Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Banks.com Inc. (NYSEMKT:BNX)

F3Q09 Earnings Call

November 13, 2008 at 5:00 pm ET

Executives

Daniel M. O’Donnell - Chairman, President, Chief Executive Officer

Nate - Investor Relations

Analysts

[Andrew Wall] - Private Investor

[Ted Balentine]

Operator

Good day ladies and gentlemen and welcome to the third quarter Banks.com Incorporated earnings conference call. My name is Letrize. I will be your coordinator for today's conference. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this call. (Operator Instructions)

At this time, I would like to hand the presentation over to your host for today's call Mr. Dan O'Donnell, CEO of Banks.com. Please proceed.

Daniel O'Donnell

Good afternoon and thank you for joining us for the Banks.com third quarter 2008 earnings call. I am Dan O'Donnell, Chairman and CEO of Banks.com. I will begin the call by discussing some business highlights from the third quarter and then will discuss our financial results and operating metrics in greater detail. We will then open the lines up for questions. Before we begin, we would like to cover the Safe Harbor Statement.

Nate

Hello, this is Nate, Investor Relations for Banks.com. During this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involves substantial risks and uncertainties.

Forward-looking statements which are based on management’s current expectations are generally identifiable by the use of terms such as "anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “possible,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions. The forward-looking statements that we will make on this call include statements regarding management’s expectations regarding our strategy, our focus on higher quality content and traffic in the financial services vertical, and our commitment to becoming the premier source of targeted financial traffic. The potential risks and uncertainties that could cause actual results to differ materially from those expressed and implied here include among others unanticipated slowdown in the financial services vertical, market acceptance of the enhanced version of Banks.com website, introduction of additional competitors in the Internet search services space, unexpected diversion of advertising dollars away from the Internet, slower than anticipated growth rate of our advertising base, dependence on our search providers, market development of Internet advertising and paid search services, and the stability of our infrastructure.

Other information on the factors that could affect our financial results is included in our filings with the Securities and Exchange Commission including our annual report on Form 10-K for the fiscal year ended December 31, 2007, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except as required by law, we assume no responsibility to update these forward-looking statements publicly even if new information becomes available in the future.

With that, I will turn the call back over to Dan O’Donnell, CEO of Banks.com.

Daniel M. O’Donnell

For the third quarter, we reported revenue of $1.4 million compared to revenue of $5.1 million reported in the prior year quarter. Adjusted EBITDA was negative $579,000 versus positive $64,000 reported in Q3 of 2007. Our GAAP loss was $0.04 compared to GAAP loss of $0.02 per share reported in Q3 of 2007.

The third quarter was another difficult quarter for us as we continue to be impacted by many of the issues we have talked about in our recent calls. These include our ongoing business transition, our changing partner mix and the loss of two historically large search partners, the impact of the Taxpayer Protection Act HR 1677 and the exiting of certain legacy businesses which continues to negatively impact our year-over-year comparisons. While these factors continue to place challenges for our business, we remain encouraged by the results of our ongoing transition and recent developments in our business and in the regulatory environment also gives us increased optimism in our outlook going forward.

For the past year, we have focused on transitioning our business towards the finance vertical and more stable on recurring revenue streams and have made changes for the site to promote customer acquisition and retention. We do still however will continue to generate a significant portion of our revenue in pay-per-click advertising on our sites. Much of this revenue is driven by our direct relationships with advertisers but a significant portion is also driven by our partnership agreements with large online advertising networks.

As we have talked about previously, agreements with two of our advertising partners ended in the first half of this year and that has put significant pressure on our revenue in the first nine months of 2008. We have been aggressively exploring and signing other advertising partnership opportunities and have reached several recent partnerships that will help drive additional revenue to the site. Last quarter, we talked to you about the partnerships we signed from leading financial focus ad networks Machex's IndustryBrains and Business.com. This quarter we signed several agreements including partnerships with PrecisionIR, MyRetirementRewards.com and IClubCentral.

