Paramount Global (PARA) 2002 Q3 法說會逐字稿

Good afternoon.

My name is Jeff, and I will be your conference facilitator for today.

At this time, I would like to welcome everyone to the CNET third quarter conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period.

If you would like to ask a question during that time, simply press the * then the number 1 on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you.

I would now like to turn the conference over to Mr. Robert Borchert, Vice President of Investor Relations.

You may go ahead, sir.

Thank you, Jeff and good afternoon everyone.

In our financial news announcement release today and also on this call, CNET Networks has provided specific guidance related to our expectations of future financial performance.

Any forward-looking statements made as part of our financial news today are subject to risks and uncertainties that could cause actual or predicted results to differ materially.

These risks are outlined in our third quarter news announcements as well as in the company's Securities and Exchange Commission filings, which could be obtained from the SEC's web site or directly from our Investor Relations Department.

After this conference call, CNET Networks does not expect to provide further guidance until the release of fourth quarter and 2002 year-end results.

Our company also adheres to a quiet period that begins after the second month of each quarter and end following the release of that quarter's financial results.

If we decide to update our financial guidance, we will disseminate the information either by new release or other similar communication methods that meet the regulation fair disclosure guidelines.

Now participating in today's call are Shelby Bonnie, Chairman and CEO as well as Douglas Woodrum, our Chief Financial Officer.

Now may I hand the call over to Shelby Bonnie?

Thank you, Robert.

Overall, it was a pretty good quarter.

Our revenue came in at $56.3 million, which was within our guidance range.

We also aggressively managed costs producing EBITDA loss of $3.5 million, which was also within our guidance range.

And probably most importantly, this positions us as per positive EBITDA in the fourth quarter, where we are guiding to between $2 and $4 million positive EBITDA defined as operating loss before depreciation and amortization.

It may appear preliminary, but the market is stabilizing.

We saw a normal seasonal pattern on the revenue side between the second quarter and third quarter with the third quarter being slightly lower than second quarter and we are forecasting a stronger fourth quarter based on at least based partly on seasonality and on the launch of new revenue strengths.

As we look forward to 2003 there are both good signs and bad signs and we are going to operate under the assumption that there will not be a significant improvement in the technology category next year.

Our company continues to lead through innovation.

During the second half of this year, we are launching significant new product introduction to enhance the user experience and increase the breadth of our revenue streams.

We are succeeding against the goals we laid out at the beginning of the year, which I will cover in more detail after Doug's comments.

And so with that let me turn it over to Doug.

Thank you, Shelby and just to cover a few of the financial highlights before getting into a few of the financial and business issues during the quarter.

As Shelby mentioned, during Q3 our revenue equaled $56.3m which was within our guidance range of $56m and $60m, and our Q3 cash operating expenses equaled $59.7m, which was better than our guidance range of $61-63m and those represent an expense reduction of $6m compared to Q2, excluding the Q2 realignment cost.

Lower expenses reduced our operating loss before depreciation and amortization and the goodwill impairment charge to $3.5m in Q3 and that compares to an $8.4m loss in the second quarter.

Our Q3 loss per share equals $0.19 and that excludes the goodwill after impairment charge that we took this quarter and the $0.19 figure is also within the guidance range.

We also distributed today a spreadsheet with some relevant metrics for both the current quarter and comparable period, so I am going to focus the remainder of my comments on an update of Q3 and some of the more pertinent financial and business issues.

First just to kind of restate some of our primary financial goals that we have, which are to generate operating profitability and continue our progress toward the generation of free cash flow, is to expand our revenue capacities through our low cost new product introduction, to maintain our revenue capacity of our existing products.

We are going to keep our focus on bringing additional efficiencies to each of our businesses.

We are going to maintain our financial flexibility to operate and grow our business while at the same time optimize our capital structure, which may include opportunistically repurchasing a quotient of our public debt and/or our common stock.

During Q3, our 100 largest customers represented approximately 63% of total revenue, which is consistent with prior results and similar to last quarter.

