Good day everyone and welcome to the United Online's third quarter earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Erik Randerson. Please go ahead.
Thank you. Hello and welcome to United Online's conference call to discuss our financial results for the third quarter ended September 30, 2008. With me today is Mark Goldston, our Chairman, President and Chief Executive Officer; and Scott Ray, our Executive Vice President and Chief Financial Officer.
Also joining on the call today is Becky Sheehan, Executive Vice President and CFO of our new FTD subsidiary. In addition, on today’s call on the accompanying slides that are available within the Investor Relations section of our website, we will refer to adjusted operating income before depreciation and amortization or OIBDA, segment adjusted OIBDA, adjusted net income, adjusted net income per share, and free cash flow. Management believes that each of these measures is useful in evaluating the company's operating performance.
These measures are not determined in accordance with accounting principles generally accepted in the US or GAAP and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Definitions of these non-GAAP financial measures are provided in today's press release and in the accompanying slides on our website, along with reconciliations to the most comparable GAAP financial measures.
Before we get started, I also need to point out that the company does apply the safe harbor provisions as outlined in the press release to any forward-looking statements that may be made on this call. Statements regarding our current expectations about our future operations, financial conditions, performance, pay accounts, services, and the industry in which we operate are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
More information about potential risk factors that could affect the company's business and its financial results is included in today's press release under the caption Cautionary Information Regarding Forward-Looking Statements and in United Online's most recent filings with the Securities and Exchange Commission. Projections provided by management in the press release and in today's call are based on information available to us at this time and management expects that internal projections and expectations may change over time; however, the company does not intend to revise or update this information and may not provide this type of information in the future. Any persons replaying this broadcast after November 5 of 2008 should recognize that any non-historical information discussed in today's call might not be current or valid after this date, because the circumstances and assumptions underlying such information may have changed.
And with that, we're going to start out with a few comments from Mark and Scott, and then we're going to open it up for questions. So now I'll give the floor to our Chairman, President and Chief Executive Officer, Mark Goldston.
Thank you, Erik, and welcome everyone to the United Online September 2008 quarter earnings call. This is my 37th consecutive public earnings call for this company and I’m really excited to share our results with you again today.
I’ll begin with a high level view of our operating highlights for the third quarter, then I'll review the performance of our individual operating segment. I’ll also discuss our plans for the recent acquisition of the FTD group. Scott Ray, our CFO, he’ll conclude with some prepared remarks and a look at the numbers for the quarter and the guidance going forward.
Before I get started, I'd like to mention we created a PowerPoint presentation that summarizes our third quarter financial results and the operating metrics and I might add this is really a spectacular presentation that anybody who is following the company really ought to take a look at. You can download a copy of this presentation on our Internet homepage at www.unitedonline.com within the Investor Relation’s section right next to the earnings press release and I would encourage you to do so.
Let me begin by saying that as we look at the Q3 quarterly highlights, I’m extremely pleased with our performance, particularly in light of the challenging macro environment that negatively impacted results for so many technology companies again this quarter.
There’s really four key highlights I hope you’ll take away from our Q3 2008 results and updated outlook for the balance of the year. One, revenues came in near the high end of guidance and adjusted OIBDA came in well ahead of guidance, excluding contributions from the FTD acquisition that weren’t factored into our guidance. Our results also came in ahead of street expectations, excluding the FTD acquisition that wasn’t factored into analysts’ estimates. In fact, United Online achieved a new record during Q3 for consolidated adjusted OIBDA. That means the highest quarter we have ever had in the history of the company and a new record for adjusted OIBDA as a percentage of consolidated revenues, again excluding contributions from the FTD acquisition for comparability to prior periods.
We were very pleased with the strong performance of our Classmates Media and communication segments in Q3. The strong performance of those segments is reflected in the increase in 2008 adjusted OIBDA guidance that we’re announcing today. Scott Ray will fill you in on the details of the increase in our guidance in a few minutes.
Number two, our Classmates Media business continues to deliver really impressive growth, including the addition of 278,000 net new pay accounts during the quarter alone. Further extending our streak of achieving increased net additions versus prior year periods.
Segment pay accounts grew by 7% sequentially and increased 37% year-over-year. This increase of pay subscriptions continues to be a key driver behind our strong revenue growth and our significant operating leverage in the P&L and we achieved this within a very difficult advertising environment.
What’s really important is that year-to-date through nine months of 2008, the Classmates Media segment has delivered year-over-year growth rates of 20% in revenues and a stunning 75% increase in adjusted OIBDA.
Thirdly, we had another very solid quarter in the communications segment I’m happy to announce against our objective of operating this business for profitability and cash flow. Communications segment adjusted OIBDA was 40.9% of segment revenues, almost 41%, which was a 500 basis point from the year ago quarter.
The internet access business also recorded its lowest number of net losses in pay accounts in any quarter in more than three years at 91,000, first time in a long, long time that we’ve been below 100,000 in net subscriber declines and there’s a lot of good reasons for that I’ll talk about in a little while.
We also experienced another quarter of reduced term on the communications segment at 4.4%, which not only is an improvement from both the second quarter of a year ago, but 4.4% term is basically as low as we’ve ever recorded since we started measuring term in the communication segment at United Online. That’s really impressive.
Lastly, our strong financial performance in the third quarter notwithstanding. Most exciting milestone in Q3 was the closing of the FTD acquisition and securing acquisition financing on better terms than we’d expected. In case you missed it, in late August, we successfully closed the FTD acquisition for approximately $754 million dollars, which represents total consideration that was nearly $50 million dollars lower than we anticipated in our original announcement as you recall. We saved about $15 million simply by paying a higher proportion of the purchase price in cash than originally planned and we saved an even greater amount in much lower debt issuance fees than we’d anticipated. In a market where people couldn’t get deals of any kind done, we got a major deal done at extremely attractive debt terms.
Talking about the operating segments, and the first one I’d like to do is talk about Classmates Media, which as you know is comprised of the online social networking and online loyalty marketing business. So we’ll talk about Classmates online first. Classmates, as you know, is our flagship US business and also our Stay Friends and European businesses, which are critical parts of the social networking at United Online and these three businesses delivered another outstanding quarter in Q308. In fact, segment pay accounts as of September 30, 2008 grew 371% versus September 30, 2007, and increased to net 278,000 for the third quarter, as I mentioned before, and although pay accounts clearly represent the most powerful driver of our business model within social networking, it’s important for you as investors to recognize that we don’t operate a traditional subscription business in many respects. Let me explain that.