In October we announced an expanded partnership agreement with InfoSpace. This partnership is significant in that InfoSpace is leading meta-search technology to allow Banks.com users to search and receive the most relevant results in advertisements from the top search engines in the industry including Google and Yahoo. While it is still very early, we have been very pleased with the initial results of these partnerships. We are seeing strong click-through rates on these advertisements that they are highly relevant to our targeted user base. We expect to see some benefit from these agreements in the fourth quarter to have more significant ramp during our important tax season.

The passage of the Taxpayer Protection Act, HR 1677, has also continued to put pressure on our results as we have seen some of our advertising partners take a wait-and-see approach to advertising with us until the final outcome of this bill is determined. We have taken several proactive steps to alleviate any confusion related to Banks.com and maintained an open dialogue with the IRS, Congressional members and staffers and the free fall alliance to ensure that we avoid any confusion in the future. The bill itself has not been moved through Congress beyond its passage by the House of Representatives in April 2007 and all indications show that it will die with the ending of the 110th Congress in early January. As such, we are encouraged that we are now in discussions with several former and prospective advertisers through the upcoming tax season.

These developments combined with the progress we have made in terms of our ongoing business transition give us more confidence heading in 2009 tax season. We continue to make progress when it comes to retaining users beyond their initial visit to Banks.com. We are learning about the best ways to cross our services to our base of registered users and have begun to see significant traction there.

As always, we are continuously improving the look-and-feel of the site. Earlier this month, we have launched the completely new redesigning of the site and that improving the user experience and cross-pollinating our traffic across our site. In addition to the advertising partnerships that I have spoke about earlier, we continued to answer our direct advertising partner relationships and has signed several partners to the Banks.com advertising network. As a result of these ongoing efforts, we have continued to build upon our highly targeted user base. Traffic to our site remains strong and organic traffic to the site again grew nicely during the third quarter.

We continue to believe that demand for financial related content and services will remain robust even in the current financial services downturn and in fact have seen a marginal bumping traffic and increased user engagement with the site as a result of our recent redesigned and the unprecedented events in the credit market over the past month.

Moving to MyStockFund, this service continued to perform well during the third quarter. We expect our partnerships with MyRetirementRewards and IClubCentral will drive incremental usage of MyStockFund.com service. In addition, we have recently launched the partnership with Northwest Airlines where MyStockFund will be marketed to their frequent fliers. We are encouraged by the early results from this partnership and expected to result in a meaningful increase in our account base.

Before I move on to the discussion of the financials, I would like to briefly comment on the departure of our former CFO, Gary Bogatay. Gary left Banks.com in mid October to pursue another career with a company closer to his home and family in Pittsburg. Gary has been commuting from Pittsburg since he began with us four and a half years ago and we would like to take this opportunity to thank him for his selfless dedication and hard work at Banks.com. He was instrumental in helping to build the Company and will be missed. We are currently in the preliminary stages of searching for his replacement and the interim in the Board has appointed me as the principal financial officer while we conduct our search. We will keep you updated on that progress.

Now moving on to the financials, for the third quarter, total revenue was $1.4 million down from revenue of $5.1 million reported in Q3 of 2007. The decline in revenue can be attributed to the factors we highlighted earlier including our shipment strategy, the effects of HR 1677, the terminating of our agreements with our legacy advertising network partners and the exiting of legacy businesses.

Revenue from our proprietary traffic in MyStockFund now makes virtually all of our revenue as we have completely exited our lower margin legacy businesses such as domain parking. Gross margin for the third quarter was 60% up from 51% in Q3 of 2007. The increase in gross margin was primarily due to the changing mix between our proprietary and nonproprietary revenue and the exiting of certain business clients as already discussed. Operating expenses for the third quarter totaled $2 million down approximately 35% from the $3.1 million we reported in Q3 of 2007. The lower SG&A level reflects cost cutting actions we have taken to reduce our expenses and retool the business in light of the business transition we are currently working through.

As part of our evaluation of our SG&A spending, we have made additional reductions in headcount, implemented across the board salary reductions and reduced technology infrastructure related expenses. We remain on track to exceed our previously stated goal of reducing our overall SG&A expenses by approximately 20% and cash related SG&A expenses by approximately 30% in fiscal 2008. We expect by the end of Q4 that our monthly cash SG&A expenses excluding debt service will be 50% of what they were in December 2007. Additionally we continue to look for other ways to reduce our spending in light of the near term outlook.

