The Knot, Inc. Q3 2009 Earnings Call Transcript

| About: XO Group (XOXO)

The Knot, Inc. (KNOT) Q3 2009 Earnings Call November 5, 2009 4:30 PM ET


Laura Cave – Corporate Communications Officer

David Liu – Chief Executive Officer

John Mueller – Chief Financial Officer


Matt for Jeetil Patel – Deutsche Bank

George Askew – Stifel Nicolaus

Meggan Friedman – William Blair


Welcome to The Knot Incorporated third quarter 2009 earnings conference call. (Operator Instructions) At this time I would like to turn the conference over to Miss Laura Cave.

Laura Cave

Good afternoon and welcome to The Knot’s third quarter 2009 conference call and web cast. During the course of this conference call comments that we make that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause the actual events or results to differ materially from these statements. Any such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by the use of words like may, should, expect, plan, intend and other similar terms. You are cautioned that these forward-looking statements speak only as of today’s date. Our internal projections and beliefs upon which we base our expectations may change but we will not necessarily inform you if they do.

The Knot’s policy is to provide expectations only once per quarter and not to update that information until the next quarter. The important factors that could cause actual results to differ materially from any forward-looking statements mentioned today include but are not limited to the potential failure of The Knot’s wedding related and other websites to generate sufficient to survive over the long term, our history of losses, the significant fluctuation in which our quarterly revenues and operation results are subject, the seasonality of the weddings industry, our dependence on a limited number of customers in a particular season for a significant portion of our revenues, the dependence of our registry services business and a continued use of the WeddingChannel website by our retail partners, the potential for losses on our investments and auction rate securities or our inability to liquidate these investments at the desired time for the desired amount and other factors described in documents that we file with the Securities and Exchange Commission.

Additionally, if you’ve not received a copy of today’s press release, the release can be found on the investor relations section of the company’s website and We’ve allotted up to one hour for today’s conference call including the question and answer section that follows. Please note that the company is operating under the SEC regulation SD and encourages you to full advantage of the Q&A session.

At this time I’ll turn the call over to our Chief Executive Officer, David Liu.

David Liu

Thanks everyone for joining us today. Overall our third quarter results were in line with our internal expectations. The positive trends have continued in some areas of our business like local advertising that we saw improving in trends in the first half of the year.

The businesses that faced the stiffest headwinds in the first half; national advertising and publishing in particular, continue to be a challenge. We don’t expect to see significant improvement in the environment until next year sometime, but we continue to make progress on initiatives that will be crucial to our future growth.

On today’s call, I’ll run through a quick update on each of our businesses and then I’ll let John get into more detail on the financials. And after that, we’ll take your questions.

The last twelve months have to be the worst and most challenging time for media companies and advertising sales, and while weddings and life stage trigger predictable consumer spending that makes our audience largely recession resistant, the businesses that buy our media inventory are exposed to the broader cyclical downturns and have been forced to take a hard look at their marketing spend.

Despite the terrible advertising climate, we continue to deliver results for our marketing partners and we are winning business from new advertisers. Our local adverting efforts in particular have been a real bright spot for us this year so far.

Many of you will recall this time last year we began our test of variable pricing by introducing the $50 internet profile. I’m happy to report that nine out of the last 12 months have been record sales months for the local online business. Our vendor base has grown 23% since September 2008 to approximately 19,500 profiles and 16,400 vendors at the end of the recent quarter.

Variable pricing is on track to be fully implemented by the end of the year and we launched the first generation of our self service platform, the Vendor Dashboard in September. The Vendor Dashboard gives vendors the ability to manage their account and view the performance of their average advertising through a brand new online portal.

We anticipate adding the ability to buy and bid on new advertisements next year. Giving our vendors a sense of ownership and control over their profiles has been a company priority. We’ve invested a tremendous amount of time and resources to build this new platform because we believe it will enable us close the perceived value gap local vendors tend to have when evaluating the relative cost for online and traditional marketing campaigns.

When the self serve portion of the platform goes live, the Vendor Dashboard will also enable us to scale operations to sell and service increasing numbers of vendors in this enormous market without having to grow our sales and operations staff.

While the Vendor Dashboard is an important step towards providing measurable results to our local vendors, we know that at the end of the day, the local advertisers want additional exposure and more exposure for their business.

One way we’re increasing vendor exposure is by publishing a network of niche planning destinations such as Feature our Local Advertisers. Since we last reported earnings, we posted another 60 niche sites on a new content management system bringing the total to 220 sites published since January.

40 sites published in late September provided a customized content for more popular wedding destinations across the United States and 20 sites published in early October address wedding themes from budget weddings to luxury weddings, even gothic weddings.

You’ll remember I shared in the past that before a new content manager system was in place it used to take us about 60 days and dozens of people to publish one new website. This year, one editor has been publishing in batches of 40 and 50 sites in a matter of weeks.

