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Taylor Volpe - IR

Tom Clarke - Chairman and CEO

Eric Ashman - CFO

Jim Lonergan - President and COO


Bill Morrison - JMP Securities

Frank Gristina - Avondale Partners

Bill Lennan - Wedbush Morgan

Andrew Turro - Grove Street Advisors

John O’Brien - Wells Capital

Joe Gardner - Emerald Asset Management

Michael Musgrove - MRM Capital

Ashok Ahuja - ICOR, Inc. (TSCM) Q2 2006 Earnings Conference Call July 27, 2006 11:00 AM ET


Good morning everyone and welcome to the Inc Second Quarter 2006 Earnings Release Conference Call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Taylor Volpe. Ma'am you may begin your conference.

Taylor Volpe

Thank you. Some of the statements made on this earnings call not related to historical fact may be deemed to be forward-looking statements as that term is defined in a Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which may concern’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. The risks and uncertainties are described in the Company’s SEC filings, which are on file with the SEC and available at its website at Additional information will also be set forth in’s quarterly report on Form 10-Q for the quarterly period ended June 30 2006, which will be filed with the SEC in the near future.

I’ll now turn the call over to Tom Clarke,’s Chairman and Chief Executive Officer.

Tom Clarke

Thank you. Good morning and thank you for joining us today to review our second quarter 2006 financial results. As promised on our last call, we have appointed a new CFO, Eric Ashman who joined earlier this month. I am pleased to share the floor with him this morning.

Eric comes to us from [Text 100] Public Relations, an international technology public relations agency where he held many roles including Vice President of Finance, Chief Financial Officer and Chief Operating Officer and Board Director. His most recent role was Director of North American Operations.

Eric has extensive domestic and international experience that will be a benefit to the Company as we expand our business and our presence in the financial media space.

Following the format of previous calls, Eric will review our numbers in detail with you. Then we will hear from Jim Lonergan our President and Chief Operating Officer, who will provide an overview of the operational developments that took place in the second quarter.

First, let’s take a look at the top line results. We experienced a net revenue increase of 60% year-over-year with advertising and subscription revenue increasing 76% and 57% respectively. Net income for the quarter was $3.2 million, a $5.5 million improvement over the same period last year. All of this helped produce a gross profit margin of 63.4%. Total cash flow was $6 million with a $5 million improvement over the same period last year.

We entered the quarter focusing in on enhancement: enhancement of our management team and the continued enhancement of our appeal to a broader range of diverse subscribers and advertisers. We’ve had success in penetrating the professional and active investment market for subscription services, we believe there is a large opportunity for in terms of advertising supported initiatives targeted at penetrating the mass market. Our attention over the next few quarters will be focused on capitalizing on this opportunity.

Consistent with our strategy of increasing advertising revenue as a percentage of our overall revenue stream, our year-over-year advertising revenue percentage has risen from 27% to 30%. We expect this percentage of overall revenue to increase in the upcoming quarters.

It is important to point out that we believe our advertising business is still in early stages of development. Our revenue growth will come from a number of areas including gaining the larger share of wallet among the consumers of financial content; expansion both within and outside the financial advertising space; creating content or offerings tailored to advertising demand; continued expansion of our strong audience demographics; and obviously advertising rate increases.

With an another quarter of solid execution on our strategic plans behind us, I am extremely pleased that our results have exceeded our expectations and I thank all of our employees for their efforts towards realizing the Company’s goals.

Now, I will turn the call over to Eric so we can explain our numbers in more detail.

Eric Ashman

Thank you Tom, and thanks for the introduction. I am pleased to be here. Let’s review the Company’s second quarter results. Total net revenue for the second quarter was $12.4 million, an increase of 60% year-over-year and a sequential increase of a 11%.

Subscription revenue for the second quarter total $8.4 million, a 57% increase over the same period last year and sequential growth of 10%. Subscription bookings for the quarter total $9.2 million, a year-over-year increase of 39% and a sequential decrease of 9%. Our total number of subscribers was approximately 104,000 up 45% over the second quarter of 2005 and up 4% sequentially.