Unlike most subscription businesses, Classmates does not go out and spend significant marketing dollars to acquire each pay account. In fact, it’s just the opposite. Our proven approach is to acquire a large base of free social networking accounts at low acquisition cost. It’s only after we acquire a free social networking account that we begin our marketing efforts in our attempt to upsell the free member to a paid subscription. That strategy has been particularly beneficial in the current economic environment. An exciting development is that we’ve been increasingly successful in acquiring a greater percentage of free social networking accounts organically than ever before in 2008. So what that really means is that we’re not having to pay anything to acquire a growing percentage of our daily social networking sign-up.
This growth in organic sign-ups has resulted from improved surcharge and optimizations and to a lesser extent from an increase in referrals from social networking members on our European website who’ve invited a friend to join our services.
As I stated previously, our primary objective for 2008, including engaging more of our free social networking members to visit our website, and especially to entice free and pay members to create more user generated content when they do visit our website.
So the importance of these goals is really quite simple and I would say it boils down to three key points. First, when free members visit our social networking website, that’s our opportunity to upgrade them from a free account to a premium paying subscription.
Second, creation of a new user-generated content create substantial interest that brings other members back to our site. This is because we’re very effective at monetizing new user content, such as photographs or photo albums or member bios and so on and we do it through email notifications that members receive, which highlight the new content within their relevant community. These notifications are really effective mechanisms for bringing people back to our website.
Lastly, we monetize al website visits from free and pay members through advertising, although paid subscriptions continue to represent the largest source of social networking revenues. We get advertising revenues every time somebody goes back to our site.
So let’s review how we’re doing against our three key objectives. One helpful gauge of member engagement among the free and the pay members is our Classmates Media active accounts measure. Of course you know this is critically important to a social network. I’m pleased to announce that we reached record levels in the third quarter of 15.5 million monthly active accounts. That’s an increase of 21% versus a year ago. These are stunning numbers.
We’re also seeing particularly impressive results in terms of the new user joining content as the average number of photos posted per day on our Classmates website increased 23% sequentially in the third quarter from the quarter ended June 30, 2008.
We’re also seeing very strong growth in user generated content in our international social networking business where revenues and pay accounts have grown ahead of our expectation.
Our Classmates and Stay Friends social networking businesses have really performed spectacularly over the past two years. You may recall that a little over 12 months ago, we named Steven McArthur the President of Classmates Online after a long successful career as the President of Expedia Group at IAC and previously as the EVP of AOL’s web properties. In recognition of the great job Steven has done since joining us at United Online a little over a year ago, I’m pleased to announce his promotion to President of the entire Classmates Media business with responsibility for our social networking businesses and also now the MyPoints business as well. Steven will continue to report directly to my office in his new role.
John Folmer, the co-President of the MyPoints business will now report to Steven McArthur. This is the perfect time to consolidate the management of the social networking and MyPoints businesses as we move into 2009 and the phase of integrating those two businesses and cross pollinating their user bases, given that they’ve got similar demographic profiles and only a very small user overlap within the 50 million-plus domestic accounts in the Classmates Media segment. So congratulations to Steven.
Let’s talk about My Points, the key property within the Classmates Media segment, which is our loyalty online marketing service. MyPoints continued to grow within I would say a difficult climate in the advertising world in the third quarter. Although not unexpectedly, MyPoints experienced some deceleration of their revenue growth rate as many advertisers as you know have cut back on spending. Bear in mind that unlike Classmates, MyPoints is entirely free to consumes and primarily generates its revenues from advertising. We believe that MyPoints remains relatively well positioned in the challenging advertising market in part because MyPoints offers performance-based pricing. The pricing structure of MyPoints ensure that MyPoints is accountable co-metric that help our advertising partners achieve their specific business objectives.
By comparison, the reason display advertising has come under so much pressure in today’s internet world, in my opinion, is because the economic returns on display ads are much more difficult to measure. Luckily, MyPoints is not in that area.
We’re also fortunate that MyPoints has developed several new services in recent years that have designed to leverage the strong demand for the MyPoints currency, which is its points, among the active membership base.
Revenues generated by MyPoints research surveys, the MyPoints search tool bar and particularly MyPoints games are growing at a very attractive rate, albeit off of a small base.
So growth in these newer services has helped to offset the weaker ad verticals that have affected many companies such as financial services and generation and the like. So based on the success of these new product offerings and our desire to introduce more revenue generating services that are not dependent on advertiser budgets, we’re evaluating a number of additional product and service concepts that would similarly leverage the strong demand for the MyPoints currency among the active MyPoints member base.
You know, it’s worth noting that certain aspects of our expense structure at MyPoints continue to benefit from the weaker advertising market. In particular, the purchase of online advertising represents a large portion of our marketing budget at MyPoints. It’s earmarked for attracting new members in the program. We’ve been very successful throughout 2008 in taking advantage of the weaker advertising market to acquire new members at a lower cost than we originally budgeted. As such, while the tough ad market presents some challenges for the MyPoints business from a revenue standpoint, the good news is it also provides MyPoints with some upside from the expense standpoint.
Now let me shift to review of the communications segment, which as you know is primarily comprised of our ISP brands, NetZero, and Juno. This segment once again delivered impressive results against our objective of managing the communications business for profitability and cash flow contribution. Our margin expansion of the communications segment in recent years is really impressive when you consider that our mature ISP business certainly is not a typical margin expansion story like our Classmate Media segment is, because in the Classmates segment, revenue growth has contributed to achieving the higher margin.
Our success in communications underscores a hallmark of Untied Online, which is our ability to value engineer our cross structures of the dial-up market has matured and as our subscriber count has declined over time. We are constantly evaluating strategies to value engineer our businesses like taking additional costs out of ISP business without in any way detracting from the reliable service experience that consumers have come to expect from NetZero and Juno.
You have to bear in mind too that we were pioneers in offering value placed internet access at $9.95 a month when competitors were charging $20 or more. So we’ve got a long history of being very efficient in every aspect of our dial-up business. Nobody does it better than United Online.
Importantly, I should clarify that we are continuing to invest in the dial-up business albeit very selectively in only projects in marketing initiatives clearly meets our ROI objectives. It’s important for you to remember that despite many projections to the contrary, dial-up is not dead. In fact, some industry observers predict a decrease in the rate of dial-up decline going forward due to the saturation of Broadband and the high cost of bringing Broadband to rural areas, many of which we don’t think will ever get it.
