Interchange Corporation Q1 2006 Earnings Conference Call Transcript (INCX)

Interchange Corporation, (INCX)
Q1 2006 Earnings Conference Call
May 9, 2006, 5:00 p.m. EST

Executives:

Heath Clarke, Chairman and Chief Executive Officer
Bruce Crair, President and Chief Operating Officer
Doug Norman, Chief Financial Officer

Analysts:

Collin Gillis, Canaccord Adams
Nadeem Habib, Private Investor
Jeffrey Vandermark, Smith Barney
Philip Darvo, Private Investor

Presentation

Operator

Good afternoon. My name is Landon Barodo, and I’ll be the moderator for today’s presentation. Thank you for your interest in Interchange Corporation. With me today are the Chairman and Chief Executive Officer of Interchange, Mr. Heath Clarke; the President and Chief Operating Officer, Mr. Bruce Crair; and the Chief Financial Officer, Mr. Doug Norman. Mr. Clark, Mr. Crair, and Mr. Norman are going to discuss the Company’s financial results for the first quarter 2006. At the conclusion of their prepared remarks, we’ll open the conference for questions.

Some of the discussions today will involve forward-looking statements, and I will now read to you the following warnings about reliance on forward-looking statements. Certain matters discussed during this conference call will include forward-looking statements within the meaning of Section 21-E of the United States Securities and Exchange Act of 1934 as amended. All statements regarding potential results and future plans and objectives of the Company, including those made regarding the exploration of strategic options related to the Company’s national search business and the Company’s assumptions regarding the value, growth margins, and the defensibility of Local.com, the traffic acquisition strategies, subscriptions, advertising products, and planned and future search activities are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.

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 or circumstances. Unless otherwise stated, all site traffic and usage statistics provided during today’s call are from third-party service providers engaged by the Company.

Gentlemen, please proceed.

Heath Clarke, Chairman and Chief Executive Officer

Thanks Landon, and welcome to everyone joining the call today. We came in at the top end of guidance of $3 million to $3.2 million and our losses at the lower end of guidance of $3.8 million to $4 million, which also includes $915,000 in stock option expense. We used cash of around $2.3 million during the quarter. I’m pleased to report that we’ve now outperformed out local search revenue guidance for two consecutive quarters. In the fourth quarter we projected around $400,000 in revenues and came in at $600,000. In the first quarter, we projected $900,000 to $1 million in revenue and came in at $1.2 million, representing local search revenue of double the prior quarter. We feel this is an outstanding result from local search and we’re still at the very beginning.

We believe from the second quarter onwards growth in local search revenue will compensate for any further decline in our national search revenue. For the second quarter, we’re projecting overall revenue of $3 million to $3.2 million with local search revenue expected to go to half of our total revenue of around $1.6 million. We’re projecting a net loss of between $3.6 million and $3.8 million, and that we use around $2.5 million in cash.

We believe the second quarter represents a long anticipated inflection point in our business now that local search revenue is projected to equal about half of our overall revenue. The second quarter will see the release of new local ad products as well as continued improvements in site monetization. As a result, we expect that future periods will not only show increased revenue delivered from local search but a material decrease in losses as a result of the growth of these high-margin contributions to our bottom line.

We’ve come a long way since our launch in August 2005. With over 8 million unique monthly visitors, Local.com is ranked the 123rd busiest website on the internet and the 6ht busiest pure play local search engine in March 2006 by comScore. This is an incredible achievement. We out ranked by millions of monthly users many well-known directory brands that have been around for a lot longer and have spent and continue to spend a lot more money on traffic than we do. We’re an agile company and that gives us many benefits. The combination of our intuitive domain name, our commitment to delivering a superior local search experience to consumers, our large base of high-value search traffic, and our ability to out-innovate more established and slower moving competitors have all contributed to the success.

Importantly, we’ve put in place a team that can take this company to the next level and that is exactly what we’re going to do. We have some major technology integrations underway and once these are completed we’ll be in a position to deploy new products and enhancements in current and new markets faster than ever before. We’re a major player in the fastest growing search advertising sector, local search, and we are in the best domain in the industry, Local.com. We won’t stop until we’re number one in local search.