The average annual revenue per subscriber was $330 in the second quarter. This is an increase of 8% from the $305 we reported in the second quarter of 2005 and a sequential increase of 1%.

Deferred revenue, a key metric of the Company’s subscription business performance primarily represents subscription sales that will be recognized as revenue over the next 12 months.

Deferred revenue at the end of the second quarter was $13.2 million, a year-over-year increase of 45% and a sequential increase of 6%. This is the highest level of deferred revenue we’ve reported in the Company’s history.

Advertising revenue for the second quarter totaled $3.7 million, a 76% increase over the $2.1 million in advertising revenues for the same period last year, and a sequential increase of 14%. This represents continued strong growth in our advertising revenue, and is the highest advertising revenue total since the fourth quarter of 2000.

We had 70 advertisers in the second quarter representing year-over-year growth at 32% and sequential growth of 1%. This quarter, the Company’s top five advertisers accounted for approximately 40% of advertising revenue, as compared to approximately 38% for the same period last year and 46% in the first quarter of this year.

Our non-financial advertising revenue increased 47% from the second quarter of 2005, which is consistent with our strategy of increasing our appeal to advertisers outside the financial space. For the second quarter of 2006, we experienced a 109% increase in non-broker advertising over the same period last year; and a 16% sequential increase.

Our second quarter operating expenses of $9.6 million were up 54% year-over-year and up 9% sequentially.

I will now review our primary expense categories in a bit more detail to highlight the year-over-year and sequential changes. Cost of services was $4.5 million, a year-over-year increase of 61% and a 9% sequential increase. The year-over-year increase was driven by higher compensation costs related to increased headcount; higher incentive compensation costs tied directly to the strong financial performance of the business; non-cash compensation related to the expensing of stock options; and increased revenue-share payments resulting from higher revenue.

The year-over-year increase was also driven by the lack of allocations during this quarter to our brokerage business, IRG Research, which was discontinued in June 2005. The sequential increase was driven primarily by higher incentive compensation based upon the strong financial performance in the first half of the year, and recruitment fees related to recent executive appointments.

Sales and marketing expense was $2.3 million, a year-over-year increase of 29% and a sequential increase of 8%. The year-over-year increase was primarily driven by higher advertising commissions and advertisement serving costs related directly to higher advertising revenue; credit card fees related to higher subscription revenue; and recruitment costs related to recent executive appointments.

The sequential increase was driven primarily by increased advertising commissions, directly related to increased advertising revenue; and incentive compensation related to our financial performance for the first half of the year.

General and administrative expense for the second quarter of 2006 totaled $2.6 million, a year-over-year increase of 69% and a sequential increase of 8%. The year-over-year increase was driven primarily by increased incentive compensation directly related to our financial performance, and non-cash compensation related to the expensing of stock options.

The year-over-year increase was also driven by the lack of allocations to our discontinued brokerage business; the sequential increase was driven primarily by incentive compensation related to our financial performance for the first half of the year.

Consistent with our goal of improving the overall financial performance of our business, I am pleased to report that our net operating margin for the second quarter was 22.2% compared to 19% in the second quarter of 2005 and 20.6% last quarter.

Our income from continuing operations totaled $1.2 million, a year-over-year increase of 94% and a sequential increase of 24%. Basic earnings per share from continuing operations for the second quarter were $0.12, up from $0.07 in the prior year and $0.10 in Q1.

The gain from discontinuing operations was $18,000 as opposed to a loss of $3.9 million in the same period last year, when IRG Research was still operating. As I mentioned, IRG research was shut down in June, 2005.

Net income for the quarter was $3.2 million, a $5.5 million improvement over the same period last year, and a $0.7 million improvement from last quarter. Basic EPS for the quarter was $0.12, a $0.21 improvement over the same period last year and a $0.02 improvement from last quarter.

For the six months to date, our net income from continuing operations was $5.8 million, $0.22 per basic share which represents growth of 120% over the same period in 2005 when we delivered net income from continuing operations of $2.6 million, or $0.11 per basic share.