There are millions of Americans, particularly in these difficult economic times, who want internet access, but for whom Broadband is either a luxury or just unavailable. We’re one of the few major competitors left in the dial-up space. We’ve got great brands. We’ve got an incredibly profitable business. So if the dial-up industry rate of decline begins to flatten out, we believe we’re extremely well positioned to take market share, which could really expand the longevity of this business for United Online.
Remember, and this is really important, in the first nine months of this year alone, we’ve generated $79.1 million dollars in adjusted OIBDA in our communications business. While this business is no longer the cornerstone of our company as a result of our very successful diversification strategy, it’s still a very valuable asset that we believe will continue to provide significant cash flows that we can use for dividends, for debt payment, and for further diversification for years to come. So I just said if the communication segment is no longer the cornerstone of United Online. I want to emphasize that point.
It may take some time for this concept to full resonate with the investment community, but the numbers speak for themselves. If the FTD segment has been included in our results for the entire quarter, the communications segment would have represented only 26% of total revenues for the quarter ended September 30, 2008. What’s more, we expect that during the current quarter ending December 31, 2008, Classmates Media revenues will surpass Communications segment revenues. Meaning that Communications, including dial-up, will soon represent the smallest of our three operating segments. In 75% or more of United Online’s revenues going forward will have nothing to do with the dial-up business. That’s an absolutely huge transformation of the company, given that just a few years ago, dial-up was 75% of the company.
As a large shareholder in the company, I remain optimistic that our diversification effort and United Online’s track record in successfully managing the decline in dial-up will alleviate investor concern about our exposure to dial-up and that you will recognize the massive transformation that has occurred at United Online. A company today which owns some of the best brand names in America within their respective category.
Let me conclude with the discussion of our new FTD segment. First I’d like to tell you how excited I am that the FTD and Interflora groups are part of the United Online family of companies and brands. These are great companies with 100-year-old history, who are major players in a massive global floral marketplace. While these have been great operating companies of recent years and I expect them to continue to be great operating companies going forward, what I see when I look at these companies, particularly FTD, is a world-class brand just begging to be revitalized and leveraged. Many people seem to scratch their heads when we announced this acquisition. Of course, they scratched their heads when we bought Classmates and they scratched their heads when we bought MyPoints and those turned out to be phenomenal acquisitions, but the head scratching around FTD was what are we doing buying a flower company? Well if you look closely, the answer is clear. Great brand with strong internet presence. That’s what we look for at United Online. We are at our roots an internet marketing company. Brand marketing, particularly of the internet, has always been our core competency and we’re probably as good or better than any company at the internet doing this. We think by bringing our expertise to FTD that we can have a significant impact on this business going forward.
As you may know, we’ve closed the acquisition on FTD in late August with very attractive terms of our debt financing. We secured $435 million dollars in debt financing with $375 million dollars led by Wells Fargo on the FTD assets that is completely non-recourse to the United Online parent company. In effect, it’s like a public-to-public LBO.
The other $60 million in debt that we have from Silicon Valley Bank is collateralized at the United Online level by non-FTD assets. The term of the debt is between five and six years on the FTD debt and four years on the very small United Online collateralized charge. So there should be no need to refinance anything in the current credit environment.
What’s really important is that our term loan under the senior secured loans facilities bear interest at libor plus 350 basis points per year and libor plus 450 basis points per year with a libor floor of 3% for each of the loans. These are very, very attractive terms. In fact, these are much better than we ever imagined possible at the outset when we were first looking at FTD and provide us with more than $100 million dollars of interest expense savings relative to the expectations we had modeled when we announced the FTD transaction.
The last point that I’ll make on the debt financing is that based on the historical cash flows of both United Online and FTD, we feel the debt is very manageable, particularly when you consider that we ended the quarter with almost $70 million dollars of cash on our balance sheet, which is far larger than the total amount of United Online with Silicon Valley Bank. While there are limitations on the movement of cash among our companies to pay the debt, overall our debt is only 1.9 times United Online’s total adjusted OIBDA on a pro forma basis, which give us the flexibility to continue to return cash to shareholders and invest in growth initiatives while paying down our debt.
Since closing the acquisitions, it’s been gratifying to see how excited the FTD employees are about the transaction. We’re the bit unusual within an acquired organization. I think a lot of their enthusiasm has to do with the employees’ recognition that strategically United Online had more to offer FTD than other potential acquirers. Particular, FTD is a great operating company, but they’ve lacked in many respects the marketing expertise that is clearly United Online’s strong suite.
United Online also provides FTD the opportunity to partner with our MyPoints loyalty marketing program to stimulate repeat purchases by FTD’s customers and we will be presenting more than 40 million domestic Classmates members with special offers from FTD as well. The NetZero and Juno brands are now looking at cross-marketing opportunities to present the FTD brand to our ISP and email users as well. We’re discussing these strategies with the FTD team and we will be pursuing aggressive cross-marketing opportunities.
I can assure you we have no shortage of ideas for the FTD segment. In the nine weeks since the acquisition has closed, we’ve been busy prioritizing and sequencing implementation of an incredibly long list of marketing innovations we’ve created for FTD and Interflora. It’s premature to offer many specifics at this early stage and given that I’m sure some competitors are listening to this. We would not be so foolhardy as to do that, but rest assured we’re looking at potential enhancements to the FTD and Interflora website, their advertising campaigns, their packaging, the brandings, the merchandising, all of the photography, and of course potential opportunities with the other United Online properties.
We will be in a position to share additional specific details and provide an early progress report on these initiatives on our next investor call that will take place in early February and I’m really excited about that.
It’s also gratifying to see that the major competitor to FTD, 1-800-flowers.com has announced declines in their consumer floral revenue and EBITDA for the last two consecutive quarters, decline. You might note that FTD reported a revenue and EBITDA increase in the consumer floral segment in the June 2008 quarter and had it continued to report the results for its domestic consumer segment in this September quarter, you’d of seen a second consecutive increase in both revenue and EBITDA for the segment versus two consecutive quarters of decline for the major competitor, 1-800-flowers.com.