Gateway was the only customer representing above 10% of revenue.

Also in the third quarter, we completed a couple of financial transactions that are noteworthy.

First of all, we amended our lease here on our San Francisco property and to give you a summary of that transaction, in return for an $8m amendment fee which we paid during Q3, our rent has been reduced by $3m annually over the remaining 14-year-life of that lease representing to us an internal rate of return on that capital of 40%.

We also repurchased about $7m face value of our convertible bonds during the third quarter.

And additionally during Q3, we continued to focus our efforts to bring additional operating efficiencies to our businesses.

As mentioned, our cash expenses were down $6m.

That is a 9% decline compared to Q2 and our cash expenses are down $24m or a 28% reduction compared to Q3 2001.

On the collection front, our DSO at the end of September improved; they now stand at 69 days.

And turning back to the financial statements, we did take goodwill after an impairment charge in Q3 that equaled $281m and that brings the book value of the company to $1.30 per share, which is in line with our current stock price.

We also evaluated our private investment portfolio, which stood ahead of valuation of $20m at the end of June.

We evaluated that portfolio and wrote down approximately $8m and our private investments now stand at a $12m valuation at the end of September.

Shelby mentioned our guidance and our Q4 guidance is to generate revenues of between $63 and $66m, to have cash operating costs of between $60 and 62m and generate operating income before depreciation and amortization of between $2 and $4m and we have also provided our preliminary 2003 guidance and on a full year basis.

This is based upon on a continuation of the current technology market place and we currently anticipate that operating income before depreciation and amortization will be break-even to $5m next year and total revenues of $235 - $245m.

And finally on capital expenditure, our Q3 capital expenditure equaled approximately $3.5m and we expect similar amount in Q4 of this year; and looking outward to next year and 2003, we are anticipating that capital expenditure will equal approximately $3m per quarter.

And with that, I would like to turn the call back over to Shelby.

Thank you, Doug.

At the beginning of this year, we have laid out five themes and despite all the noise from the noise from the economic environment and the obvious headwind from a revenue standpoint, we have done well against each of them.

Those five themes were: 1.

Focus on profitability. 2.

Market share wins from our key customers. 3.

Innovations in commerce. 4.

Launch of paid services. 5.

Improved operating leverage through simplified infrastructure.

Let me tick through each of them, but I think it is fairly illustrative of what the year has looked like.

With respect to focus on profitability, as Doug mentioned, we continue to close the gap on our losses and our position for fourth quarter positive EBITDA.

Our cash expenses in this quarter were $59.7m, down from $83.3m in the same quarter in 2001 and down from $93.8m in the third quarter 2000; decline of 28% and 36% respectively.

We have clearly acted on the cost side over the past year and a half as we have lowered our cost run rate.

It has been a measured approach focused on maintaining the largest amount of revenue capacity while applying continued discipline on the long-term profit potential of each of our individual business segments.

With respect to the second theme, market share wins from our key customers, we continue to pick up market share wins and strengthen our relationships with core customers.

While newer rates remain high at 88%, overall revenue quality continues to increase.

We have seen strength in a couple of our categories gaming and commerce related categories are two examples of that.

And not surprisingly, we are seeing weakness in the overall enterprise categories.

But at the same time we are seeing strength within enterprise clients, with some of our non-traditional advertising products like research, webcast, and white paper distribution.

On the third theme, innovation and commerce, we have always had a legacy of innovation in the commerce area and we are now raising the bar once again.

We are revolutionizing the traditional outdated way of covering products by introducing a new review methodology that takes advantage of the Internet's unique capabilities.

We originally introduced comparison shop in the lead models that helped users compare prices for individual products.

Our new service focuses on how to compare prices between different products within a category.

It is called "Value Watch".

And Value Watch combines smart of our editors with artificial intelligence to produce a relative value rating system that changes dynamically based on real time changes in price and features within an individual product category.

This makes edit to be scalable, where we can cover more products on a timely basis.

We are also significantly enhancing the presentation of the information about products.