Together, this network of niche wedding planning destinations has added 20.7% more visits to September’s local traffic on With every passing month, our vendors are receiving increased exposure to brides in the market who are actively looking for their services. We believe this increased exposure adds value and builds in switching cost that help us extend the lifetime value of our customer and reduce churn.

In the future we plan to create additional inventory on these sites that advertisers can buy to further increase their exposure.

On e-commerce, our e-commerce business was up 30% in the third quarter due to revenues from the acquisition we made in the second quarter. The acquired business is now fully integrated with our back end systems. While this business is excellent at acquiring customers, it has historically relied heavily upon external vendors to fulfill or drop ship products directly to the customer rather than carrying the inventory.

We are in the process of identifying the products that we can fulfill for these customers through our existing warehouse operations and we expect t his will capture additional profit margin.

Our registry business exceeded our expectations this quarter, bringing in commission revenue in line with the same period last year. The third quarter is a seasonally strong quarter for this business as wedding guests start attending summer and early fall weddings. Some of our retail partners continue to struggle, but we were pleased to see growth in conditions for many of our new retail partners including Bed, Bath and Beyond, Target and Microfina.

We also redesigned the registry search results page on the to feature special offers and improving conversion. On the baby registry site, we just launched Baby Retailers Target Baby and Restoration Hardware Baby and Child in late October and we expect that two more registry baby retailers Amazon and the Core registry will be live shortly.

As you may recall, we launched our Universal Industry platform, the registry 360 on our last earnings call. The product lived inside our Face book application, Wedding Book and we are already in the process of developing a stand alone version to be launched in the first quarter of 2010.

We are looking forward to this broader launch as we believe the [legacy 360 product and the ability to register and shop with multiple wedding retailers from one central location will revolutionize the gift registry process and make it much easier for brides to manage their selections and for their guests to purchase a wedding gift online.

The national online advertising declined 3% compared to the third quarter of last year. There are signs that this business is stabilizing and cancellations have slowed, and we are receiving an increasing number of high dollar, longer term fees for next year. However, longer negotiations and short term programs continue to be the norm.

The category split stayed relatively stable in the third quarter with roughly two-thirds of our business coming from bridal and one-third coming from non bridal categories. The largest non bridal contributions came from health and beauty, home and the financial categories.

The print business continues to face pressure this quarter as we published the second issue of our semi-annual weddings magazine, but despite the revenue declines, our national magazine is a premium price product that promotes our brand presence and consistently enjoys above average sell through on news stands.

It’s also important to remember that advertisements were sold into the issue prior to May 2009, so revenue is also a lagging indicator of the current print advertising environment.

We continue to believe that it is an important opportunity for our brands in the print medium and we recently announced our decision to publish our semi-annual national wedding magazines four times a year beginning in 2010.

Ten years ago when we launched our magazine with a publishing cycle around the bridal fashion seasons, fall and spring, but we’ve been seeing for some time now the potential benefit of increasing the frequency of the magazine to offer advertisers an opportunity to buy and print more often during the year.

We believe Modern Bride and Elegant Bride presents us with that window of opportunity. The two additional issues will drive more premium inventory for the book and back cover. It also allows print advertisers more flexibility to time their print buys with product launches or special campaigns that sometimes fall between issues in our existing publishing cycles.

The two new issues will also give us an opportunity to continue innovating with the magazine format. We will be outsourcing the content of these issues, offer more of the For Brides by Brides content that has been so unique to our brands.

With the new systems we invested in last year coming on line, we are turning our focus towards strategies and new products that will take the business forward and build long term shareholder value. An enormous percentage of our efforts and resources over the past couple of years was focused on fixing and updating our infrastructure. I’m excited to be transitioning our company’s efforts and focus towards building and growth again.

From the very early days of this business, we made it our mission to serve our customers everywhere they look for wedding planning information. This commitment is core to the success for our brands and businesses and it continues to drive our decisions today.

With beloved brands, passionate audiences, flexible and scalable technology platforms, and a strong management team, we plan to pursue the opportunities in front of us to activate long term growth even as we endeavor to drive results in the near term.

I also want to thank those of you who attended our investor day last month. It was a pleasure to see you all and I hope we were able to impress upon you not only the breadth of initiatives we have in progress but also the skill and depth of experience that my management team brings to the organization.

With that, I will turn it over to John who will review the financial results.

John Mueller

First I’d like to give everyone a quick summary of our third quarter and year to date results. Overall our diversified business model provides stability to our revenue again during the third quarter. Growth in our online advertising and merchandizing businesses offset declines in publishing.

We reported net revenue of $28.2 million for the third quarter of 2009, a 4% increase compared to the third quarter of 2008 of $27 million. The growth was largely driven by the e-commerce business that we acquired in the second quarter. Excluding this acquisition, our revenue declined 3%.

Year to date revenue increased by 2% to $81.4 million compared to the nine months ended September 30, 2008. Excluding the acquisition, our year to date revenue declined 1.5%.