On the florist side of the business, I am equally excited about our opportunities, because I’ve spent a great deal of my time during the past several weeks traveling around the world meeting with FTD and Interflora accounts, florists, management, you name it, who are the real lifeblood of this business. Our member florists are excited about our vision for FTD. I’d spoken at the Society of American Florists at a top 100 meeting in the mid-Atlantic region. I’ve probably spoken in the last 90 days to well over 300 to 400 members of the florist community, both in the US and overseas, and they are really excited about the marketing expertise and fresh ideas we’re going to bring to the company. The florists I met with have embraced United Online’s acquisition of FTD and they’re really pleased about our renewed commitment to investing in the florist part of the channel.
As a final comment on FTD, I’m thrilled to share with you that we’ve appointed Rob Apatoff as President of FTD to guide the execution of our vision. Rob recently served as the President and CEO of Rand McNally Corporation, where he engineered a financial turnaround and completed the successful sale of that company to a private equity investment firm after four years at the helm. I believe Rob is an excellent fit with FTD for several reasons. One, he’s got extensive leadership and marketing experience at companies with well-known consumer brands, including Reebok, Allstate, Aetna, Rand McNally, LA Gear, and Anheuser Bush. As a former member of the FTD board of directors for four years, Rob Apatoff is in a unique position to succeed and that he knows the FTD management team and he understands the company’s opportunities and challenges. Most exciting to me is that I have worked with Rob on two previous occasions during my career. This will be our third time together. So I know firsthand what Rob is capable of doing and how he can take this business to the next level. At Reebok in the late 1980’s, I brought in Rob to help me launch the Reebok pump, which is one of the most successful product launched of Reebok history and then later in the 1990’s when I was launching lighted shoes for LA Gear, we brought Rob in and he helped to absolutely help create a phenomenon around the world in children’s footwear that helped to revolutionize that market. Together Rob and I have created some of the most memorable marketing and ad campaigns in the athletic footwear market and I’m thrilled to be teaming up with him again to help drive sorely needed innovation within the $20 billion dollar floral market. Rob is a native of Chicago and he and his family actually live within driving distance of FTD’s headquarters. So he officially started two days ago and he’s already hit the ground running.
I also would like to take the time now to thank Mike Soenen, who has served as FTD’s President and CEO for the last four years. Mike previously announced his intention to leave FTD and he has been an exceptional resource for me throughout this transition. Mike will be available to FTD over the next several months and he’ll help as an advisor and I want to personally thank him for his dedication to making this acquisition go as smoothly as any acquisition I have made in the last 30 years.
Everyone at FTD is really grateful to Mike Soenen for all he’s done to help build the company and at the same time FTD’s management is really excited about Rob Apatoff’s appointment, having worked closely with Rob as a member of their board of directors for the last four years.
So with that, I’m pleased to turn the mike over to Scott Ray who will take you through a review of our financial results. Scott?
Thank you, Mark, and good afternoon, everybody. Let me first begin with a brief review of consolidated financial highlights for the third quarter. Then I’ll get into the specifics of our operating segments and provide our guidance going forward together with some commentary on changes in our financial structure as a result of the FTD acquisition, including the related debt in equity financing.
Starting with consolidated results for the third quarter, to facilitate comparisons for the company’s guidance that was issued prior to the acquisition of FTD and therefore exclude as a result of the FTD segment, I will report several measures that both include and exclude the impact of the FTD acquisition.
As Mark previously mentioned, the FTD acquisition closed on August 26 and FTD’s result of operations for the 2008 third quarter have been included from that date.
Starting with revenue, excluding the FTD segment, revenue were $120.93 million for the quarter, which was very close to the high end of our guidance range of $117 to $121 million and represented a 5% decrease from the $126.8 million reported in the year ago quarter.
Consolidated revenue, we include FTD from the date of acquisition, were $169.2 million, a 33% increase from the year ago quarter.
Looking at the distribution of revenue by segment in the third quarter, assuming that FTD had been included in the company’s results for the entire third quarter, the FTD segment would have represented approximately 50% of total revenue. The indications would have represented approximately 26% of total revenue and Classmates Media approximately 24% of total revenue.
Our consolidated gross margin in the third quarter was 67.6% versus 78% in the year ago quarter. The decrease was highly attributable to the FTD acquisition. FTD generates a significantly lower gross margin than both the Classmates Media and Communications segment given that the FTD business includes product as well as services. Excluding FTD segment, adjusted OIBDA would have been $41 million in the third quarter, which was $3 million above the high end of our guidance range of $34 to $38 million and a 10% increase versus $37.2 million reported in the year ago quarter.
Our consolidated adjusted OIBDA margin, which represents consolidated adjusted OIBDA as a percentage of consolidated revenues, increased by 300 basis points to 30.7% in the third quarter from 27.7 % in the year ago quarter, despite the IPO related expenses I previously mentioned. Excluding the $3.9 million in IPO related expenses, the company would have achieved a consolidated adjusted OIBDA margin of 33.9 % in the third quarter. Results in 2007 third quarter included $2 million in pre-tax expenses related to the proposed IPO of our Classmates Media. Excluding these expenses, adjusted OIBDA excluding FTD would have increased by 5% year-over-year.
Consolidated adjusted OIBDA, which includes FTD from the date of acquisition, was $49.2 million in the third quarter, up $12 million or 32% from the year ago quarter. Excluding the FTD segment, the adjusted OIBDA margin, which represents adjusted OIBIDA as percentage of revenues, increased by 460 basis points, a 33.9% in the third quarter, from 29.3% in a year ago quarter, and would have increased 300 basis points year-over-year, excluding the $2 million of expenses in the year ago quarter.
Our margin expansion reflect the continuing operating leverage we are realizing within Classmates Media and our disciplined financial management throughout the company. The third quarter performance was 180 basis points higher than any previous quarter for the company.
The consolidated adjusted OIBDA margins, which includes are comparatively lower margin FTD segment from the date of acquisition, was 29.1%, a solid performance for the company and a decline of only 20 basis points from the year ago quarter.
For the net income, EPS, and cash flow metrics, which I will cover next, we did not provide results on a basis that excludes FTD as we did for revenues and adjusted OIBDA. As a result, please bear in mind that comparisons for these measures include the results of operations of FTD from August 26, 2008, the acquisition date.
In addition, the third quarter 2007 results as I’ve mentioned were $2 million or $1.3 million related to the IPO of our Classmates Media corporation subsidiary.