Turning to our balance sheet, our cash, restricted cash and marketable securities stood at $45.9 million at the end of the second quarter. This represents a 55% increase over the same period last year, and 15% sequential growth. The Company has no bank debt.

Total cash flow for the quarter was $6 million, a $5 million improvement over the $1 million cash flow for the same period last year, and a $0.2 million improvement from last quarter’s cash flow of $5.8 million.

Finally, a number of you have enquired about the impact of our NOL tax carry forwards on our future tax expense, and the possibility of booking a deferred tax asset. We continue to review the tax impact of our NOL carry forwards with our auditors each quarter. For the current quarter reporting period, there has been no change in the treatment of these NOLs from prior reporting periods. We will continue to review this issue regularly with our auditor. With that, I will turn it over to Jim.

Jim Lonergan

Thanks, Eric. During the second quarter we made several [inaudible – audio interference] We added three senior executives with new media backgrounds to our management team. Eric Ashman, CFO; [Al Spinelli, CTO and Craig Calber, SVP of Marketing].

We also hired our first full-time video correspondent, [Bernuse Terabi], formerly a business news producer and a reporter for New York One News, [Terabi] is an example of the breed of industry veterans we seek out to complement our staff. Hiring these four seasoned professionals enabled us to take advantage of growth opportunities that we have identified within the financial media space.

As Tom mentioned at the beginning of the call, having successfully penetrated the professional and individual active investor markets, we have turned towards the mass market in order to grow both our advertising and subscription revenue streams. This past quarter we focused on broadening our audience and building our brand. We did this by reaching out over multiple platforms with advertising support offerings such as free newsletters, blogs, podcasts, RSS feeds and video and radio initiatives, and by working to make our content more prominent on search engines.

We have continued to nurture and expand partnerships to drive traffic. An example is our partnership with MSN Money, through which we index their headlines. This quarter we began to see our relationship come to fruition, as it enabled us to access an additional large pool of new audience members.

The success of our efforts is reflected in our year-over-year page view growth of 98%, and unique user growth of 57%. In terms of revenue, we have spoken about two distinct revenue streams: advertising and subscription. By now it should be clear that our model continues to serve us well by allowing us to shift resources and priorities as the market dictates.

Let’s take a look at each revenue stream. Within our ad business, our advertisers come from four primary industries. The first category is our online brokers. This is a group that has historically purchased advertising and paid a higher CPM to attract our audience of active investors into their trading platforms, where they extract a high value from each new account.

Because of our access to a wider mass market, these same brokers are now spending more with us as they role out their own non-trading offerings, such as mutual funds, money market accounts and IRAs.

The second category comprises of financial firms such as banks and insurance companies, which historically have not engaged as an advertising vehicle, because we were perceived as a niche site. Today, due to the growing mass market audience we attract, we are doing business with firms such as HSBC, a savings bank and nationwide insurers to help them sell life insurance products, annuities and high yield savings accounts.

The third is a non-financial category consisting primarily of technology solution firms. These firms continue to look to to tap our strong demographic of information technology executives, in order to target sales of their business to business applications.

Now, in addition to this, they have begun to look at us to promote offerings such as PCs, wireless devices and software targeted directly at the consumer. This development is particularly notable as this quarter, Hewlett-Packard became one of our top five advertisers.

The fourth and final category is the non-financial consumer retail category, primarily consisting of automotive, travel and leisure segment. Historically, a very small portion of our advertising base. We are currently serving ads from FlexJet, Virgin Atlantic, American Airlines, Honda and Porsche. The numbers Eric discussed demonstrate the allure of our wide audience demographics to advertisers. Non-financial revenue increased 47% year-over-year, the number of advertisers has grown 42% year-over-year. Two of our top five advertisers are non-financial advertisers, and we experienced 109% year-over-year increase in non-broker ad revenue.

What specifically are we doing to grow the business, and what should you be looking for in the future? The demand from advertisers for video content continues to grow. To meet this demand, we have expanded the number of video channels on TV to 11, adding the personal finance channel during the second quarter.

