Becky Updegraph - Head of IR
Daryl Otte - Interim CEO
Eric Ashman - CFO
Joseph Garner - Emerald Advisers
TheStreet.com (TSCM) Q1 2009 Earnings Call May 5, 2009 4:30 PM ET
Good day, ladies and gentlemen, and welcome to the first quarter 2009 TheStreet.com Earnings Call. My name is Anne, and I will be your coordinator for today's call. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session following the presentation.
I'd now like to turn the presentation over to Becky Updegraph, Head of Investor Relations. Please proceed.
Thanks, Anne. I'm going to read a legal statement and then turn the call immediately over to our Interim CEO, Daryl Otte. So here's the legal statement. Some of the statements made on this earnings call not related to historical facts may be deemed to be forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements, which may concern TheStreet.com's financial performance, as well as its strategic and operational plans, are subject to risks and uncertainties that could cause actual results to differ. The company undertakes no duty to update any such statements. Risks and uncertainties are described in the company's SEC filings, which are on file with the SEC and available at its website at www.sec.gov. Additional information will also be set forth in TheStreet.com's quarterly report on Form 10-Q for the quarter ended March 31, 2009, which will be filed with the SEC in the near future.
I would now like to turn the call over to Daryl Otte, TheStreet.com's Interim Chief Executive Officer. Daryl?
Thanks, Becky. Hi, everyone. Good afternoon. Thank you for joining us today to review our first quarter 2009 financial results. As you may know, I became Interim CEO at TheStreet.com shortly before the end of the first quarter of 2009.
Because I've been here for such a short time, my comments will focus on the nature of my temporary role, my goals for the time I am here, and my thoughts about the current state of the business. This is clearly a time of great change in the media business generally. We all see business models revolving as advertiser demand slackens. Here at TheStreet.com, where I have been involved with the Board of Directors since 2001, we are seeing significant change as well. We certainly have not been immune to the impact of a challenging economy and a difficult stock market.
One of the most significant results of this has been our recent restructuring, which reduced the size of our workforce, reduced our operating expenses and reshaped much of our internal team to better organize ourselves to meet our current challenges. For some companies, the speed and impact of such change would be difficult to manage, and certainly it requires tremendous focus on my part and the part of our staff and senior team to navigate these challenges. However, TheStreet.com has some unique strengths that give me great confidence that we will come out of this period of time better positioned for the opportunities that lie ahead.
First of all, I would point out that our people close to the business at the highest levels continue to show their strong support for the company. Our Co-Founder, Jim Cramer, recently assumed the role of Chairman of the Board and took the step of committing himself to the company through the end of 2010. I would like to express my appreciation for Jim's active involvement during this interim period. His enthusiasm and advice have been invaluable to me during the past month. Furthermore, our Board members have been with us for a number of years now and remain committed to their roles as advisors and (inaudible) for me and other members of the executive staff.
In addition, we have a strong balance sheet with more than $80 million in cash and marketable securities and no debt. We generated $4.7 million in free cash flow in the first quarter. Please keep in mind that our restructuring efforts came at the end of the quarter, and therefore, almost all of the impact of this will be reflected in future periods.
Further, our audience grew 29% to 8.1 million average monthly unique visitors in the first quarter, showing that there is a keen interest in our content categories. Our diversified revenue model is a key asset built upon subscription service businesses with more than 72,000 subscribers, generating strong cash flow each quarter. Most importantly, as I have spent time as Interim CEO delving deeper into our products and services, I have got to know the people in our company and I'm impressed with their dedication, hard work and commitment to our enduring brands.
Ultimately, my role here is to lead the [physical] effort to recruit the next CEO of TheStreet.com while working with the management team here to ensure that this company remains focused, that we manage our expenses and investments appropriately, and that we don't lose any momentum on the initiative that we are pursuing.
The CEO recruitment effort is well underway. Jim Citrin of Spencer Stuart has been engaged to recruit for this position, and we are excited about the caliber of candidates that we have seen so far. I fully expect we will be successful in bringing the right candidate on board to take the company forward beyond the challenges we are facing today and towards the success I believe this company and this team can achieve.