In our last conference call, we projected first quarter local search revenues of $900,000 to $1 million. For the second quarter in a row we’ve exceeded our local search guidance. We posted local search revenues of $1.2 million in the first quarter. We again forecast stronger growth in the second quarter with revenues projected around $1.6 million. We believe it’s only a matter of time before our local search revenue exceeds national search revenue and we return to overall growth mode.

We continue to experiment with our marketing and advertising mix in order to increase monetization on the site. Revenue per 1000 page views or RPM has grown from around $8 on our third quarter call to over $8.50 on our fourth quarter call. I’m pleased to report that RPM is now consistently over $10.50, and more recently we’ve seen RPM get over $12. Monetization is an important objective for us during the second quarter and you can expect to see continued changes and refinements on Local.com in the coming weeks and months with the explicit intent of deriving maximum revenue from each page while preserving our users’ experience. We believe that over time and with the right mix of traffic and ad units RPM on Local.com can move past $35.

I’ll talk more in a moment about expected changes to our site and new ad products designed to increase monetization of our traffic. Our expenses remain under control. Some of us competitors spend millions more dollars per month than us, yet they get virtually no more traffic. We’ve built upon our existing search engine marketing knowledge to become industry leaders in acquiring traffic at low cost. We have the third highest number of link impressions out of more than 300,000 advertisers on Google, but we’re no where near their biggest spender.

What’s important to note in the detail is that our search serving costs dropped from 54% in the fourth quarter to 50% in the first quarter due to the higher margin revenue generated on Local.com. We believe this is an important validation of our transition to the higher margin local search destination space. Our gross margins are already improving.

Our return on ad spend, which is the amount of revenue generated for each dollar we spend getting traffic to our site, has moved around as we’ve experimented with page layouts and ad units. It grew from an initial $0.75 in revenues per dollar spent to consistently over $0.90 in revenues per dollars spent on our last earnings call. Since then, we’ve seen peaks of over $1, which means we’re making money, and trust it below $0.70. We’re again consistently over $0.90 and we believe that planned additions of ad units to our search results page will position us consistently about $1 and in position to increase market share. These changes are underway as we speak and I’ll talk more about these in a moment.

Let’s look at the market. Local search advertising continues to go main stream and we feel this industry is at the absolute beginning of this trend. Research suggests around one-quarter of all internet searches today are commercial and local. This is a staggering number of searches each day. These searches have not been monetized to the fullest potential in the past, but we know that advertisers and the dollars always follow consumers. Anecdotal evidence suggests that recently released local ad products from some of our partners have sold extremely well. This trend is just the beginning and all research suggests that our industry will gain momentum in the coming quarters and years.

Improvements in local search technologies by all players will drive increased local search usage by consumers. Advertisers will in turn target those consumers through better geo-targeting and improved local ad products. Importantly, they’ll pay a premium to do so. For example, advertisers on Yahoo paid $1.15 for click for the generic keyword dentist and $9 per click to the local phase “Dinner San Francisco,” nearly an 800% premium for local consumers. Why a premium? Because those local consumers convert into buyers at about eight times the rate of generic search consumers.

What’s really exciting is that only about 1% of small businesses are search advertisers today leaving an untapped massive market of over 10 million businesses in the U.S. and 25 million more worldwide. Adoption of local search advertising by the small- and medium-size enterprises is projected to drive a 43% compound annual growth rate from about $1 billion last year to $6.2 billion by 2010. In many ways local search advertising is the future of all search advertising. Local.com and our planned local ad products represent our strategy to capture and earn our piece of this rapidly emerging market, and we’ve already established ourselves as a leader in this space.

As stated on our prior call, our overall strategy in 2006 is to build market share by growing traffic to Local.com, improving our search technologies, and developing a local advertiser base. These three objectives build on the three value creators in search -- traffic, technology, and advertisers, with traffic by far being the most important of these three.