The company’s consolidated GAAP diluted net income per share was $0.21 in the third quarter up $0.01 cent or 5% from $0.20 in the year ago quarter. The company’s adjusted diluted net income per share in the third quarter was $0.34 and was up $0.05 or 17% from the year ago quarter.
During the third quarter the company generated free cash flow of $31.5 million up $2.9 million or 10% from the $28.5 million in the year ago quarter.
Turning to the third quarter 2008 operating segment results, first let’s review results for our new FTD segment, which only reflects operation for a partial quarterly period from the date of acquisition on August 26 through September 30, 2008. Segment of revenues were $48.3 million. Segment growth margin was 41.4%. Segment adjusted OIBDA was $8.2 million and represented 17% of segment revenue.
In terms of key metrics, the FTD operating metric discussed herein reflect only the portion of the third quarter following the acquisition date.
Consumers orders totaled approximately $467,000. Our consumer orders metric reflect total orders from FTD and Interflora consumers of all geographies, including North America, the UK, and the Republic of Ireland.
Average order value was $63, blended between the two consumer businesses, FTD in North America, and Interflora in the UK and Republic of Ireland. We will continue to report consumer orders and average order value on a regular basis going forward.
Next with respect to our Classmates Media segment, Classmate Media segment of revenues increased to $58.7 million in the third quarter, up $8.8 million or 18% from $50 million in the year ago quarter. This increase was principally attributable to growth in billable services revenues, which increased $7.9 million or 28% of %$36.4 million in the third quarter versus the year ago quarter as a result of an increase in the number of pay accounts.
Third quarter advertising revenues increased $0.8 million or 4% to $22.4 million in the year ago quarter.
Our segment gross margin was 81% in the third quarter, up 110 basis points from 79.9% in the year ago quarter.
Segment adjusted OIBDA increased 63 % year-over-year during the third quarter to a record $15.6 million from $9.6 million in the year ago quarter. Results in the year ago quarter included the aforementioned $2 million in pre-tax expenses related to the proposed IPO of our Classmates Media Corporation subsidiary. Excluding these expenses segment adjusted OIBDA would have increased by 34% year-over-year, so a very strong number.
Segment adjusted OIBDA in the third quarter represented 26.5% of segment revenue, up from 19.2% of segment revenues in the year ago quarter. Excluding the $2 million in expenses, previously mentioned related to the proposed IPO, segment adjusted OIBDA as a percentage of revenue would been 23.2% in the prior year quarter.
Segment pay accounts decreased by a net 95,000 during the third quarter, our lowest quarterly decline in more than two years. In the third quarter of 2007, pay accounts decreased by a net 152,000, which included a reduction of 18,000 pay accounts related to our decision to access our photo sharing business.
Segment pay accounts $1.8 million at September 30, 2008 compared to $2.3 million a year earlier.
Our pay account churn improved to 4.4 % during the third quarter, down from 4.5% in the second quarter and from 4.9 % in the year ago quarter.
ARPU in the third quarter was $9.49, up $0.04 from $9.45 for second quarter and year ago quarter.
Turning to balance sheet and dividends, total cash from short-term investment balances decreased from the end of the second quarter by a net $170.3 million in the third quarter to $69.7 million at September 30, 2008. We invested a significant amount of the $240 million in cash and short-term investments on our June 30, 2008 balance sheet proportionately fund the FTD acquisition during the third quarter.
The FTD acquisition also included debt financing, which has resulted in $423.1 million in debt, net of discount, on our balance sheet at September 30th. $364.6 million of this debt resides at our FTD subsidiary and is not a recourse to our United Online parent and the remaining $58.5 million of this debt resides at the United Online inert company.
The company paid $14.9 million in cash dividends during the third quarter, increasing to $193 million the amount of cash we have returned to shareholders since we’ve launched our dividend program three and a half years ago.
The company recently declared its 15th consecutive quarterly cash dividend. The recently declared dividend of $0.10 per share is consistent with our previously disclosed intention to reduce our quarterly dividend from $0.20 to $0.10 per share, the FTD acquisition. At yesterday’s closing stock price, after cutting the dividend in half, we still offered an attractive 6% dividend yield.
Moving on to guidance, this afternoon we are initiating guidance for the fourth quarter and increasing our adjusted OIBDA guidance for the full year 2008. The increased guidance for the full year 2008 reflects the inclusion of FTD financial results from August 26, 2008, the date of acquisition, and our strong future results for Classmates Media and Communications segment.
We are establishing fourth quarter guidance for consolidated revenues in the range of $264 to $272 million. Our 2008 fourth quarter guidance for consolidated adjusted OIBDA is in the range of $59 million to $63 million.
Before providing further guidance, let me comment briefly on key factors relating to the FTD business for the fourth quarter. First, the FTD business includes an international business, Interflora, which is headquartered in the UK and serves consumers principally in the UK market. The Interflora business generated approximately 28% of FTD’s total revenues for the latest FTD fiscal year that ended in June 2008 as reported by FTD prior to the acquisition. As a result, FTD results overall are impacted by changes in four movements primarily due to the British pound versus the US dollar. Today’s exchange rate of approximately 1.6 pounds to the dollar compared to last year’s average rate in the fourth quarter of 2 pounds to the dollar. As a result, if rates were to remain at today’s level for the entire 2008 fourth quarter, the revenues and segment adjusted OIBDA or this portion of the FTD business would be approximately 20% lower than the prior year, simply due to foreign currency translation.
In addition, FTD has projected to incur incremental costs of approximately $2 million dollars in the 2008 fourth quarter, relating both to the acquisition and to new marketing initiatives, which were not included in FTD’s financial results in the year ago quarter.
From a seasonality perspective, revenues and earnings in the third quarter for the FTD business has historically been lower than other quarters of the year, because none of the most popular floral and gift-giving holidays, i.e. Valentine’s Day, Mother’s Day, Christmas, and Easter, fall within that quarter. The fourth quarter will include the Christmas holiday period, which can result in a higher volume of consumer orders for the consumer business.
FTD’s gross margin have historically been in the 40% range, which is lower than the gross margins historically generated in our Classmates Media and Communications segment that have averaged in the high 70% range and mid-70% range respectively over the past several quarters. As a result, our consolidated gross margin will decrease in the fourth quarter of 2008, as a result of the acquisition.