I would like now to turn the call over to our CFO, Eric Ashman, who will give you more detail on our financial performance. Eric?
Thanks, Daryl. As you can see from our earnings release, the first quarter of 2009 reflected many of the challenges we had discussed on our fourth quarter earnings call. Total revenue for the first quarter of $14 million represented a decrease of 26% from total revenue of $18.9 million for the same period in 2008. We had a number of extraordinary charges in the quarter, including an asset impairment charge of $24.1 million, an adjustment to the valuation allowance in our deferred tax asset of $16.1 million, and restructuring and severance charges totaling $2.4 million.
I will discuss these charges in more detail a bit later in the call. These charges weighed heavily in our earnings for the quarter. The net loss attributable to common stockholders for the first quarter of 2009, after deducting preferred stock dividends of approximately $96,000, was $45.8 million or $1.50 per fully diluted share.
Adjusted EBITDA, excluding the extraordinary charges I mentioned previously and stock compensation expense of $1.2 million, was negative $600,000 as compared to adjusted EBITDA of $3.9 million for the first quarter of 2008.
As we've previously stated, our focus this year is managing the cost structure of our business, while also maintaining a level of investment in new initiatives that will be important to the future success of the business. To that end, we have been targeting a free cash flow neutral or better result for the full year.
With that goal in mind, I'm pleased that we are able to deliver free cash flow of $4.7 million for the first quarter of 2009, an increase of 36% over the $3.5 million we delivered in the same period a year ago. As a result, our cash position improved as we ended the quarter with $80.1 million of cash, cash equivalents and marketable securities, a sequential increase of 5% over the $76.4 million we had at the end of the fourth quarter of 2008.
Before speaking in more detail about our expenses and non-cash charges we recorded in the quarter, I wanted to provide some detail on our revenue. Paid services, which include subscription, syndication, licensing and information services revenue, totaled $9.5 million for the quarter, a decrease of 12% over the first quarter of 2008.
As we have stated in the past, our subscription services business is impacted by a number of factors, including the poor performance of the stock market and job losses in the financial sector, both of which served to reduce the pool of potential customers for our subscription services.
Subscription revenue was $6.8 million, down 16% from the $8 million we delivered in the first quarter of last year. We had approximately 72,000 subscribers at the end of the quarter, a decrease of 13% from the prior year, and our average annual revenue per subscriber decreased by 4% to $359, down from $372 per subscriber in the first quarter of last year.
We had total deferred revenue of $15.7 million at the end of the quarter. Deferred revenue specifically related to TheStreet.com's subscription products decreased 14% to $11.1 million from $12.8 million at the end of the first quarter last year. Subscription bookings in the first quarter totaled $7 million, a decrease of 22% from the $8.9 million we booked in the first quarter of last year.
Syndication, licensing and information services revenue totaled $2.7 million for the current quarter, an increase of 1% over the same period last year.
Turning to our marketing services business, marketing services revenue, which includes advertising and interactive marketing services, totaled $4.5 million for the quarter, a decrease of 45% over marketing services revenue of $8.2 million recorded for the same period last year.
We delivered advertising revenue of $3.2 million, a decrease of 47% over the $6 million in the prior year quarter. Our advertising business was impacted by a number of factors, including delayed campaigns that didn't start until the middle of the quarter and drastically reduced budgets from our existing clients. We saw declines from both our financial and non-financial advertisers in the quarter, both of which were down 46% and 49% year-over-year, respectively.
First quarter advertising revenue from our non-financial advertisers fell to 38% of total advertising revenue, down from 40% of the total in the prior year.
While fully monetizing our growing audience is difficult in this environment, our audience did continue to grow. In the first quarter, we had 8.1 million average monthly unique visitors, an increase of 29% over the prior year. We delivered 193 million page views and an RPM of $16.40 for the quarter.