We increased the number of videos produced by 23% sequentially, and we increased the production of video content most in demand by viewers, advertisers and channel partners such as mutual fund and ETF coverage, executive interviews and personal finance content. We also expanded the distribution of video into additional areas within our site, such as adding them into our free newsletters.

During the second quarter, we extended our existing distribution agreement with Yahoo! to include a specific agreement for distribution of video content to Yahoo! users, placing us on the Yahoo! Finance home page on a rotational basis. We expect that agreement to go live shortly.

All of these initiatives made during the quarter resulted in generating almost 2 million views of video content, and helping to increase our revenue per thousand by 18%, to [1710] and [1446] sequentially.

Advertisers pursue content tailored to match the message they are sending to their target demographics. Our editorial and advertising teams continue to work on crafting content and programs geared towards satisfying this demand. Now, from a broader base of advertisers than ever before.

For example, this quarter we launched a new, free advertising supported newsletter called the Daily Booyah! Which features content from our RealMoney with Jim Cramer radio show, and from Jim Cramer’s television show.

On the subscription side, where we continue to drive the largest component of our revenue, our marketing team has focused much of its efforts on setting the course to drive potential subscribers to our free flagship site. Here, visitors view proprietary content in a controlled manner, enabling them to self-select the subscription offerings that best meet their needs.

Much of the effort to drive traffic to our free site involves ongoing testing; testing the story pages readers will land on, testing the registration pages of potential subscriber click through; testing price points and testing potential product names. The effort also involves enhancement. We recently enhanced the navigation on our free web site to make it more user friendly by implementing changes such as adding headers, areas of interest and standardizing landing pages to create uniformity across the site.

Additionally, we will continue to evaluate and develop new subscription services as appropriate. Our ongoing initiatives allowed us to report positive and important metrics this quarter. The number of net new subscribers was approximately 3,800 bringing us to a total of approximately 104,000 subscribers.

Revenue per subscriber continued to increase from $326 to $330. Our high annual retention rates remain unchanged to the previous quarter. Our deferred revenue continued to increase year-over-year by 45% and sequentially by 6%. Equally important, we continue to improve our net operating margin year-over-year and sequentially, and we closed the quarter at 22.2%.

We were pleased with the second quarter results. We expect our skilled executive team to help take our business to the next level as we develop many new opportunities ahead of us in the financial publishing space. Tom.

Tom Clarke

Thank you Jim. Moving forward, we intend to continue to concentrate on exploring the mass market opportunity we referred to during this call. Specifically, we aim to build community amongst this demographic as we have in other markets.

With offerings such as free newsletters, radio podcasts, RSS feeds, TV – which is video, blogs, and TheStreet University, we will engage the mass market, educating and helping people make more informed decisions as they master the investment process and plan for the future.

We will continue to seek innovative means of building interactivity with our subscribers, increasing visitors to and nurturing partnerships to enhance our revenue potential. Now let me take any questions you might have.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Bill Morrison of JMP Securities.

Bill Morrison - JMP Securities

A bunch of questions. I guess the first, Thomas, I think I heard you say that the revenue per 1,000 was in the $17 range, was that correct?

Tom Clarke

That is correct.

Bill Morrison - JMP Securities

For those of us new to this story and this vertical, how does that compare with general CPMs in offline media, let's say in Fortune or Forbes magazine, other financial publications and on financial television shows?

I was wondering if you had a sense of what percent of your clients’ advertising budgets, are going online, or are online today and what kind of share you have of their budgets and just how high you think you think you can go there? And then I might have one follow-up. Thanks.

Tom Clarke

In comparison of the kind of revenue to other media or CPMs and stuff like that we think it really rates very favourable, to tell you the truth. It's a pretty high number. We've been historically a little higher but when you get outside of the non-endemic type of advertising like the broker advertiser, you're competing with other sites for a share of the wallet and, therefore, it comes down a little bit. I think in general for the inventory we have, we're doing a great job.