You will see lots more focus, you will see accessories associated with the product and you will see the information about where a product sits within a product line.

It is notable that we spend the time to test this both with users and with vendors to make sure it reflects their input.

It is one of the most important new innovations to come out of this organization and is live as of today; so I encourage you to actually go and take a look.

We actually have a fairly nice slide show in the front door of www.CNET.com that actually walks you through some of these changes.

This is a great new step forward and is an area where we will continue to be innovators over the next year.

Let me also provide you with some color with respect to the overall results within commerce.

As commerce advertisement revenue actually did fairly well and made up for the weakness within the enterprise accounts.

While we saw some decrease in absolute lead numbers, it is part by design as we focus on increasing overall conversion rates and decreasing non paying leads on services like mySimon.

We saw stability in our core shopper.com lead model and a slight increase in the revenue per lead.

And overall we like the trends we are seeing as we go into the fourth quarter around this area and we are seeing some positive signs that it will actually do relatively well.

The fourth theme is the launch of paid services and we really broke that when we spoke of it at the beginning of the year into two overall categories; one was paid services for marketers in that we introduced low price point high volume marketing opportunities and two was user paid services and in that we have introduced more subscription services, more recurring in nature against our user base.

With respect to the first, we launched Download page listings model at the end of the third quarter.

As most of you probably know, Download supports about 40,000 different downloadable software titles from over 25,000 individual publishers.

And these are publishers who operate businesses and use download as a primary distribution vehicle and at the same time they are not publishers who can afford to spend millions of dollars on marketing.

So we have introduced the paid listing model that provides self-service marketing opportunities to adjust the needs of the 25,000 publishers.

It provides complete credit card fulfillment without human intervention and a mix of listing fees and recurring subscription services.

Still, it has really up about two and a half weeks, but we are pleased with the number of publishers signing up with the subscription services.

I think that has come a little higher than expected.

It is also, when we think about it, really the beginning of a cover new platform with respect to the opportunity to introduce new services for marketers, specifically in this case, publishers, download subscripts and service and I think you will see more of this coming in the future.

The second area we talked about on the paid services side is as I mentioned was users.

And I think the notable ones in this area is that Game Spot Complete, which launched in the second quarter.

It went up to 37,000 users as of September 30, 2002.

It is also notable the we took prices up at the end of August from 1995 for the annual subscription to 2495... which I think is a good sign.

It is also one of the things I like about the services.

It is a great example of a win for users and at the same time, a win for CNET.

It allows us to produce the single best product that we have actually ever introduced for gamers and providing a lot of additional services and at the same time provides a recurring revenue stream for CNET.

So I think it is a notable example.

And it joins the ranks of a number of other paid services we have whether it is channel on line, or TechProGuild or some of our ancillary products.

So I think this is an area that we think has further potential as we go forward in application for other parts of our business.

The final theme was improved operating leverage through simplified infrastructure.

And we kind of laid out the three made initials.

One was sales force contract in order management system, which we successfully launched at the end of August, the second was the new ad delivery system that unified all the different ad platforms we have throughout the company and we are 65% on our way.

Down on that will be done by mid-November.

And final was the new publishing platform, which united all the different publishing systems we had between ZNET, ZDNET, CNET, TechRepublic, and mySimon into a single system.

And that is due to be completed by mid-2003.

We have made real positive progress on all three.

And importantly, it gives us a great deal of operating leverage and efficiency making it is easier for us to create better services for our clients while at the same time managing our organization with greater efficiency and smaller infrastructure.

And now shifting gears to outlook.

Doug laid out some of the outlook both for the fourth quarter and for 2003.

As we look at the fourth quarter, we are clearly forecasting a growth in revenues in the fourth quarter.

It is partly driven by normal seasonality in our business and the other part is in the cumulative effect of additional revenue streams that we have been adding over the past year.

And this puts us on target to achieve positive EBITDA in the fourth quarter.

With respect to 2003, we are building our business on the basis that there will not be an improvement in the technology sector in calendar 2003, and we think that is the prudent and appropriate tact to take.