Adjusted EBITDA or earnings before interest, taxes, depreciation, amortization, and stock-based compensation was negative $579,000 for the third quarter. This compares to adjusted EBITDA of $64,000 reported in Q3 of 2007.

GAAP net loss for the third quarter was $0.04 per diluted share versus a net loss of $0.02 per diluted share in Q3 of 2007. In the third quarter, we recognized $493,000 of income tax benefit due to the losses incur. We ended the quarter with $1.3 million in cash compared to $1.7 million as of the end of Q2 and have $3.2 million in current asset. Our total debt principal balance was $6.4 million versus $6.8 million at the end of Q2 and is comprised of the note payable related to our acquisition of IRS.com.

As of the end of Q3 2008, the current and all other payments with our lender are in fact ahead of our principal payment amortization schedule that had fallen out of the compliance on our financial covenant. We have been engaged in very active negotiations with our debt holders related to these covenants and are optimistic that we will be able to reach the satisfactory solution for both our lenders and Banks.com. We plan to continue to aggressively pay down additional principle on this debt as the opportunity arises.

During the third quarter we took several actions to realize the value of our assets including our non financial domains. We recently completed the sale of Camps.com and SummerCamps.com and we also reached in agreement to sell one of our inner search trademarks that we own. As a result of these actions, we are able to raise approximately $218,000 in October that we will use to pay down the principal on our debt. We still own Look.com and we continue to believe that this domain is highly valuable and could be very attractive to the right buyer.

To conclude we are continuing to execute on our strategy of creating a cohesive brand around the Banks.com domain and high quality content and services for the financial services vertical. While the third quarter was a difficult one for us, we have reason to be optimistic about our future.

With that, I will turn the call back over to the operator so that we can take some questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Nate

Operator, while you are organizing the queue, we had a couple of questions that were emailed in.

First, did you submit a plan of compliance to the NYSC [alternext] by the November 10th deadline? Do the plans have proof that the Company will be able to continue operations and meet obligations as they occur?

Daniel M. O’Donnell

We have not submitted the plan as yet. We requested and were granted an extension until next Monday but we do expect that that plan will be submitted on time and we will show that we will be able to continue operations and stay liquid.

Nate

Okay and second question; Has Banks.com been able to obtain a waver of compliance with its financial covenants? If not, have the investors requested either full repayment or relinquishment of assets?

Daniel M. O’Donnell

We do not have a waiver as of the time of this call but as I mentioned in my script, we are very active in negotiations right now. The lenders have not and really cannot request that we sell assets unless they decide to take another path and then they can pass but we do not necessarily need to but we did as I mentioned so, a couple of assets during Q3 to pay down some of that balance and the rest that they had asked for, they had not requested payment in full and so that is where it is now.

Nate

Hi, operator. Are there any questions in the queue?

Operator

Yes. Your first question comes from the line of [Andrew Wall] - Private Investor.

[Andrew Wall] - Private Investor

I guess first question is running the revenue source and I think earlier you mentioned that most of your revenue right now is coming from MyStockFund.com, is that correct?

Daniel M. O’Donnell

No, from proprietary traffic meaning either on sites we own and I am not sure how much you know about us historically but historically we were generating significant revenue from basically third party sources. We have a domain parking service that we played middleman on that side of thing.

[Andrew Wall] - Private Investor

Okay so I guess, can you kind of give me idea of how you are making money now?

Daniel M. O’Donnell

Well, we still own some proprietary sites that we drag traffic too primarily through search engine marketing. We also have MyStockFund. We also drive in the Q1 and Q2 though they not really have much of an impact on Q3. Our revenue is derived from the tax business and throughout the season, we generate revenue on Banks.com.

[Andrew Wall] - Private Investor

Is that the form like PPC?

Daniel M. O’Donnell

Right; PPC, banner advertising.

[Andrew Wall] - Private Investor

Okay. I am kind of curious of so I guess you are signing up a lot of partners for the advertising. How come you are not working with Google?

Daniel M. O’Donnell

Oh, we are now. We are working with them through InfoSpace.