When we start looking at what we call now TV, which would be our video offerings, that is going be even at a higher rate, and as we move forward and that becomes a larger portion of our advertising offerings to an advertiser, I think we would expect that that number should continue to increase.

As to the percentage of the advertising budget that we're gaining from some of our advertisers, I think it really depends on the category you talk about. If you're talking about the financial categories, meaning the on-line brokers, then I think we have a pretty good percentage of it because of the fact in some ways we're a must buy for them. Because when they look for their customer acquisition, we have to be a place that they go to because their larger accounts – that old 80/20 rule. The 20% that drives their business are our subscribers.

So in essence when they're looking for accounts they find great customer acquisition numbers coming through us. I think we probably have a good percentage of their ad dollars that's basically for the Internet.

As for the mass consumer, let's say a Hewlett-Packard or something like that, I think the numbers are miniscule at this point, the percentage of the advertising budget we get for that. That's a category as we continue to focus on the mass market, that we hope to increase.

Bill Morrison - JMP Securities

When you look at just your advertising business, I was wondering if you could help us understand what percent of your advertising business is CPM versus CPA? Or some kind of cost per action, if any? It may be all CPM.

Then I was wondering if you could help us understand what percent of your inventory is currently going unsold or, I should say not being sold direct by your sales force?

Tom Clarke

Two parts of it. All this is CPM, so that will take care of your first question.

As to the inventory sell through, up until the last couple of quarters we were selling through almost all of the inventory. We were about 85% sold this quarter, so there's an opportunity for us to do a better job there. One of the areas that we are hiring in is the ad sales force so we can bring more people on to help us with that.

Currently we sell the majority of the advertising that we have. We have a deal in progress now where we'll be looking to go outside or have someone to help sell some of the ads and we will share in the advertising revenue we get from them.

But other than our deal in radio where we share some advertising revenue where they sell the advertising on the radio program, Jim Cramer's RealMoney where we own all the content -- other than that, currently we're selling all the inventory.

Bill Morrison - JMP Securities

Thanks a lot.

Tom Clarke

You’re welcome, Bill.


Our next question comes from Frank Gristina - Avondale Partners.

Frank Gristina - Avondale Partners

Thank you. Great quarter, guys. In terms of the gross margin, you had a nice improvement sequentially and definitely year-over-year. Is this a function of mix shift, more advertising, less subscription? Or were there some things within each segment and is there opportunity there going forward beyond mixed shift?

Tom Clarke

That's a good question, Frank. Some of it is a mixed shift in the sense that as our advertising business gets stronger the margin there is very good and that will help the gross profit margin.

When you look at the way we look at some of these things, and you and I have had this dialogue before, when you look at our total expenses as a percentage of revenue, in the first quarter it was 79.4% of our revenue and it went down to 77.8% of our revenue this quarter.

So part of it is I think we're being more efficient in looking at our expense side of the business to be able to leverage some of our opportunities a little better than we have in the past.

So is there opportunity going forward? I think I've said this before. Our focus is on growing that number. It was a pledge we made going into the year and it's one we're going to continue to focus on. We are investing in the business so it's not just totally going to be incremental, in the sense that we see a great opportunity in what we call TV now, which is the video opportunity. We see a higher advertising rate coming from that.

We see a tremendous demand both from our advertisers and from our partners in receiving Internet content and I think if you look, you'll see a lot of the things that we have coming up in the next couple of quarters that are going to revolve around that. So I think there is some opportunity there.

Frank Gristina - Avondale Partners

The next question is with regard to video advertising of 2 million viewers in the quarter. That's pretty phenomenal and the quality from the initial video to the ones you're showing today, it's an exceptional improvement, a really nice product.

What percent of advertising currently do you estimate is coming from video ads, or what percent of sales are coming from video ads?

Tom Clarke

Frank, it's still a single-digit number. We're probably still in the 4% to 5% range. The way I think you have to look at this is we're still in our infancy. We were just talking about this internally yesterday. If you look out -- and I appreciate your comments about the leap in quality -- but we didn't start this that long ago, to be honest with you. We've done it all in house. We use an existing studio that we had for radio to actually build it out so we've done it very cost efficiently. We have made great strides and I think we're going to continue to do so with some very specific features that we're bringing to the forefront.