And the cost side, we continue to drive efficiency through the way we operate our business as we focus on delivering positive EBITDA in 2003.

On the balance sheet side, you saw us use capital to buy a small amount of bonds for the quarter and you saw us also use capital to materially decrease the rent on our San Francisco facility.

We will continue to look for ways to use our capital that we think enhances shareholder value.

We view cash as a strategic tool and we will use it accordingly.

So overall, this was a pretty good quarter.

We made real progress towards profitability.

You see significant momentum on the product front.

Despite the current health of the market, technology remains a pillar of the economy as a critical purchase for both individuals as well businesses.

It is one of the most largest and most important category and one that continues to be a high need for information irrespective of the economic environment.

The Internet is the medium of choice for those interested in technology and CNET is the destination of choice for users and marketers that wish to reach them.

So with that, let me go ahead and open it up for questions.

At this time, I would like to remind everyone, in order to ask a question, please press the * then the number 1 on your telephone keypad.

We will pause for just a moment to compile the Q&A roster.

Your first question comes from Anthony Noto from Goldman Sachs.

Hi.

This is actually Eric Webber for Anthony.

You guys mentioned that your 2003 guidance is based on Tech Ad spending not worsening.

Do you have any early indications of the trends in pricing and spending for the Tech ad market in 2003?

I think it is too early.

We do have some visibility with certain of our clients that are typically on non-December fiscal years.

And I think as we look at 2003, we have made an assumption of kind of, not a significant either strengthening or weakening in the market.

I think that is appropriate based on what we see right now.

Thank you.

Your next question comes from Kathryn Mak from Lazard Freres.

Hi.

I just had one question.

Sort of regarding the same thing...it looks like technology ad pages for consumer and trade magazine has actually showed a marginal uptake in September.

And I was just wondering, it does not sound like you have seen that, as to why there would not be more of a correlation in different companies that are advertising in your magazine or perhaps there is a shift in the way the people are spending on ads...

Thank you.

Well, I think typically you should think of September as kind of an extension into the fourth quarter and you will see as part of the third quarter from a seasonality standpoint, typically weak July and August, which is what you would expect and then stronger September.

I think that September is quite often an indicator as you go into the fourth quarter.

If you look at the guidance we are providing, we are clearly providing a guidance, which would indicate a stronger fourth quarter.

So I don't think that anything you said is inconsistent with what we seeing at this point.

Your next comes from Gordon Hodge from Thomas Weisel Partners.

Good afternoon.

I am just curious if you could break down publishing revenues.

Again I was surprised to see how strong that was, the components there and then also if you could talk about the components of expenses.

I know you have been through a year now of cutting them and I am just wondering what are biggest components left in terms of the personnel, and what are other components there, and/or editorial staff, etc., and how close to the board you think you are there?

Thanks.

On the first thing, on the publishing side... there are a number of pieces that kind of make up the publishing revenue... one is computer shopper magazine... the second is we do special issues on computer shopper magazine.

So actually in the third quarter, we actually do a back-to-school guide.

And then also, we do a custom publishing relationship with Gateway, which really leverages the online relationship and lists in different information that we have... we can provide to kind of give them a better value experience.

The other places we have seen some increase on the publishing side is actually outside of the US.

We have actually launched as extensions of our online properties both in Europe and Asia, kind of 32-page newsletters in Europe, in France, Germany, and now in UK, and in Asia...

CNET Asia Week, and I think it is the CIO's supplement.

There have been very nice extensions where we have been able to profitably extend registered users we have in each of those markets into other revenue streams and other budgets as part of the relationships we have with marketers.

I think overall that is a nice example of how you use kind of the asset of the Internet to extend and create incremental revenue and incremental profits in other areas.

That is part of what you are seeing in publishing and that is really being smarter by using Internet to extend into the publishing side.

On the expense side, we have continued to kind of drive efficiency through out our organization.

One of the tacks we have taken overtime is really doing the way that we believe maintains the maximum amount of revenue capacity.