We believe that earning traffic and technology are necessary to build a defensible position in search. Advertisers are the third value creator that drives monetization of the site overall. We continue to believe that securing and building upon all three value creators will deliver the best long-term growth for our business and capital appreciation for our shareholders.

Now, I’ll hand it over to our President and COO, Bruce Crair, to report on our efforts to build the first two value creators.

Bruce Crair, Chief Operating Officer

Thanks Heath. As described in our last call, we have several value creators and we have several tools to build on each of them. To build the first value creator, traffic, we have four traffic acquisition strategies -- Search Engine Marketing, Search Engine Optimization, Syndication of our Results and Advertisers, and Repeat Usage. Each of these strategies involves phases and we’re generally in phase one of each strategy at this time.

To date, Search Engine Marketing continues to be our main source of traffic. A Search Engine Marketing strategy involves three phases -- broad, low-cost traffic acquisition, vertically targeted traffic acquisition, and expansion of our Search Engine Marketing to additional search networks. We’re currently in the first phase of this strategy and experimenting with the second and third phases. We’re driving more traffic through verticalization and additional search networks.

Overall, Search Engine Marketing represents a highly targeted way to bring traffic to Local.com, and we think that for the time being Search Engine Marketing is one of the least expensive forms of branding we can buy. Our second traffic strategy is Search Engine Optimization or SEO. SEO is where we make our data available to other search engines so they can include our information in their search results. The end result is that the users that go to other search engines may end up on Local.com.

Our SEO strategy involves four phases: Experimentation with page layouts for optimal indexing in search engines, ramping up the volume of content indexed, improving our page rank, and expanding our SEO to additional search engines. We’re learning how to deal with the vagaries of the various search engines as they change their own algorithms and that’s why we’re still in phase one of our SEO efforts. Our results have generally been positive providing Local.com a steady flow of free traffic every day. We’re working to develop a scalable framework to make all our content available in order to drive the maximum amount of no-cost search traffic to Local.com.

Syndication is our third traffic strategy. We launched our syndication network last quarter and are ramping up our efforts in this area. This network receives our local search results and sponsored listings on geographically named websites such as ClevelandJewelers.com. Consumers arrive at these sites via direct navigation, which means they simply type in the domain name and via SEO. We monetize traffic on these sites through a combination of different kinds of ad units. We believe our syndication product is unique and that we can grow our syndication network in the coming quarters, thereby improving our reach and gaining additional market share.

Our fourth traffic strategy is Repeat Usage. Our philosophy for Local.com is “Keep it Simple.” We believe providing useful information to consumers through a simple search experience will ultimately drive Repeat Usage. It is still early days but we’ve seen the number of repeat visitors to the site increase consistently. These four traffic acquisition strategies are cumulative, and we believe each phase of implementation will drive incrementally more traffic to the site.

Our second value creator is our Algorithmic Local Search Technology. Our search results are the fusion of two patent pending technologies -- Keyword DNA and web indexing. Keyword DNA is a method for creating metadata, which is really just information about information, in order to make business listing searchable and user friendly. Our web indexing technology is designed to find and index small businesses’ websites. We believe we’re the only pure play local search engine that uses both directory and web index search results. We’re constantly improving our search technologies and infrastructure to stay ahead of the curve.

We have many patents pending and intend to continue to file new patents in order to protect our investments. And of course the recent addition to our management team of Lee Siegfried and Vickie Young, our Vice Presidents of Engineering and Product Management, substantially improve our ability to deliver new, innovative, and unique technologies. These new technologies include new mapping, improved search algorithms, deeper web calling capabilities, and highly scalable advertising and data processing capabilities. We look forward to deploying each of these over the next few quarters.

Finally, as you know, we recently launched our UK Local.com site in Beta and plan a full launch on our new technology platform later this year. The UK launch was the first of many new launches that will bring new users, advertisers, and availability around the world.