So we're in our infancy here. We're very much at the very beginning stages and we see this as being a large component of our growth in advertising over the upcoming quarters.

Frank Gristina - Avondale Partners

Great. I know it was an estimate but 4% to 5%, that's of advertising or of sales?

Tom Clarke

Of advertising.

Frank Gristina - Avondale Partners

Great. Another metric, how many advertisers do you think you had in the second quarter and what was that versus a year ago?

Tom Clarke

We had 70 in the quarter and 53 a year ago.

Frank Gristina - Avondale Partners

Last question, a lot of people are probably wondering the DART data wasn't all that bad but it was a little deceleration in growth. I think people kind of look at investing behavior and wonder how it might impact your business. So I was hoping you could give us, you don't do this typically, but a taste for how the quarter progressed? And what the last month looked like in particular, relative to given what we've seen on it?

Tom Clarke

As we've said many times in the past, what's not good for the business in general -- and again, I'm really talking about the subscription side of the business here-- is a market that's really going to go sideways.

An up market obviously is good for all of us. A down market has some opportunity for us because people are looking for help and stuff. A market that goes sideways -- as we looked at June it wasn't as strong. I think you saw the activity in the market go sideways for the month. Obviously it got a little bit reflected and wasn't as strong as the previous months.

The beginning of July has tended the same way but I think we're feeling okay about where we are in our own projections. So again, I don't want to put too much emphasis; it's only on one side of the business, which is the subscription. On the advertising side the market conditions themselves are not going to be that much of a factor. I think it's our own execution, our own deliverable of increased video content in some of the newer programs we're making available on our site that are going to drive the revenue.

Frank Gristina - Avondale Partners

Great, I appreciate it.

Tom Clarke

No problem.


Our next question comes from Bill Lennan - Wedbush Morgan.

Bill Lennan - Wedbush Morgan

So despite a nice upside on revenue and EPS, the stock isn't acting that well right now. I think people are looking at bookings, page views and unique visitors, probably focusing on the negative. Those three items were down sequentially.

Could you tell us if you're concerned about that, whether or not you're concerned, and what do you think that means in those metrics going the wrong way for one quarter?

Tom Clarke

Yes I'm not overly concerned about the page views being down a little bit. We're down sequentially so we're down 3% sequentially; so really you're talking about 7,000 page views or something like that. So you're not talking about a big number as opposed to being up 98% year-over-year.

Same thing with unique visitors, you're talking about a 2% sequentially decrease. For the page views unique visitors, no I'm not concerned about that. I think that you saw a little fall off in June because of the market conditions so I think I'm not worried about that.

When you talk about the bookings I think while there is a sequentially decrease, I think you have to put it in the parameters of where we were and where we came from.

I mean, when you look at the bookings we did $10.1 million in the first quarter, which is much higher. We had an exceptional first quarter and in this quarter we did $9.1 million, which would have been the second highest we've ever done as opposed to what happened in the first quarter.

You're talking about a 39% sequentially increase, so frankly I'm not worried about it. I think we had a very good strong quarter in bookings. I think the inference we want to make on the subscription business, but look at the deferred revenue at 13.2 million. So no, I don't have any concern or any worries about it.

Bill Lennan - Wedbush Morgan

Okay and just on that note, internally if someone held a gun to your head and said I can only pick one metric that's going to be good, either bookings or deferred revenue, which do you feel is a better indicator of where your business is going?

Tom Clarke

It depends on the time frame. I think if you're looking longer term it might be the booking numbers; and I think if you're looking shorter term it's deferred.

Bill Lennan - Wedbush Morgan

Then you mentioned cancellation rates, I think you said on annual are holding pretty steady. Monthly is the smaller portion of it. What's going on with the monthly as the market rolls over a little bit here and the tape is red everyday, it seems. What's happening with your monthly cancellation rate?