In respect to Promotions.com, interactive marketing services revenue totaled $1.4 million in the first quarter, a 39% decrease over the $2.2 million we recorded a year earlier. We have discussed the challenges facing our Promotions.com business on past calls. While Promotions.com retained all of their key client relationships in the quarter, spending by these clients remains under pressure.
Turning to expenses, I'll start by providing a bit more insight into the non-cash and one-time charges we reported in the quarter. The asset impairment charge was primarily calculated based upon a review of the enterprise value of the company at the end of the first quarter as compared to the book value of the assets on our balance sheet. The results of this review concluded that there was indeed an impairment, and as a result we booked a goodwill impairment charge of $19.8 million along with a reduction in other intangible assets of $2.8 million.
We also reviewed the book value of our investment in Geezeo, which we announced in April of 2008. Based upon this review, we determined that the value of this investment was impaired, and we recorded a $1.5 million charge in the quarter that reduced the book value on our balance sheet to approximately $600,000.
As we had discussed at the time of this investment last year, TheStreet.com had an option to acquire Geezeo for $12 million value on or before April 23, 2009. We decided not to exercise that option, which has now lapsed, but we maintain our strategic and financial investment in the company.
These asset impairment charges generated a historical period of cumulative losses, and as a result, we recorded a full valuation allowance against the $16.1 million deferred tax asset that had been on our balance sheet. This GAAP adjustment has no cash impact and has no impact on the status of the $128 million of net operating losses we continue to carry to offset future taxable income.
Finally, we recorded $2.4 million in restructuring and severance charges in the first quarter. In March 2009, we implemented a reorganization plan that eliminated 21 positions across various functions and locations. We ended the month of April with 288 employees, a 15% decrease from our headcount at the end of the first quarter 2008.
Excluding the impact of this charges and the impact of non-cash compensation, which was $1.2 million in the first quarter of 2009 and $700,000 in the first quarter of 2008, totaling operating expense in the first quarter of 2009 with $16.1 million as compared to $16.3 million in the prior year.
We've remained focused on opportunities to reduce operating costs across the business. In addition to the restructuring plan that we announced on March 19, we've also deferred salary increases across the company to at least the middle of this fiscal year, when a compensation committee will review the company's performance and make a decision with respect to the timing of the next round of salary reviews.
Our efforts to reduce operating expenses went beyond targeted headcount reductions. We also reduced spending across a number of areas, including search engine marketing, professional fees, data costs and a number of operating expenses. We also expect to complete a major data center consolidation effort in the second quarter, bringing five data centers down to one, which will also have a significant impact on hosting and bandwidth charges, while also improving overall network performance.
An ongoing review of our subscription services business has significantly reduced compensation and outside contributor costs. While most of this activity occurred too late in the first quarter to have much of an impact on our operating expense in Q1, we certainly expect to see the benefit of these changes in Q2 and in subsequent quarters.
Our capital expenditures in the quarter totaled $650,000, 53% lower than the CapEx in the first quarter of 2008, as we move beyond the significant website development activities of last year to focus on targeted improvements and the development of new features and functionality that build upon our efforts.
While the first quarter proved to be challenging, in the end we produced strong free cash flow and left the quarter with more than [$80] million in cash and marketable securities. We continue to invest in our new properties, including BankingMyWay and MainStreet, and we will continue to use our strong balance sheet to maintain our leadership position in the online financial media space.
I'll now turn the call back over to Daryl.
Thanks, Eric. Before we move on to questions, I want to take a second to thank Eric for staying on to finish the first quarter results and filing the Q with us. I really greatly appreciate all the work that Eric has done here. On a personal note, I'd like to wish him the best of luck in his next endeavor.
With that, I will turn it on back to the operator, Anne, to open the line for questions.
(Operator Instructions). The first question comes from the line of Joseph Garner with Emerald Advisers. Please proceed
Joseph Garner - Emerald Advisers
Hi, first, I would like to start out by thanking Eric for all the time and effort that you've put into the business, and also wish you luck with wherever you go next.
Thanks, Joe. I appreciate that.