FTD’s adjusted OIBDA margin have historically been lower than both the Classmates Media and Communications segment adjusted OIBDA margins. Consequently, our consolidated adjusted OIBDA margin will decrease in the fourth quarter of 2008 as a result of the acquisition as implied by our updated guidance for consolidated revenues and consolidated adjusted OIBDA.
As a result of the FTD acquisition, we recorded a significant amount of amortizable and non-amortizable intangible assets. Consequently, we expect amortization of intangible assets to increase to approximately $8.7 million in the fourth quarter of 2008, up significantly from the run rate prior to the acquisition of approximately $2 million per quarter.
We expect our debt financing to result in net interest expense in the range of $9 million to $9.5 million in the fourth quarter of 2008.
Regarding our share count, we issued approximately $12.3 million shares in connection with the FTD acquisition. As a result, we estimate our weighted average diluted shares outstanding in the 2008 fourth quarter to increase to approximately 83.6 million shares on a GAAP basis and 86.4 million on an adjusted basis.
Moving on to guidance for the full year 2008, we’re establishing 2008 consolidated revenue guidance, including FTD from the date of acquisition, in the range of $677.2 million to $685.2 million.
We are increasing our 2008 consolidated adjusted OIBDA guidance to the range of $184.4 million to $188.4 million, reflecting the inclusion of FTD from the date of acquisition and our strong performance in the Classmates Media and Communications segment.
Our previous guidance range in this arena was $149 million to $154 million.
We have slightly increased the low end of the guidance range for capital expenditures to reflect the acquisition of FTD. We now expect consolidated capital expenditures in 2008 in the range of $19 to $23 million.
We are also increasing our guidance for cash taxes in 2008 to a range of between $36 million and $39 million, which is up from our prior range of between $30 million and $35 million.
And with that, that concludes my prepared remarks. Thank you and back to you, Mark.
Thanks Scott. Before we take questions, I just wanted to also add that today we announced that we’ve appointed Howard Phanstiel to the Board of Directors of United Online. We now have seven directors, six of which are independent, seventh is myself. Howie was most recently the Chairman and CEO of Pacificare prior to their sale of United Health and previous to that he was the CFO of Pacificare and the CFO of Well Point. So he brings a ton of experience to the board of directors as a top executive in Fortune companies and he’ll also be joining United Online’s audit committee. So I just wanted to make everybody aware of that and there’s a release that went out today on that.
So, operator, with that, I’d like to open up the queue for Q&A.
(Operator instructions) Our first question comes from James Cakmak of Sidoti.
James Cakmak - Sidoti
On the overall business climate, have you seen any weakness in October that you had not noticed during the third quarter.
Like we’ve done historically on all these calls, we don’t really discuss anything that’s going on in the current quarter. It’s really just to talk about the quarter that’s already been completed and that’s been our practice forever and we really can’t deviate from that.
James Cakmak - Sidoti
On FTD, not completely clear on how you guys are reporting it. I know it’s a split between products and services. Services revenue, is that international Interflora revenue?
The whole company is basically divided into products and services. So the consumer segment, what has been the consumer business of the company, obviously is product related sold largely through the internet, etcetera, and then the florist part of the business, the majority of the revenues from that are services-related, membership fees that they pay, fees for software and hardware management, fees that have FTD provide websites. There’s a small component of wholesale floral that are sold through that part of the business.
So the best way to think about it is is that the majority of “product sales” are done through what you would know is the consumer business, which is largely comprised of FTD.com, Interflora.com, and the 800-numbers, and then all of the services that you know would be coming through the florist part of the business where the membership lies.
James Cakmak - Sidoti
Will you be breaking out the cost associated with each segment?
Basically the way we’re looking at going forward is that sort of FTD is the segment. When it was a standalone company, they had three different segments - the consumer, florists, and international, but given it’s now part of an overall United Online, unless we wanted to have a three-day earnings call, we wouldn’t be having that many segment units. So we pretty much look at it as the total FTD floral business and all of that will be contained within. But as Scott said, we will be breaking out things like orders, for example, and average order value, etcetera, but we’re not going to go into deep granularity as if it was a plain standalone company, because it really wouldn’t be relevant in the company this size.
I completely agree with Mark and would call to your attention that we would have our standard segmentation related to closures so you won’t be able to see segment data, but in the capacity that Mark just described.
James Cakmak - Sidoti
I know you said that you’ll be providing a progress report on FTD after the fourth quarter call. Can you give us a sense of how far you think you’ll be along at least by Valentine’s Day time?
What I can tell you is that in the 12 months that we spent pursuing FTD, we created a massive document that we internally refer to as our ideal vault, which has literally 660 ideas in there for the FTD and Interflora businesses, which probably could stand three years worth of time. We have already started since the closing, literally happened the day after the closing, going on an intense program with the FTD executives of prioritizing the key branding, merchandising, website design, floral array, etcetera, and we prioritized those and are actually putting them, right now they are in process of being developed, and our hope is that many of those will debut for the key holiday season starting with Christmas and going through Valentine’s Day.
So it’s my hope that when we show up on our earnings call in February, while Valentine’s Day will not yet have occurred, we will be able to provide some level of update on the major marketing initiatives, just like we did by the way of Classmates, just like we did at MyPoints as well. So you get a similar type of an update. Hopefully the results will follow suit.
We’ll take our next question from Jim Friedland of Cowen & Co.
Kevin Copeland (in for Jim Friedland) - Cowen & Co.
I had a question on the Communication segment. It looks like subscriber acquisition caused the client quite a bit on a year-over-year basis, do you guys think you’re benefiting from weakness in the display ad market. Is that helping you acquire customers more cheaply?
Not really. It’s a good question actually, but not really. We announced on our call probably about a year ago that we were taking a very different marketing attack on the communication side of the business when we made our major thrust into C&D counties, the more rural areas, lower income folks, and also we were making a major new push against large efficient distribution partners and we’re now with the largest retailers in the world with our product at very attractive rates and our marketing team has really done a great job of doing micro-niche targeting all around the country and I can’t give you granular detail, because I’m sure the folks we compete with are going to listen to the replay of this call.
We have significantly changed the construct of our marketing approach in the past 12 to 14 months and so what you are seeing in the financials on that is a business that not only has had its best subscriber numbers in terms of decline rate in over three years; it’s had the lowest turn rate that we’ve ever recorded since we started tracking communications turn and you’ve seen a reduction in our customer acquisition costs.