Heath Clarke, Chief Executive Officer

Thanks Bruce. The third value creator is advertisers. As a search advertising business, we monetize our Local.com traffic through various ad units including sponsored listing, pay-per-call, banner, and cost per lead. Our ads units are displayed in various locations around our algorithmic listings on Local.com and common on leading search engines. The bulk of our ad units come from partners such as Yahoo, CitySearch, and SuperPages.com. Consumers generate revenue for us when they respond with a click or a call to the various forms of advertising on this site. Our overall objective with our advertising is to monetize our search traffic as efficiently as possible in order to maximize our revenues from the site.

In our last call we discussed our intent to test direct-to-advertiser packages for small businesses. I’m pleased to report that one of those tests is now underway and the second test will begin within days. Those products are subscription ad products, which means advertisers pay us a fixed amount each month for their ads to be displayed on Local.com. We chose a subscription model because feedback from some advertisers was that search advertising is too complex. Subscription advertising is a simple fixed price per month model, very easy to understand. Subscription revenues also represent highly predictable, highly recurring revenue and they’re very high-margin products. While it will take time to go to critical massive revenue from these new ad products, revenue from these products has begun to contribute to our bottom line already. We anticipate material reductions in our quarterly losses as revenues from our subscription products ramp up.

Channels for the sales of our new ad products are being developed today and we’ve been very encouraged by inquiries from regional sales channels that wish to add Local.com advertising to the menu of ad products they offer to local businesses. This more than anything else illustrates that traffic is the most important value creator in the search industry. We have traffic and other companies want to sell our traffic inventory for us. This option simply didn’t exist for us six months ago and now that it does, we and our partners intend to take full advantage of it.

We’ll continue to experiment with different ad units on Local.com in order to maximize our revenues. We’ve been doing testing over the past few months to find the right balance between monetization and consumer experience, and in the next few weeks you can expect to see new page layouts that make room for additional ads, while preserving the clean look and feel that consumers have come to expect on Local.com.

We anticipate that once these changes are made, we’ll break through to a positive return on ad spend, which means that for every dollar we spend in bringing traffic to the site we’ll make more than a dollar back. This will be a major milestone in the development of our business and allows us to ramp up traffic and obtain greater market share. This in turn creates additional inventory for sales of our subscription ad products at no additional cost to our bottom line. Getting local.com to profit on our ad spend, growing market share, and selling ad products into our search inventory is essentially how we expect to take our company from the quarterly losses of today to profit within a few quarters.

Now for some housekeeping. We recently announced the engagement of a banker to assist us in exploring strategic options for our national search business. We believe that to the extent a transaction occurs, it’s likely to cause in the third quarter. We’re in conversations to varying degrees with a number of different companies. We don’t intend to provide more information on this process other than to say the process continues and we feel that we’re making progress.

So to summarize, Local.com is a major player in local search today with over 8 million unique visitors on our site each month and ranked 123rd of all internet sites. From the middle of the first quarter on we turned our attention to monetization and break even on ad spend and we expect to see the benefits of this focus from the end of the second quarter onwards. Once we see break even on ad spend, we’ll continue to expand the most important value creator, traffic, in order to become an even bigger name in local search.

We earn and continue to develop the second value creator, technology. We’ve already received provisional approval of two of our 20 patents pending and will announce details when full approval is granted by the US PTO.

In line with our prior guidance, we’re now developing a third value creator, advertisers, by testing new products through new distribution channels. We’ll continue to refine our products based on advertiser and user feedback and expect to officially launch both products in the coming weeks. We’ve come a long way in such a short amount of time and we’ve created a great brand in the local search market, Local.com. We’re up against many worthy competitors with better known brands working hard to deliver better products, and we still have a long way to go, but the advantage we have is that we’re a small company that gets this space, and we’re agile and can outmaneuver bigger competitors.

I brought Bruce Crair aborad at CLL last year and asked him to help me build a world class team capable of taking this company to the next level. Bruce has executed well on this and earned his recent promotion to President and COO for which I congratulate him. Bruce has delivered a full complement of experienced and talented people to our management team from companies like Autobytel, Variad, InterActiveCorp, and Quest Software to name a few. Once again, our entire team has executed well and our company has delivered in local search, and I thank them all for the great job they’ve done. Local search continues to be a great market for us to be in and we’re in at the right time with the right assets and the best team we’ve ever had.