So we have seen, as we have been able to consolidate operations, as we have been able to get more leverage out of systems, I believe we have been able to create a better functioning and in many ways better products.

And I think, you have seen, if you go and look at what we have launched today on the CNET.com site...

I think you will see that in fact we are actually producing significantly better product than we probably ever produced in that area, and so some of the things we are really excited about and I think it is a good example of taking technology and leveraging editorial know-how and your ability to get more value.

So in the end, it is just more focused.

And to the question now, as we kind of look going forward, I think we continue to look for ways to drive greater efficiency and I think that is probably what you have seen in terms of investment we have made against different infrastructure things which is how we do bring an efficient platform and better operating leverages as we look forward into 2003.

Great.

Thank you.

Your next question comes from Matthew Mark from Mark Asset Management.

Few questions for you.

Can you talk about how much revenue for the quarter came from the Gateway relationship?

Can you walk through a little bit the impact the lease payment had on the balance sheet?

I am just trying to understand the way, how the balance sheet items changed during the quarter, accrued liabilities were they down, were assets up... how did that work?

And if you could talk a little bit also just about the ability to grow profitably, the print and broadcast segment of the business or in the medium term if we really are in a flatter or worse environment?

Okay.

On the Gateway site, I think the overall revenue is about 13-14% overall.

That is a mix of both online... when you think of it as a traditional online marketing where we are also doing an electronic catalogue for them as part of that and we do a custom publishing piece where we actually produce an item called gateway guide, which then is mailed to a list that they provide and a list we provide that as collected from online properties.

It is a very nice example of kind of symbiotic multiple types of products that we can provide against the client as we get a closer relationship with them.

So I think it is just a good example of strong commerce ability to extend in the print and other places.

I will give as much as I can on the lease thing and let Doug... or else, Doug, why don't you go on the lease, #2?

Yeah.

I think we described that we did amend our lease in the third quarter of this year and paid an $8m amendment fee related to that in the third quarter of this year and a $2m increase in restricted cash related to a letter of credit with that transaction.

The benefit we began to receive in the latter half of Q3 of this year is an annual savings of our expense of $3m annually and we will enjoy that benefit over the remaining 14-year-life of our existing lease on this building.

I think you also asked a question on accrued liabilities?

Yeah I did.

I was just trying to tie those two together and imagine the lease payment... what was the cash burn this quarter... what is going on in your working capital.

I think just to cover off on your accruals.

Our accrued liabilities did decline about $14m in the third quarter and there was three elements of the reduction.

One is that we accrued our severance payment at the end of June, related to our reduction in force that we announced in June.

So we actually paid out our severance related to that announcement in July.

So that was about a $6m payment.

Secondly, we paid our semiannual interest on our convertible debt in Q3. so that was roughly a $4.5 million use of cash that drew down our acquired liability balance.

And lastly, our salary accrual at the end of September was lower than at the end of June by about $3 million.

So those are the three primary elements of reduction in our accrued liability.

And then to your question, I guess also another assets we have had a decrease because of the impairment of private investments.

In respect of question 3, which was, how do we kind of grow over our ad business when the market is so soft...

I assume you were talking about print and broadcast or was it kind of a broader question?

I guess I was trying to focus just on what the print and broadcast opportunity is if the online market stays flat to weak.

I would say that overall we see signs of things that are kind of working in the business and things that are not working in the business.

On the not working, we have seen weaknesses in the later half of this year and also going into 2003, I don't think it will surprise anyone that your classic enterprise accounts have lower budgets right now.

At the same time, we are seeing good attraction as a result of our overall commerce efforts and we have been able to introduce a number of different products whether it is webcast, research, white papers or the paid services by both GameSpot and download... so I think we have been able to see some strength in core areas.

When you specifically look on the print side, what we are finding is when you think about how the overall print model and how do you drive subscribers and fundamentally change the economics of that business.

We are finding that there is lots of leverage points when you start from the core reach we have from the Internet side where we use user registration and other things as the ways to fundamentally expand opportunities using as examples what we have seen in both Europe and Asia.

