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Executives

Marybeth Csaby – KCSA, Investor Relations

Ofer Adler - CEO

Yacov Kaufman - CFO

Jeff Holzmann - President of IncrediMail, NY

IncrediMail Ltd. (MAIL) Q2 2009 Earnings Call August 6, 2009 9:30 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Incredimail 2nd Quarter 2009 Results Conference Call. All participants are in listen-only mode. Following management’s formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press * 0. As a reminder this conference is being recorded, August 6th 2009. With us today from IncrediMail, we have Ofer Adler, CEO, Yacov Kaufman, CFO, Jeff Holzmann, President of IncrediMail NY and Marybeth Csaby from KCSA, investor relations.. I will now hand the call over to – Marybeth Csaby of KCSA Strategic Communications, please begin...

Marybeth Csaby

Thank you Eli, and thank you all for joining us today for the IncrediMail second quarter 2009 earnings call. Before I turn the call over to the Company’s CEO Mr. Ofer Adler, I would like to read the following Safe Harbor Statement. This conference call contains statements that constitute forward-looking statements. These statements reflect the Company’s current views with respect to future events.

These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those discussed under the heading “Risk Factors” and elsewhere in the Company’s annual report on form 20-F that may cause actual results, performance or achievements to be materially different from any future results, performances or achievements anticipated or implied by these forward-looking statements.

The Company does not undertake to revise any forward-looking statements to reflect future events or circumstances. With that, I’ll turn the call over to Ofer Adler, Chief Executive Officer. Ofer, the call is yours…

Ofer Adler

Thank you, Marybeth. This was a very exciting quarter for IncrediMail as reflected by our results which came in much better than expected. Our strong growth more than offset the historically seasonal decline in sales, providing for yet another record quarter.

Both our top and bottom line ended with record highs, demonstrating the tremendous growth we experienced in our search related revenue. Total revenue for the second quarter of 2009 rose $1.5 million, or 29%, and net income was up to $2.4 million from $600 thousand last year.

Also, we continue to control our costs with total operating expenses down 24% year-over-year. We generated EBITDA at a rate exceeding $1 million a month, totaling $3.4 million this quarter with operating income of $3.1 million.

HiYo continues to have a strong growth rate and strong acceptance. This quarter we released HiYo for Yahoo Messenger, and expect to release HiYo for AOL Messenger in the next few months. In addition, this quarter we initiated the Beta stage of IncrediMail 2, and although these are still early days, the numbers are encouraging. We believe the second generation of IncrediMail is a far superior product, providing us with a positive horizon for future growth.

We also reached a very important milestone in the company’s growth, having paid our first dividend to shareholders as a public company. The pretax dividend payout of 50 cents per share was distributed to shareholders on or about July 28th.

With that, I would now like to turn the call over to Yacov Kaufman for a review of our financials and then I will review some of the quarter’s highlights and plans before starting Q&A. Yacov…

Yacov Kaufman

Thank you Ofer. Total revenue in the second quarter of 2009 rose 29%, to $6.7 million, from the $5.2 million reported for the same quarter in 2008. This consisted of $5.1 million of search-related revenues, subscription sales of $1.1 million and one-time fee and other sales of $0.5 million.

As a result of the growth in sales and increasing the portion attributable to search, gross profits have increased to $6.4 million and the gross profit margin has reached 95%, as compared to 92% in the second quarter of last year.

R&D expenses were $1.3 million, similar to the previous quarter, decreasing 29% compared to the second quarter of 2008. During the second quarter, we completed development of HiYo for Yahoo Messenger and began working on a version compatible with AOL Messenger – AIM, particularly popular in the US market. In addition, we continued to complete the work on IncrediMail 2, a Beta version of which was recently released.

Sales and Marketing expenses decreased as well and were $1.2 million this quarter, decreasing 25% from the second quarter of 2008 as a result of our focusing marketing efforts on our current suit of products.

As a result of all the decreases I’ve mentioned, total operating expenses in the second quarter of 2009 were $3.2 million, decreasing 24%, when compared to the same quarter last year.

EBITDA this quarter was $3.4 million, and operating income for the quarter was $3.1 million, compared to $0.5 million the same quarter last year.

Our effective tax rate in this quarter was 29%, slightly below that of last quarter. This rate takes into account the dividend policy instituted in 2009, as a result of which, we are not able to take full advantage of our Israeli tax benefits. We expect the tax rate to continue at this level going forward, as we maintain our dividend policy.

Net income for the second quarter 2009 was $2.4 million, or $0.26 per diluted share, compared to net income of $600 thousand, or $0.07 per diluted share from the same period last year.

With that said; I would now like to turn the call back over to Ofer for closing remarks before opening the call to questions. Ofer…

Ofer Adler

Not only was it a good quarter financially, but it was a significant quarter for our operations as we accomplished all of the goals we had established – launching the Beta version of IncrediMail 2, making HiYo available to Yahoo instant messaging users, and signing a new two-year advertising revenue share agreement with Google.

Our search related revenue, stemming from our Google and InfoSpace relationships, are the core of our business, as search related revenues account for over 75% of our revenues. The renewal of the Google agreement reflects the lucrative relationship we have with Google, and the confidence they have in our business.

In continuing to diversify our company by bringing in new ideas and viewpoints, we added Achivay Nissenbaum to our board of directors as an external director. Achivay is a VP and Country manager for AOL, and brings to IncrediMail more than twenty years of experience in the software industry. We are enthusiastic about having him join our team, and look forward to what he can bring to the table as we continue to expand our business.

With that, I now open the call to questions.

Ofer Adler

In 2008, we laid out a series of goals that have helped guide our business and allowed us to report more controlled expenses and record revenue. Despite the challenges that all companies are currently facing, we remain on track with our business objectives. I would like to thank the IncrediMail employees for their creativity and hard work, as well as the investment community for its continued support and interest. Thank you very much and have a good day.

Question-and-Answer Session

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