Now, I’ll hand it over to our CFO, Doug Norman, to review the financials.

Doug Norman, Chief Financial Officer

Thank you, Heath. Our first quarter revenue was $3.2 million, at the high end of our guidance of $3 million to $3.2 million and represents an 8% decrease from $3.4 million in the fourth quarter. This decrease was due to a decline in international business that was partially offset by an increase in our local search business. Of total revenue, $1.2 million or 36% came from Local Search. This is up approximately $600,000 in the fourth quarter and $200,000 better than our guidance. We had two partners that represented over 10% of our revenues for the quarter. Our largest local search partner, Yahoo, represented 28% of our revenues for the quarter, up from 13% in the fourth quarter. Our largest national search partner, LookSmart, represented 25% of our revenues for the quarter, down from 30% in the fourth quarter.

Expenses for the first quarter includes $915,000 of non-cash stock-based compensation expense as required with the adoption of SFAS 123R on January 1, 2006. Our expenses were as follows: Search serving was $1.6 million or 50% of revenue. Search serving expenses decreased from $300,000 from $1.9 million or 54% of revenue in the fourth quarter, due to the transition to local search, which has less search serving expenses associated with it. No distribution network partner represented more than 10% of our revenue in the first quarter.

Sales and marketing totaled 2.5 million or 78% of revenue. Sales and marketing increased $744,000 from the fourth quarter, primarily as a result of our Search Engine Marketing expense to drive traffic to Local.com and included a $172,000 of non-cash stock-based compensation.

General and administrative expenses totaled 1.8 million or 57% of revenue. G&A increased $747,000 over the fourth quarter, primarily due to $670,000 of non-cash stock-based compensation. Research and development totaled $950,000 or 30% of revenue. R&D decreased from the fourth quarter and includes $73,000 of non-cash stock-based compensation.

Amortization of intangibles totaled $237,000. Interest and other income was $105,000. Our net loss totaled $3.8 million, and our basic and diluted net loss per share was $0.41., which is at the low end of our prior guidance of $3.8 million to $4.0 million. The net loss included at total of $915,000 in non-cash stock-based compensation and $520,000 of depreciation and amortization. In total our net loss included $1.4 million of non-cash expenses. Basic and diluted earnings per share were calculated based on 9.2 million weighted average shares outstanding. Fixed asset expenditures were $10,000 for the quarter and depreciation and amortization was $520,000.

I would now like to provide financial guidance for the second quarter fiscal 2006. The Company expects second quarter revenue to be between $3 million and $3.2 million. Most importantly, we expect local search revenues to be approximately $1.6 million, which is a 40% increase over the first quarter. We expect a net loss between $3.6 million and $3.8 million or $0.39 to $0.41 loss per share. This guidance includes the following non-cash items: Stock-based compensation $675,000, depreciation and amortization $280,000, amortization of intangibles $240,000. Total non-cash expenses are expected to be $1.2 million or $0.13 per share.

Capital expenditures for the second quarter are estimated to be approximately $100,000. The earnings per share forecast assumes a weighted average share count of 9.3 million shares.

Now, I’d like to discuss the balance sheet. As of March 31, 2006, we had $12 million in cash, cash equivalents, and marketable securities and no material debt. We used $2.3 million in cash in the first quarter and based on our guidance we expect to use approximately $2.5 million in the second quarter. We have the resources needed to execute on our local search plans.

I would now like to turn the call back over the Heath.