So from an ROI standpoint, we are absolutely thrilled with how that dial-up business is performing and if you look at what’s going on in the category, as I said, I believe the tail of that business is a lot longer than anyone thinks and even though it’s going to be less than 25% of our business, it has been a stunning performer from financial standpoint.
Kevin Copeland (in for Jim Friedland) - Cowen & Co.
Also on FTD, since that’s a new segment, could you walk us through just historically how that business has performed in tough economic times, in general terms.
I can tell you specifically, because that was the number one question that we had when we first approached FTD about purchasing the company on Halloween of last year. So it’s literally been a year and as you know in the last 12 months, we have a horrible consumer economy in the US and the UK and that category in general, FTD in particular, historically have held up extremely well as you can see within those kind of touch economic times. The floral market is huge at $20 billion dollars and what we’ve seen anecdotally is that people don’t cut back on buying flowers. They may cut back on buying gifts, but they don’t cut back on buying flowers. Valentine’s Day and Mother’s Day, etcetera, will always be floral holidays and so we have not seen historically the recessionary economy have a major negative impact on that industry in general or FTD in particular.
Now, making no projections about what’s going to happen over the next 6 to 12 months, because who knows, but we looked at this very closely before we bought the company and we got very comfortable with the fact that this company had a great deal of recession resistance.
Our next question comes from Yun Kim with Pacific Growth Equities.
Yun Kim – Pacific Growth Equities
First on FTD, when can we start to expect some of the incremental revenue from the FTD, given by some of the advertising and marketing techniques and some cross-marketing initiatives that you have planned and also is the current slowdown in customer spending, is that possibly forcing you to delay some of your rollout schedules for campaigns?
Second question first, no the economy is not forcing us to slow down at all. In fact, I would take quite the contrary. In the 30 years that I’ve been running marketing businesses, what I have historically found is that during the tough times when you ought to accelerate your marketing initiatives, because that’s when you can really grab market share if you do it right. Everybody I know who’s ever been through those times will say that’s the case. But no, we’ve actually stepped up the rate of activity. When you’ll see the results, that’s hard to say. I would say you’re more likely to see results in the March quarter and the June quarter, because that’s when Valentine’s Day and then Easter and Mother’s Day would fall. So the time for us to get our game together, if you will, is prior to the Valentine’s Day holiday and then to see what we can do in the gap between Valentine’s Day and Easter and Mother’s Day, because you don’t want to be launching brand new initiatives simultaneous to your major holiday period. Just like we wouldn’t be launching new software initiative on the ISP business during the holidays as well.
So my hope is that maybe a little bit, not much, in the December quarter, but in the March quarter and June quarter, I hope to have a pretty detailed update for you, just like we did on Classmates, just like on MyPoints, which had fabulous success with their initiatives, as to what the specific initiatives were at FTD and how they worked. So you will be hearing that from us.
Yun Kim – Pacific Growth Equities
On Classmates Media business, obviously with the advertising sector experiencing slower growth, are you finding your overall marketing costs, especially with affiliates, are they coming down? Or maybe perhaps going up, because lower quality for the same amount of dollar as before. Can you talk about the state of your affiliate network for your classmates.com and also for FTD if FTD uses affiliates for not. Thanks.
I would say we are benefiting from the issues going on in the advertising market as a buyer of advertising at Classmates. Our Classmates marketing team is very efficient as you know at looking at ways in which they spend their money and what kind of computer to ROI they look for and so we are benefiting from what’s going on in the marketplace with advertising rates, number one.
Number two, per your question – or are you seeing it going up because of lower quality? You have to remember, we know exactly where our users are coming from because of the way in which we pay for them. All of them are acquired as free members, so what we measure is the yield on a member and the composition of the yield is how much advertising revenue we generate on them every time they come to the site and then what the migration yield is from being free member to a pay member. So we have it specifically tracked, not only by bucket of where they come from, but basically by user and so there’s really no surprises in spending money on Classmates. We get it down to the most granular level and if that sounds familiar, it’s because that’s what we’ve been doing for ten years on the IPS business, which is why we not only make so much money on the ISP business, but look at the massive margin accretion that’s occurred on the Classmates business since we’ve owned it.
In terms of FTD, FTD spends a large portion of its money in the online world and FTD has not been seeing a reduction in the cost to acquire customers, even though industry-wide it looks like advertising rates have come down and largely because FTD is dealing with a couple competitors in this space who continue to spend an aggressive amount of money to acquire customers.
We hope that we will be able to help FTD using some of the efficient ways in which we spend money at United to help them in how they spend their money there and then also the hope that the new marketing initiative will help the conversion of the people when they land at the site, which could increase the yield of the marketing spent.
Yun Kim – Pacific Growth Equities
OIBDA margin for Classmates have been very strong or the growth of that margin, it’s already in the high 20’s. Do you expect that margin to improve going forward? What do you think is the optimal margin level for Classmates business in the near term to support growth in the mid to high teens?
If you would have asked me the question 24 months ago, I would have told you it would have been the mid to high teens. Having now gone into the mid to high 20’s, I would tell you a lot of that has to do with the fact that in spite of many folks outside of this business projecting that we would not be able to sustain the paid subscriber growth that we had. They were dead wrong as you know. So we’ve now gone, if you think about it, on Classmates business, we’ve gone from 2005, we went up 300,000 paid subscribers. 345,000 in 2006, a 1.03 million in 2007, and look at where we’re tracking to in 2008.
So the benefit of that is that when someone pays you an average ARFU of $3.10, you’re pulling in better than 80% gross margin. So when you look at a company that since we bought it had 1.3 million paid subscribers, today has 4.1 million paid subscribers, and they’re paying you on average $36 to $40 dollars a year, you can see why you would have massive accretion at the EBITDA margin level and at the gross margin level.
So going forward, that is entirely a function of our ability to sustain subscriber growth, because let’s face it, the rent is the rent. The manpower is the manpower. Once you’ve covered the burden, the operating leverage in Classmates is enormous. So if we can continue to grow the paid subscriber base, without changing all of the other hard costs, and keep our marketing expenses consistent, then there is the chance that you can see margin enhancement over time, but two years ago, I don’t think anybody would have expected you could have seen a margin business like we have today in that company.
Yun Kim – Pacific Growth Equities
Is there a way to track more user generated content is leading to more peer accounts?
Are there other incentive for people to upgrade to peer accounts?