Tom Clarke

The monthly rate actually went down 1 percentage point so pretty much flat. It's pretty much staying the same.

The issue, Bill, on the renewal rates pretty much staying flat is the new business. We added 13,000 the first quarter. We have almost 4,000 this quarter so not as great an increase as you would have had in the first quarter.

I contribute that a lot to what happens in the first quarter with people looking at their financial plans for the year and trying to get active with it; so part of it is that. I think that's where the numbers really played itself out.

Bill Lennan - Wedbush Morgan

Okay and I know you don't reveal full subscriber metrics like some other subscriber models, but internally you must take a look at what your subscriber acquisition cost is. Where is that trending year-over-year and quarter-to-quarter advertising divided by your gross adds? Are you seeing any material up tick?

Tom Clarke


Bill Lennan - Wedbush Morgan

That's it for now. I'm going to hop back in the queue.


Our next question comes from Andrew Turro - Grove Street Advisors.

Andrew Turro - Grove Street Advisors

Good morning. Thank you for taking my question. With respect to the deferred tax asset and protecting that, would the Company consider possibly putting-- and I guess it depends on how close you are to a change in control -- but would you consider putting in an ownership limitation to protect that asset?

Tom Clarke

Andrew, that's a good question. Does the ownership change in control protect the asset? You know, I'd say yes. That's something that we would bring at discussion should we get to that point to protect it.

There's a lot of unique rules regarding the NOLs on what happens in a change in control and how they could be used. All of the circumstances are unique depending on the entity; if something were to come to fruition as to the way they use it. We have a rights plan already and we have a staggered Board so this could be just another piece that we look at.

Andrew Turro - Grove Street Advisors

The second question is the cash balance is obviously growing and certainly you're investing in your business. Is there any thought about what to do with the excess cash right now?

Tom Clarke

Sure. We always have that discussion at the Board level. As you know, we instituted a dividend last year. We feel pretty comfortable with where that is currently. We are looking at utilization of our cash and the best use possible.

We think we have some things on the horizon that are not only with our own business but in looking for things that could supplement our business and put us on a little bit faster growth track so all of those things are on the table.

Andrew Turro - Grove Street Advisors

Thanks so much and thank you for all your great work this quarter.

Tom Clarke

Thank you, Andrew.


Our next question comes from John O’Brien - Wells Capital.

John O’Brien - Wells Capital

My questions have been answered. Thanks.


Our next question comes from Joseph Gardner - Emerald Asset Management.

Joe Gardner - Emerald Asset Management

Congratulations, nice quarter. Wonder if you could talk a little bit, Tom, about how you see the advertising business. A little bit more about how you see it going from here?

Strong quarter in the second quarter and I remember your comments from the last conference call where you were unsure whether you'd be able to exceed the strong level you saw in Q1, and you certainly did.

Do we have a seasonality element here in Q3? Also looking at the mix of advertisers, as you mentioned earlier, you've been doing a good job growing the non-brokerage side. How's that looking for you going forward too?

Tom Clarke

We talk about the seasonality, Joe, as we have in the past and historically it's always been a first, third quarter kind of scenario. Yes we had a very good quarter. We're feeling very good about where the advertising business is. As I had mentioned earlier in our script, we really are viewing advertising as the big driver for the business going forward.

As we enter the upcoming quarters all of our initiatives are really focused on expanding the advertising pool, people we can bring in, but also our reach to be more attractive to a different set of advertisers. We mentioned the fact that 40% of our advertising revenue was within the top five customers, but I think what we failed to mention is that that top five customer list changes every quarter.

So while some people get concerned about the fact that you think it's so concentrated, the fact of the matter is when an advertiser finds us attractive they want to buy a big slug of what we call run of network for the site itself. Hewlett-Packard wanted to do that this quarter, non-financial advertiser. If you think about it, two of our top five advertisers were non-financial. If you went back a year ago you wouldn't see that.

I think that we are becoming more attractive to the non-endemic or non-financial type of advertiser, and we expect that to continue. We don't expect that to fall off at all.