I think they are nice examples of commendability to extend print and really be able to take some low-hanging fruit on a relative basis.

So I think as we go into 2003, we have clearly some momentum as we go into the fourth quarter that will carry into next year.

I think at the same time, we are taking what I would say is the relatively conservative approach, but I think you will be not well served, if you did not take, kind of given everything going on in the world right now.

Thanks.

Your next question comes from Matthew Sandival with Elliot and Associates.

Hi Doug.

I just wonder if I could go back to the balance sheet...

I have two quick questions there.

Could you just walk through how the cash went from 223 last quarter down to 188 and then second, I know that you just mentioned $2m of the restricted cash for these letters of credit... but what is the other 16 million for?

Yeah.

The other 16 million is a letter of credit we assumed back in the fourth quarter of 2000 upon the merger with ZDNET... that they had a letter of credit on the New York facility that was in place when the transaction was completed, and we continue to occupy some space in that ability, and so that is what the other 16 relates to.

As far as our use of cash in Q3, let me just kind of go through the bigger elements.

It is fairly straightforward.

Obviously, we announced that we had an operating loss for depreciation and amortization of about $3.5m in Q3.

We expended $8m for our lease amendment fee.

Our capex was about $3.5m.

We closed on three smallish acquisitions in Q3 previously talked about which is $3m.

We had our severance payments in Q3 of $6m.

We had the interest payment on our convertible debts that’s paid semiannually of about $4.3m and we acquired some of our bonds, as we mentioned, and the purchase price on those bonds was $3.6m.

And finally, we had a working capital usage of $2.5m primarily relating to the continuing obligations of some of the leases that we abandoned the year ago.

So that should come down to about $34m reduction in cash during the quarter.

Your next question comes from James Riepe with Credit Suisse First Boston.

You both mentioned in your preamble maintaining and growing your revenue capacity going forward.

Can you give us an idea as to what the trend has been in your CPMs over the past year as well as your inventory?

It really depends on the area.

It is not an easy question.

If you look at all the different types of products that we have, I think we have had places like the commerce area that we have actually seen relative strengths and we are seeing tightening supply when you look at some of our premier programs as we go into the fourth quarter and I think throughout the latter half of this year.

But even within commerce, you get different dynamics whether you are in desktops, notebooks, handhelds, or other places.

I would say that the two places we have seen more on the enterprise side is just lower budgets.

So it is not necessarily that you are seeing lots of pricing pressure.

You are just seeing not a lot of money on half of the enterprise accounts.

So I am not sure if you are going to only look at it as a pricing pressure, but rather kind of a demand driven – lack of demand.

The other place we have actually seen some real pricing pressures has been kind of on the overall e-mail list side, which there is just at this point, I think too much supply of people.

All you do is watch your e-mail inbox to get the sense that there has been too much supply in the last six to nine months.

We are doing a lot as we actually kind of pull back in that area, clean a lot of our lists and do a lot of other things in terms of managing supply against that.

I think finally we have actually seen some real pricing... the ability to that price increase has been kind of a broader rate that we refer to as kind of engagement marketing, which includes things like webcast, promotions of webcast, research, and white papers.

Ironically, the greatest [stack back set] of products is really focused on our enterprise accounts and we have seen some nice progress on our part not only in terms of our ability to sell into those accounts.

You are typically selling into a group that is other than your traditional marketing group, which is the ironic part, where you typically into product managers.

But we have seen some nice amicability to have some real wins within that area.

I think on the overall lease side, we went through a period a year ago, where we had seen kind of slight declines quarter to quarter and overall revenue per lead.

You have actually seen in the last two quarters, slight uptakes in that area.

So I think we have seen the worst of pricing pressure probably 6-9 months ago and I think we are seeing a rebound in terms of our ability to both manage overall the mix of leads and at the same time to increase our ability to generate yield from those lists.

Great detail.

Thank you.

At this time, I would like to again remind everyone, in order to ask a question, please press the * then the number 1 on your telephone keypad.