The best way for us to look at this is we kind of look at it as a dashboard and I would encourage you to do it the same way. So the dashboard that we look at depends on how we determine whether people are happy with us, which is the key determinant, is what’s your monthly active level? Because when it comes down to it, that has been in 2004-2005 and the first half of 2006, that had been the major issue for Classmate. It did not have attractive monthly active membership. That was before we started changing all the marketing, launching all the new products, changing the website, etcetera. Once we started doing what United Online does and Classmates team has done a magnificent job of this in the past two years, what you see is the monthly active membership numbers have gone through the roof. We’ve gone from 7 to 9 million monthly active members to 15.5 million in the most recent quarter. So that tells you that people are really happy with the site, one.
Two, the amount of time spent on the site is dramatically higher than it’s ever been. Three, the number of paid subscribers is at record levels versus where it was, and lastly, a huge increase in paid subscribers in any paid subscription business is that your turn would go up, because that’s what happened.
In fact, in Classmates case, it has all-time record low turn. The overall turn rate on Classmates Media in the most recent quarter was only 4.1%. We have never in the history of Classmates have never had turn as low as 4.1%.
So all that together on a dashboard tells us we’ve got more confidence than we’ve ever had. It’s causing people to come back more often, spend more time, convert at a better rate than they ever did, and leave at a lower rate than they ever have.
That’s how we measure the business. I would encourage you to look at it the same way.
We’ll now move on to the last question in queue. Youssef Squali with Jefferies & Co.
Youssef Squali – Jefferies & Co.
On the pro forma basis, what was the growth rate for FTD in the third quarter and what’s implied in your Q4 guidance?
We haven’t broken out anything relative to the Q4 guidance and relative to Q3, I’ll have to get back to you on that. I don’t have that in front of me right now.
Youssef Squali – Jefferies & Co.
Last year, Q3 to Q4, do you know what kind of trend you’ve seen in sequential growth or year-on-year growth?
Growth rate last year from Q3 last year to Q4 last year?
Youssef Squali – Jefferies & Co.
Right, since we don’t have Q3 to Q4 this year, just to see the trend was.
Becky, do you happen to have that number?
Q3 last year we reported $123.7 million of revenue and Q4 we reported $155.5. So that’s about a 25% increase.
And a lot of that has to do with the fact you’ve got holidays in Q4 that you don’t have in Q3?
That’s absolutely right.
Youssef Squali – Jefferies & Co.
On the margin at FTD at 17%. As you start opening up the idea vaults, how high do you think you get those gross margins within the next say 12 months?
Great question, and a lot of it depends on the take rate. We’ve got programs for the florist part of the business. We’ve got programs for the consumer part of the business, and it really depends on what some of the take rates are and whether or not we’re successful in driving the order volume through higher levels. So there’s no way for me right now for us to project that.
Youssef Squali – Jefferies & Co.
The margin expansion we’ll be getting out of this business will be coming primarily through high revenues than just through further rushing of cost, because it seems to be the platform is already pretty rushing down.
I would say that’s true. Obviously knowing us, we will always find ways to be more rationale, but FTD as you know has done an outstanding job of running that company, which is why their EBITDA margin has typically been 3X that of their major competitors. So I would say you are correct in your assumption.
Youssef Squali – Jefferies & Co.
This quarter, you ran $10 million, that’s about 8.5% of revenues. It’s about twice as much as what we have with other companies that we cover in this space. So first, Scott, how do you compute that? And second, Mark, how does the board think about dilution going forward?
Youssef, a big part of what we do here and what we’ve always done here is make sure that the management of the company at all levels is aligned with the shareholders and so in doing that, we make a large portion of their compensation stock base and that has given us not only tremendous loyalty, but we have had six consecutive record years in EBITDA performance and all of the trials and tribulations of the stock market aside, that has helped a lot of our executives and middle management people to think like owners, which is why we’ve had such a stunning financial performance.
That said, in the year 2008, we’ve actually taken all of the top executives in the company and we’ve turned their bonus compensation into 100% stock base compensation. So we’re basically saying you’re compensation and mine is aligned with the shareholders. So while those shares were earmarked in price a year ago, in spite of having an all time record year, the stock price is down to the $7 dollar range. So when bonuses come around, if things didn’t recover or having a great year, because the shareholders didn’t see their share price depreciate, people’s bonuses would be affected by that.
So that’s our philosophy, we think that should go down as far in the organization as possible and that’s historically how we’ve run the company, and we have been hugely successful in doing that and we articulate it as possible in that turn along the way.
Scott, you want to take the first one?
Youssef Squali – Jefferies & Co.
From a modeling perspective, how should we be thinking about it and what kind of run rate?
First of all, I think you should take a look at the current run rate…and would also call to your attention that we did have one of our executive officers that had deceased a little while back and that was a specific situation relative to stock base compensation, but the bottom line is look at the number to be in the range it’s been in of late slightly lower.
President of Classmates, which was a new job, and he had a major amount of stock when he came, the recent hiring of Rob Apatoff as the President of FTD would be a major piece of stock coming in. So we’ve had some major senior executives come in and then of course our chief technology office, Jerry Kopec, passed away a couple of months ago tragically from cancer and there was almost $1.5 million dollars of expense just in Q3 alone, which had to do with the vesting of the stock for his estate.
…and those are cliff grant that people have to stay three years. In my case, four years, and there is no ratable vesting of those grants. Those grants are cliff vested. In the case of my executive team, has a three-year cliff, and in my case it’s a four-year cliff. So while they’re in the share number and in the expense, if they leave the company at any point before the end of that three-year or in my case four-year term, all of that stock base compensation is reversed and all the stock is forfeited.
So you can see a main theme that we’re trying to achieve out of this right now is really to make sure that try to align the interest of our management with those of our shareholders.
Youssef Squali – Jefferies & Co.
How do calculate it?
Restricted…you’re looking at the stock price on the day it was approved.
Youssef Squali – Jefferies & Co.
So all of this is RSUs?
Almost all RSU. We don’t use options anymore.
And with no further questions in the queue, that will conclude today’s question-and-answer session. For any additional remarks, I’d like to turn the conference back over to Mr. Mark Goldston.
Thank you. I want to thank everybody for attending and of course, as always, if you have any questions, please direct them in through Erik Randerson, our Vice President of Investor Relations and he can direct them to Scott or myself, if the case may be. Thank you everybody and I hope you have a great evening.
That will conclude today's conference call. Thank you again for your participation.
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