As I always say, we're going to do our best. We know what the number is. We know what our opportunity is and as I said earlier, I think in looking at our advertising business we're really in the infancy of touching the surface as to what this business could be.

I can tell you that the management group here is focusing on making sure that we make this a much larger component of our overall revenue stream. As I've mentioned in the past, our goal if you look out a year or two years is to really flip the model where we would expect advertising to be somewhere about 60%-65% of our revenue make up and for subscription to really be the other portion of that. As it was when I first came to back in 2000, before I flipped it when we knew the ad market wasn't going to be strong. So I think we really have some opportunities there and that's what we're going to stay focused on.

Joe Gardner - Emerald Asset Management

What opportunity do you see on the CPM side? Do you think you can drive that higher from here as well and how significant?

Tom Clarke

Well, I think you know a lot of growth will come from video. The video CPM per se is at a much higher rate than what we're seeing now. Ultimately as more and more people get that it may come down, but I think if you're looking short term, a year out or so, we think there's a big opportunity to take advantage of that.

I don't want to say we have first mover status because of the fact that there are a lot of people doing it, but I think the quality that we're producing and some of the uniqueness that we're going to bring to what we're going to call TV I think will be unique in its proprietary nature and give us a leg up in the CPM world.

Joe Gardner - Emerald Asset Management

Great, thanks Tom.

Tom Clarke

Thanks, Joe.


Our next question comes from Michael Musgrove - MRM Capital.

Michael Musgrove - MRM Capital

Great quarter, guys. Tom, as far as the NOLs, what is the amount that you have left?

Tom Clarke

We're about $140 million at this point, give or take a million here or there.

Michael Musgrove - MRM Capital

How are Cramer's ratings doing in the last few months or the last quarter?

Tom Clarke

Are you talking on about the TV show?

Michael Musgrove - MRM Capital


Tom Clarke

The latest numbers that CNBC put out-- again, these are their numbers, not ours-- is that the show is continuing to gather market share and is still their highest rated program.

Michael Musgrove - MRM Capital

From a sequential basis has it improved, not improved?

Tom Clarke

Yes it's improved. It has gone up.

Michael Musgrove - MRM Capital

Good. Thanks guys.


(Operator Instructions) Our next question comes from Ashok Ahuja - ICOR.

Ashok Ahuja - ICOR

Hi, congratulations. A couple of questions-- first, in terms of the slight sequentially declines in a couple of areas, is there any possibility that your market is, in fact, seasonal and that we are seeing what we might expect to see in summer?

Tom Clarke

Let's talk about the seasonality of the business in totality first, and then I can get specific as to the side of the business that it affects. On the advertising side, I think we've said that while historically you've had first and third quarters be weaker, I think with the opportunities we're seeing in the market that I think I said two calls ago that I think we could say that seasonality will play less of a role going forward. So on the advertising side of the business you can almost take seasonality off the table.

When you're looking at the subscription side of the business, the one area where you do have some seasonality is the upcoming quarter because you have vacations. You're in the middle of the year. The market tends not to be, at least the market we're in currently doesn't seem to be as attractive as it was either earlier or will be as you go into the fourth quarter. So there tends to be a little seasonality in it as we look forward.

Ashok Ahuja - ICOR

Second question in terms of the CPM, are you seeing any ability to raise CPM with the popularity of the radio show Mad Money?

Tom Clarke

Yes. One of the things that I had mentioned earlier is the fact that we think there's a lot of opportunity for growth in the CPM market. Part of it is the fact that the things you mentioned are working very well for us so; and don't forget video because I think video plays a large role in that.

Ashok Ahuja - ICOR

Great. All the best.

Tom Clarke

Thank you.


There seems to be no further questions at this time. I'll turn the floor over to your host.

Tom Clarke

I want to thank everybody for being on the call today and I appreciate your support and look forward to talking to you again in the future. Thank you.


This concludes today's conference. You may now disconnect.

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Source: Q2 2006 Earnings Conference Call Transcript (TSCM)

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