If there are no other questions, I would like to go ahead and thank everyone....

There is one coming.

Your next question comes from [Steve Rushton with Gwen Capital Management].

Hi!

Shelby.

This is Steve Rushton.

Other people may be trying to ask questions.

It took me a while to get through.

A couple of questions relating to your early projections to 2003, can you walk us through the key assumptions you are making below the top line in terms of different areas, especially on the revenue side, but also what kind of leverage you might have on the expense side as well?

I think it is probably still early for us to be providing too much coverage or too much detail on the 2003 numbers.

I would say overall the assumptions we built it on is that you would not see an improvement in the overall technology sectors going to 2003.

And I think there is some individual areas that we have momentum that we know would get natural increases as we go into 2003.

An example of that will be the GameSpot complete subscription service.

We recognize that every quarter as we continue to sign people up, we will build a recurring revenue stream and you know, you will find the same thing with the subscription services for marketers on download.com, so I think we are taking an, which I think is an appropriate, we are taking a conservative approach in what we think the overall demand side will be within the technology categories as we go into 2003.

There are some places where we have had some natural increases based on time passing through out 2003.

On the expense side, we continue to find ways to operate more efficiently, and clearly when you look at the investments we have made in the infrastructure, whether it is publishing systems or the sales force automation site or at delivery... it was done on the assumption that we can actually bring greater efficiency.

And partly it is also our ability to manage growth and scale growth going forward.

At each step, we have been able to do a pretty good job of managing efficiently and as we go into 2003 the guidance we are providing is for breakeven EBITDA to positive 5 EBITDA and I think that is a conservative approach and I think that is part of our cost management, and I think it is partly growth out of some of the things we covered.

So, if I am hearing you correctly, on the revenue side, you are expecting, except a few areas where you see some strength as you gather momentum, have seen some early success.

Except for those particular areas, you are expecting somewhat of flattish revenue no worse since you are not expecting to get worse and no better because you are not expecting to get better.

No and I think that is appropriate and I think it is a little bit of portfolio where you will probably see some accounts get better and some accounts get worse.

But I think that is, you know, right now it is still early.

Most people have not actually determined their 2003 budgets and given what we see now and people need to get some visibility in their 2003 rating, but this is our appropriate view at this time.

That is helpful.

I have one other question.

What do you expect the cash balance to be at the end of the fourth quarter given your guidance for the fourth quarter?

Based upon the guidance we provided which is to have positive operating income for depreciation of 2-4 and our cash capital expenditure in that 3-4 range, our cash balances as it relates to our operating activity should be fairly in line at the end of this year to where we ended the end of September.

And are there other cash expenses that you might experience.

I think our guidance essentially captures our thinking on the use of cash during the fourth quarter.

And as Doug mentioned, we will continue to look for ways to be opportunistic with things like the lease, I think the lease is a great example of what we spend, $8 million to be able to generate $3 million in savings per year for the next 14 years that is 40% plus IRR.

I think we are taking a very opportunistic approach to how to use cash to generate incremental value.

Okay.

So there is nothing that you foresee now, but you are going to be opportunistic... so will that opportunistic be flat to $1-2 million?

That will be fair.

next we have a followup from Matthew Sandival with Elliot and Associates.

Hi Doug.

Just one other thing.

You had mentioned in the main portion of the call, right down on your investment securities.

Did I hear that right?

Was that taken into one of the numbers you just gave me a few questions back... or?

That was our non-cash writedown.

It is our private portfolio and you know, as we go through the process, we are looking at goodwill impairment, I think it is being at the same process as we go through on looking at our private portfolio.

Okay thank you.

At this time, there are no further questions.

Are there any closing remarks?

I will wait.

Maybe a question will pop in.

I would like to thank everyone for their attendance on the call and would like to get a little promotion.

I encourage you to go and check up the new step we have done on Cnet.com because I think you will all be pretty excited about it as we are.

Thank you very much and we will talk to you next quarter.

Thank you for joining today's conference call.

You may now disconnect.