Heath Clarke, Chairman and Chief Executive Officer

Thanks, Doug. Interchange Corporation is Local.com and Local.com dominates our thoughts for the future. Let me finish with these key points. First, with $12 million on hand, we believe we have sufficient cash reserves to reach profitability. We anticipate that we’ll return to profitability within a few quarters and that this will be driven by achieving positive return on ad spend in conjunction with sales of new ad products into our search inventory. Second, we’re not reliant on the sale of our national search assets to execute in local search. All our internal projections exclude any cash as a result of any transaction at our national search business. Third, for the second time we outperformed our guidance on local search revenue. This is important to note, although our first quarter guidance was at the top end of our range we actually outperformed on local again. As result, we continue to believe that we’ve provided ample reason to have confidence in our local search future. Finally, we have a great team in place to execute on our core vision of establishing local.com as number one in local search.

Thank you again for your interest in Interchange and Local.com. I’d now like to turn it over to the moderator for Q&A.

Operator

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, you may do so by hitting * and 1 on your telephone, * and 1 for questions. If you are using a speakerphone, please make sure the mute function on your phone is turned off for the signal to be read by our equipment; again * and 1 for questions. We’ll pause a moment to assemble our roster. We’ll go first to Collin Gillis with Canaccord Adams. Please go ahead.

Collin Gillis, Canaccord Adams

Hello Heath, hello Doug. Could you guys talk about how deep users are going into the site? I know it’s been a little bit, but the phone numbers are no longer covered up. Have we seen any impact in traffic from having the page data right upfront?

Heath Clarke, Chairman and Chief Executive Officer

No, actually that’s a great question. We kind of toss and turn with that a little bit. The reason we’ve covered up the phone number was so that we could track to click, and what we elected to do ultimately…we’ve got some feedback from our consumers, and we just felt it was important to give consumers the best possible experience and to give the information upfront. So, we stopped covering up the number and what we found was that the page views per visitor went up and the number of consumers still going through the profile page, which is potentially what they would have done before, page settings. We’ve actually seen the page views per visitor has been consistent for sometime and when we actually made that change it continued to go up subsequent to that.

Collin Gillis, Canaccord Adams

I’m sure I mentioned to you before that I’m a strong user of Local.com, I just use it to find things that are closer to me, but can you talk a little bit about what people are searching for, what you’re seeing in terms of verticals?

Heath Clarke, Chairman and Chief Executive Officer

Sure, our search volumes are sufficient that they kind of generally reflect what consumers are doing, searches for on the internet in the context of local search. They’re searching for restaurants, they’re searching for hotels, they’re searching for auto rentals, they’re searching for post offices a lot too. There’s a wide variety of things that consumers are searching for, but they do correlate with the general verticals on the internet.

Collin Gillis, Canaccord Adams

Okay, great, and I know it’s not in the near term, but is it possible that down the line you could…there’s so much talk about tagging that you could build out and tag data and allow users to sort of tag sites or local companies that they find useful?

Heath Clarke, Chairman and Chief Executive Officer

Yeah, actually another great point. We did a partnership with Judy’s Book and the deployment is still in process, which allows consumers to receive feedback about local businesses, but we’re constantly exploring different ways. We think the community aspect with respect to local search has especially shrunk and we look to develop that out over time. We’re really at the point where we’re trying to garner a lot of feedback from our consumers to see what they do like. We do have a tagging product through our partnership with LookSmart called Furl, but we think that we can do other things that are complimentary to that in the future.

Collin Gillis, Canaccord Adams

Okay great, congratulations on a great quarter.

Operator

Ladies and gentlemen, once again * and 1 for questions. We’ll go next to Nadeem Habib, a private investor.

Nadeem Habib, Private Investor

Hello sir. I just want to ask you a couple of questions, if I’m allowed to. Can you give me an update on UK.Local.com, how it is doing and also how is the Local Connect is doing, will it be giving any significant contribution to the revenue down the road?

Heath Clarke, Chairman and Chief Executive Officer

Let’s answer those and charting it down. So, UK.Local.com we did as a soft launch in the first quarter. As we pointed out, we have an integration that’s going on in the U.S. where we’re bringing together our platforms — we use a different platform in the U.S. than we do in Europe — once that’s done, we’re going to do a hard launch of the U.K. version of the site and that’s going to be a third quarter scenario. So at this point, we’re gathering information of our consumer search habits. We won’t be putting that information our publicly for the time being; we feel that once we do that hard launch, once that technology integration is completed, the U.K. version is on the U.S. platform as integrated, then we’re going to be doing all the great things that we’ve done on Local.com in the U.S. in the U.K., and at that point you can expect to see us put out monthly traffic reports and give a much better visibility into that.