[Andrew Wall] - Private Investor

Okay but why not directly? I guess through their AdSense program?

Daniel M. O’Donnell

Well, few reasons. The AdSense program is not quite as lucrative so we wanted the direct distributions search field with them and InfoSpace was the quickest to market way to do it, way to get there.

Operator

(Operator Instructions) You have a follow up question from the line of [Andrew Wall] - Private Investor.

[Andrew Wall] - Private Investor

Okay, so second question is the sales of the non-core assets. I guess you sold off three dot com domains; Camps.com, SummerCamps.com and I guess another domain name for $218,000 total, is that correct?

Daniel M. O’Donnell

We sold two domains and we owned a trademark on the term InterSearch that we were approached on that somebody wanted to acquire so we sold that, InterSearch was the former name if you are not familiar with that.

[Andrew Wall] - Private Investor

I am just curious, how much did it cost you to acquire these three?

Daniel M. O’Donnell

I am not sure we have reported it but I will tell you that we have lost a little bit of money but nothing that was, I do not think but that is not a significant amount of money. It was sort of mostly breakeven transaction.

[Andrew Wall] - Private Investor

Okay so breakeven. Next question on the HR 1667, in your opinion what is the likelihood of it passing in January?

Daniel M. O’Donnell

My personal opinion is there is little to no chance it will be passed for a number of reasons. One is that it has been sitting where it started from the time the bill passed and I think frankly that Congress has bigger fish to fry currently than to worry about this.

[Andrew Wall] - Private Investor

Interesting.

Daniel M. O’Donnell

This is my opinion. I mean obviously…

[Andrew Wall] - Private Investor

Right, of course.

Daniel M. O’Donnell

There are unpredictable where it can happen back there.

[Andrew Wall] - Private Investor

Right, okay. So I guess would you care to expect the implication if it does not have?

Daniel M. O’Donnell

Well, I mentioned in the script. I mean we are starting to converse with former and prospective advertisers that were not with us this season, some of the former advertisers which we feel is very encouraging so I mean, with all signs are positive as far as what is going on, what we are looking at for the next tax season based on the inquiries we are getting.

[Andrew Wall] - Private Investor

Okay. Two more questions, one is on the delisting. I guess one of the reasons for them delisting now is that I guess the stock price is falling on a certain price. Are you considering a reverse stock split?

Daniel M. O’Donnell

The primary reason for the notice was the fact that we needed to re-class our debt from long term to short term and we have been talking to the Amex and keeping them abreast with our conversations with our lenders and I think that once we filed our 8-K that we are out of compliance on the covenants, I think they felt that need to make sure that we will give a notice that we needed to resolve this issue. On the stock price, if you notice, I did mentioned the stock price but were sort of a secondary item and the reverse stock split is not something that is on the top of our list, I do not think it is on anybody's list on this call and it is not something that they are requiring us to do at this stage with the game. Obviously there are many stocks that have gotten beaten down that made better dealing with us. So right now I think those standards are a little bit more relaxed than normal.

[Andrew Wall] - Private Investor

Alright. So final question as to turning to headcount, I guess you cutback significantly. Can you tell me how many people are currently in the Company and I guess compare that to this time last year?

Daniel M. O’Donnell

I will tell you there are 22 people in the Company now and I would say, year ago is between 35 and 40.

Operator

Your next question comes from the line of [Ted Balentine] - [22.10]

[Ted Balentine]

Hi. Just a quick question on the regulation, the notification on a sale on October 14. What was the securities sale on October 14 total?

Daniel M. O’Donnell

We had engaged an investment banker which to help us try to sell some assets and in an effort to preserve cash. They agreed to take their fee in stock. It is, I am not sure of the exact number. I think it was just over a 100,000 shares of stock that they were paid.

Operator

And there are no further questions in queue at this time. I would like to turn it back over to management for closing remarks.

Daniel M. O’Donnell

I would like to thank everyone for joining us on the Q3 2008 Banks.com earnings call and we look forward to speaking with you after next quarter.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Banks.com Inc. F3Q09 Earnings Call Transcript
This Transcript
All Transcripts