was a reduction of $300,000 in damages paid to settle a legal matter in the first quarter of 2010; a decrease of approximately $48,000 in depreciation and amortization expense since the company wrote off retired assets and has not purchased additional fixed assets during this fiscal year; other expense decreases of approximately 50 -- $527,000 included but are not limited to reduced rent and utilities; office supplies expenses; office closures; travel and entertainment; and other miscellaneous expenses in connection with our cost containment initiatives.

Sales and marketing expenses in the second quarter of fiscal 2011 were $23,183 decreased by $66,871, 74% from $90,054 in the second quarter of fiscal 2010 since LiveDeal spent less robodialer and clicks for new customers since the company reduced marketing activities for our direct sales business.

Sales and marketing expenses for the first six months of fiscal 2011 -- $36,775, decreased by $224,336, 86% from $261,111 in the first six months of fiscal 2010 due to less robodialer and clicks spending as the company reduced marketing activities from our direct sales business.

LiveDeal had cash on hand of $742,427 and $256,131 of working capital as of the end of March 2011. During the quarter, the company used cash in the amount of $2,586,240 in its operation.

On May 16, 2011, the company added $1 million of debt due to the Everest Group which was previously discussed to increase working capital and increased sales and customers. Stockholders' equity was $2,124,183 as of March 31, 2011.

Now like to turn the call back to Kevin Hall.

Thank you, Larry. While profitability for fiscal 2011 is not something we have visibility into today, we do believe we will move toward profitability as the B2B business continues to grow. We believe profitability can be achieved in the near term. In addition, we believe the B2B business has the capacity for sustainable profitability that comes with predictable growth, elements that could not be depended on from our direct sales business.

In short, we continue to feel we are on target to transition LiveDeal to a much better market position and a much more stable, predictable, and growth-oriented financial posture.

I suspect that given the company's change in direction during the last year and a half, some of you may have questions or thoughts, so now let me open up the call lines for you to ask those questions.

(Operator Instructions). [Luigi Rivetto], [Libero USA].

Good afternoon, everybody. Yes. Thank you very much for the good job of the earnings profile that you have [asked] 6700 [your customers] and this is probably a [adjourn] number. There's obviously a real number or you have some more profit there?

I'm having trouble hearing you, Luigi. If you could just rephrase the last part of your question. What was the question?

Yes, I just would like to know if the adjourn number of the InstantProfile of B2B business is correct, as you mentioned 6700 new customers we have. Or if we add up some more, it's not correct?

Well, as you know, that was as of the close of the fiscal quarter, and we acquired new customers every month, so the actual number today, I don't have at hand, but it has increased since then. It increases month over month.

And what's the range, months, every month?

We've been adding about -- since the beginning of the year, about 1500 customers a month, give or take. We have been managing our sales to maximize both the use of our capital and the customer acquisition. We can actually increase our acquisition strategy as we obtain additional financing, so that is the plan. So that has been -- that is what it's been running at on average. We had roughly zero customers at the end of last -- or early -- late in the last calendar year, and as we said, we're 7,000 plus now.

All right, good. Very good job for that.

And regarding on the loan of the Everest Group, how are we -- are you project to pay this loan? You would think that with the current cash flow that we have, we're pretty much in line to commit this payment?

Yes, we wouldn't have entered into a financing if we didn't project that we would be able to repay it. And it is part of our forecasts, and our conservative cash flow predictions, and obviously the lenders did their due diligence on our projections as well because they don't want to enter into a financing necessarily with an entity whose not going to be able to pay their loan up.

Obviously, our ability to repay is subject to all the variables that any forecast is subject to, but we would not have taken on such a financing if we did not believe that it will be repaid and it will be repaid on time.

Great. That's good news. And so it is -- are you planning to protect the value of the current ownership of that current present shareholder like this? Great. I like it.

This is good news because it looks to me that if it's a really aggressive, the term of the loan by the Everest Group is really strict.

By private equity or pipe loan funding standards, it's pretty standard. It is certainly -- keep in mind that to date, we are -- it would be fair to say we're not necessarily the best credit in the market, so I think we got pretty good terms for the loan. They're fair. They're reasonable. They're with a business partner who wants to see us succeed and will work with us, and there is a tremendous give and take there. So they are certainly tight terms, but by no means are they unachievable to the point where they will put us in distress.

Great. So you're seeing in the near future a profitable quarter, a better quarter than we haven't seen from the past years?

Our losses become smaller and smaller and our losses become losses of a different type. Before they were just covering over G&A additional costs; now our losses are relating to cost of goods and connection with the acquisition of customers, and that will become smaller and smaller and we look to become profitable in the near future.

What range are you talking about in time?

Certainly we expect to see that this calendar year.

Great. Fantastic. And regarding on an increase of capital, in the future, did you ever discuss maybe to offer to the current stockholders, through a capital increase, so that the current stockholder can participate in the future, so that is we have a better deal in one way?

I think our view has been that until we can show better results that we would not go to the market to look for additional capital in that manner, but it is certainly one of the methods we would look to down the road to raise additional capital as our results become more encouraging. We wouldn't want to go to the market with a capital raising effort that frankly fell flat and wasn't worth the time and effort, but definitely that is an option that we will look to down the road as I think we have the results to back it up and make it desirable for investors.

Great. So in a simple way, you tell me that we are well protected as a stockholder from the job that you are doing right now. We are in good hands?

We believe that you are in good hands, otherwise we wouldn't be sitting here, frankly. And we are making every effort to protect your interests. And obviously our main priority is to protect and maximize shareholder value, which we are making a huge effort to obtain.

I appreciate it very much. Thank you, Kevin. That's all that is, and I wish all the best for these years and (multiple speakers)

Thank you, Luigi. It's always a pleasure.

Thank you very much. And have a wonderful day. Bye bye.

(Operator Instructions). Presenters, I'm showing no additional questioners in the queue. And that concludes our time for Q&A, and that also concludes today's program.

Ladies and gentlemen, thank you for your participation and have a wonderful day. Attendees, you may now disconnect.

Thank you very much.