Nadeem Habib, Private Investor

Okay, and how about the Local Connect, any significant contribution to the revenue from Local Connect?

Heath Clarke, Chairman and Chief Executive Officer

Local Connect is the renamed version of our Local Direct product and we do have 30 newspapers on that product today. Maybe Doug would like to talk about the contributions.

Doug Norman, Chief Financial Officer

It’s basically mostly on a license fees right now, Nadeem, so we don’t actually break that out, because it’s not a material aspect at this point, but we are looking at expanding our relationships with other publishers as well.

Heath Clarke, Chairman and Chief Executive Officer

Yeah, and the Local Connect represents one of two struts on our syndication strategy; the other one being Domain Dividends. So, that was a product we launched in early first quarter that Bruce touched on. Our attempt there with our syndication product is to increase the reach of Local.com listings and therefore our Local.com advertisers sponsored listings as well, and that’s just something that’s going to build over time.

Nadeem Habib, Private Investor

One other question; you also mentioned in your previous conference call regarding you working on additional syndication deals, do you want to give us an update on that, on where it stands and…

Heath Clarke, Chairman and Chief Executive Officer

Actually we are working on syndication deals all the time. We don’t update them to the extent that they haven’t been completed. To the extent that they have been completed and they’re material, we will have announced those already.

Nadeem Habib, Private Investor

Okay, and one last question; in the month of January you had 8 million unique visitors and 39 page views, and in the month of March you have 8.5 million and 42. It seems like the progress is down by almost 5%, it’s not the same as it was in August. Do you expect this to continue with this downward trend and what will be the next task of announcing your monthly…before you used to give every month your update, now are you going to do quarterly or you’re going to do with some milestones?

Heath Clarke, Chairman and Chief Executive Officer

The 8.2 million to 8.6 million is an increase during the quarter and an increase in page views as well, and we did talk about wanting to put information out there on a monthly basis and ultimately we would move that back to a quarterly basis, so we’re doing quarterly numbers from kind of this point forth. The only time we would do monthly numbers is, as I said, on a hard launch of UK.Local.com that we would do that for a period of time to give an indication of how things are going. The big thrust coming into the middle of the first quarter was monetization; it was gearing up for monetization of that traffic. So, hopefully I’ve outlined in this call that one of the things that we want to achieve is break even on our ad spend, and once that’s been done you can expect to see our traffic numbers go up again, because we’ll be focused on that explicitly. Concurrent with that, we’re focusing on monetization of the site. So, we want to generate more revenue from that traffic that ever before, and that’s really what the launch of these ad products is going to do.

Nadeem Habib, Private Investor

Thank you and I will give time for other guys to ask questions and in the end if I may ask one or two more I’ll do that. Thank you again.

Operator

We’ll go next to Jeffrey Vandermark with Smith Barney.

Jeffrey Vandermark, Smith Barney

Most of my questions were answered, but just quickly, you’re looking for a second quarter estimate on that break even ad spend?

Heath Clarke, Chairman and Chief Executive Officer

I’m sorry I didn’t understand that.

Jeffrey Vandermark, Smith Barney

When is your break even forecast on the ad spend?

Heath Clarke, Chairman and Chief Executive Officer

I would suggest that once these new ad units go on the pages, once you see these new pages come out, very quickly after that we anticipate that we’ll be break even on that ad spend. So that is a second quarter scenario.

Jeffrey Vandermark, Smith Barney

How about your cash level right now, can you give me that real quick?

Heath Clarke, Chairman and Chief Executive Officer

Cash level at the end of the quarter was…

Doug Norman, Chief Financial Officer

Cash level at the end of the first quarter was $12 million.

Jeffrey Vandermark, Smith Barney

Okay, thank you very much.