Joseph Garner - Emerald Advisers
I guess number one, I'm curious if you could elaborate a little bit more may be on the demand environment since the end of the quarter, just from observing the site, it looks like perhaps there may have been some pickup in the advertising activity. Just wondering is what I'm seeing may be accurate, so if you could comment a little bit on that?
First of all, one of the things that anybody that was on the site at the beginning of the first quarter would have noticed is that the first quarter certainly was slow to start from an advertising perspective. One of the things I mentioned in my comments was that a number of advertisers delayed till the middle of the quarter to get campaigns off the ground as budgets firmed up on the client side.
Certainly in the second quarter, we have seen the cyclical effect that we generally see, which means is that we are seeing a stronger Q2 than certainly what we saw as a trend in the back half of Q1. It doesn't suggest and I don't want to suggest that in anyway we have seen any meaningful overall macro improvement, but more that we certainly have seen a pickup sequentially as we typically do as the business cycles through Q1 to Q2.
So if you have been on the site, you are right. You certainly will see more activity in the second quarter than what you saw in the first.
Joseph Garner - Emerald Advisers
Second question for Daryl, one of the concerns as a long-term shareholder of the company is that we've seen quite a bit of turnover here in the last 60 days or so in the senior executive ranks, the company. Just wondering if you can talk a little bit about that and particularly given the economic environment that we are operating in and the importance, obviously, of having a strong and experienced management team in place to lead us through that.
Yes, I think I'm not going to really comment on any individual person. But I can tell you that having been here now about six weeks, that we have excellent bench strength here at the company, and people who have long tenure with the company, well experienced in the Internet, and in addition some very strong brands, which I think are very helpful in sustaining us.
I would also add that Jim Cramer has been extremely involved in the business and been super supportive of me in helping with the transition and as I mentioned in my prepared remarks, we have a Board that has been us with for quite a long period of time and is helping with advisory role as well (inaudible). I think the Board views this as an opportunity to bring in the CEO that has a fresh perspective. So, in many respects, looking forward to this as an opportunity for us.
Joseph Garner - Emerald Advisers
In the proxy statement that was filed recently, I noticed in there that it looked like for the executive staff, their employment contracts were not being renewed and that they were being changed or something going forward. I'm wondering if you could talk a little bit about what is going on there. I'm curious if you think that may have at all contributed to some of the turnover that we have seen in the ranks?
You know, Daryl might address the second part of the point, just to jump in, because we had talked about this on the last call as well. What has been filed in the proxy, I think we actually did talk about it in the Q4 call that has been out there for a little while now. There was a couple of things there. But primarily, it was the Board's goal ultimately to reissue employment agreements as contracts actually come up for expiration.
So keep in mind that most of the senior executives remain under contract and this will play out over a period of time as the contracts come up, but also provides some level of flexibility for the Board to review the agreements and just make sure that they are market appropriate, given changes in the economic environment and changes in the macro environment over the last couple of years. So, it is something that has been out there for a little while and it was certainly something that we talked about on the last call. I don't know, Daryl, if you want to add anything to that?
No, I think that covers it.
So certainly what you will have in the proxy would be as much public information that is available and then as new agreements are put into place, certainly with officers that require filings, you'll see those filings come across.
Joseph Garner - Emerald Advisers
Okay. I don't mean to beat on that issue too much. It's just that coming through a difficult environment like this and certainly from the buy side as a shareholder in the company, as this management team is kind of rebuilt, it is obviously something that we're paying very close attention to. So thank you for your time and your comments.
Maybe I can add a little bit of color, too, to the search process, because I assume that is a question coming up, and tied to all of the questions you have been asking. I would just note that the process is going quite well. I think we're doing it the right way. We have engaged one of the top firms or one of the top principals of one of the top firms to help us find the right candidate.
I think we're very excited about the candidates that we have seen and the quality that we have there. But when we have more to announce, we will do so. But I think overall, we are pleased with the results so far, which I think would be helpful, too, in terms of the shareholders getting comfort that this is being handled appropriately.
(Operator Instructions). There are no further questions. This concludes today's question-and-answer session. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.
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