Operator

We’ll go next with Philip Darvo, a private investor.

Philip Darvo, Private Investor

Hi guys, I wanted to find out if there are any plans for the future to more or less remodel the local search engines to have a bit more of a community-based environment, meaning becoming a staging area for recurrent visitors, users of the sort…not to be compared like Yahoo or Google, but to give it more of a community feel, because that’s really attracting a lot more users?

Heath Clarke, Chairman and Chief Executive Officer

Yeah, we think that Local.com can be many different things locally, and the prior caller asked about if we enabled tagging. I mean that’s a community aspect on the internet, but we also look at Local.com as being a physical community asset where potentially local charities at schools and what not can use Local.com to post information. These are some of the things that we’re exploring and it’s not near term, but we feel that Local.com can be a site that brings together people in local communities as a resource to those local communities. So, we’re definitely looking at that kind of thing.

Philip Darvo, Private Investor

Okay, thank you.

Operator

And as a reminder, * and 1 for questions please. If you’d like to ask a question, * and 1. We’ll pause for just a moment. We’ll take a followup from Nadeem Habib, private investor.

Nadeem Habib, Private Investor

Yes, you mentioned about new mapping in the future, can you give a little bit more information on what kind of mapping improvement you’re going to do, because you guys mentioned in one of your interviews a few months ago regarding improving your mapping, but nothing is done yet?

Heath Clarke, Chairman and Chief Executive Officer

We are working on a number of different areas in the mapping side, and that’s part of the technology improvement that I was talking about earlier. I can’t give you any specifics on what’s going to happen there, but we’re pretty excited about some of the capabilities we’re going to be providing our end-users.

Nadeem Habib, Private Investor

Will it be similar to Yahoo and Google, like satellite vision, satellite views or bird eye view, something like that, or all the businesses shown on the map, should we expect something like that?

Heath Clarke, Chairman and Chief Executive Officer

I wouldn’t say that it would be satellite views. I would say it’s going to be very useable and very easy for the consumer to find what they’re looking for.

Nadeem Habib, Private Investor

Thank you. And you guys mentioned that Judy Book reviews in December will be implemented in the month of April and they are not done yet, can you tell us why the delay or will it be there pretty soon in this quarter?

Heath Clarke, Chairman and Chief Executive Officer

I’m not sure where you got April from, Nadeem.

Nadeem Habib, Private Investor

In your press conference for Judy Book, you guys said that you guys want to implement it beginning in the month of April.

Heath Clarke, Chairman and Chief Executive Officer

Okay, sure, those implementations are in process.

Nadeem Habib, Private Investor

When you said that within a few quarters you’ll be profitable…I know you cannot say exactly when, but when you say few quarters do you mean in 2006 or beyond 2006?

Doug Norman, Chief Financial Officer

Hi Nadeem this is Doug, we haven’t put a timeframe on that. We only give guidance for one quarter at a time, and certainly when we feel comfortable with giving guidance beyond that we’ll do that. But right now, we’re just taking it one quarter at a time.

Nadeem Habib, Private Investor

You mentioned a few quarters in your statement, I’m just trying to see when you say quarters, a few quarters could be eight quarters or four quarters, are you looking within 2006 or first half of 2007?

Doug Norman, Chief Financial Officer

We’re not putting an exact timeframe on that Nadeem. We specific guidance out one quarter at a time, but generally we try to talk about trends.

Heath Clarke, Chairman and Chief Executive Officer

Okay, we appreciate the questions Nadeem. We think that we need to get on to some other callers.

Operator

And at this time we have no further questions in the queue. As a reminder, * and 1 for questions. At this time, we have no further questions. I would like to turn the conference back to your speakers for any additional or closing remarks.

Heath Clarke, Chairman and Chief Executive Officer

I just like to thank everybody for their questions today and for their interest in the company. We’re doing great things at Local.com and we appreciate your interest in what we’re doing. Thank you.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. We do appreciate everyone’s participation. You may disconnect your phone lines at this time.

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