Income from operations for the third quarter of ’09 was $1.6 million, a 42% decline from operating income of $2.7 million for the third quarter of ’08. The year over year decline in operating income was primarily due to increased expenses related to bad debts, stock based compensation, amortization of the Macy’s intangible asset, our acquisitions, and the newly formed software development sensor in China.

Net income in the third quarter was $771,000 or $0.02 per basic and diluted share, down from net income of $2.2 million or $0.07 per basic and diluted share for the third quarter of 2008.

For the nine months ended September 30, ’09 net income was $1.2 million or $0.04 per basic or diluted share compared to net income of $5.1 million or $0.16 per basic or diluted share for the same period in ’08.

Declining interest rates and increased taxes impacted net income for both the three and nine months ended September 30, ’09. The declining interest rate environment limited interest income to $93,000 in the third quarter of 2009, down from $826,000 during the third quarter of 2008. For the first nine months of 2009 interest income was $613,000, down from $2.9 million during the first nine months of 2008.

Our effective tax rate increased partially due to the declining interest rates. Lower interest rates have reduced the tax exempt interest earned on our auction rate security investments. Going forward, I think you can expect a tax rate to be 49% for the remainder of the year and 63% for the full year of 2009. I will cover the tax rate in a little more detail toward the end of the call.

With that overview, let me give you a little more color on each of our respective business areas in more detail. National online advertising decreased $173,000 or 3% from the prior year’s quarter. National online revenue for the first nine months of the year also declined 3% compared to the same period in ’08.

For the nine months, the decline in national online was primarily due to cancellations and lower renewals primarily in non vital categories. And as David stated, the general churn on the national advertising market remains the same. Advertisers are not committing beyond a month or two and in some cases are waiting until the last moment to either commit or retrench.

The share of non bridal and bridal advertising revenue has remained about the same as last quarter, about one-third non bridal and two-thirds bridal.

Local online advertising revenue continued to grow, increasing by $346,000 or 4% for the third quarter of ’09 compared to the same period in ’08. Year to date local online advertising revenue was $25.9 million or up 5% from ’08 which more than offset declines in the national online business.

As of September 30 ’09, we had over 19,500 profiles which represents an increase of 23% from the approximately 15,900 profiles at September 30 last year. The vendor growth rate is significantly higher than the revenue growth rate due to the fact that the average revenue per vendor is now $2,100 compared to $2,500 at the same time last year, a decline of about 16%.

The decline in average revenue per vendor is largely due to the increase in the $50 profile vendors. The churn rate increased slightly to 31.5% from 30.5% at the end of the second quarter. We attribute the increase in churn rate to the new $50 profiles passing their six month commitment which gives them the opportunity to cancel for the first time. It is possible that the churn rate could remain the same or increase slightly in the coming months as more contracts pass their six month commitment date.

On a sequential basis, compared the second quarter ended June 30, ’09 local online revenue is up 1%. Our profile count is flat and our average annual revenue per vendor has remained constant at about $2,100. The third quarter is traditionally a little slower for sales as many vendors are busy working on weddings and are difficult to reach.

As we continue to roll out this variable pricing this year, we will be updating you on these metrics so that you can see the impact our pricing changes are having on total local online revenue.

Let me turn to the e-commerce parts of our business; registry and wedding supplies. Registry revenue was flat compared to the prior year quarter and declined by 4% for the nine months ended September 30 ’09 compared to the nine months ended September 30, ’08. The poor economic environment is disproportionately impacting our higher end retailers, but certain new registry partners as David mentioned, are helping to offset revenue declines.

Our wedding supplies business grew by $1.7 million or 30% over the prior year third quarter primarily as a result of the second quarter acquisition of another e-commerce wedding supplies retailer. The acquisition contributed $2 million in revenue to our third quarter results.

The estimated impact of this e-commerce acquisition on our financial results for the fourth quarter are as follows; it will add approximately $700,000 of incremental revenue and approximately 50% gross margin and an additional $400,000 of operating expenses in the fourth quarter of ’09. The fourth quarter and first quarters are typically the lowest quarters for the wedding supplies business.

Turning to our print business, the current macro economic environment has exacerbated the declines we have seen in our publishing business. Publishing and other revenue declined by $686,000 or 18% to approximately $3.1 million for the third quarter of 2009 compared to $3.8 million for the same period in ’08. Year to date publishing and other are down 12% or $1.8 million to $11.3 million.

Operating expenses for the third quarter increased by $1.3 million to $20.4 million compared to operating expenses in the third quarter of ’08 which were $19.1 million. The increase is primarily related to bad debts, stock based compensation, amortization of the Macy’s intangible asset, our acquisitions and the newly formed software development center in China.

For the nine months ended September 30, ’09 operating expenses increased by about $2.9 million. The increase in operating expenses on a year over year basis is primarily related to the following; employee compensation associated with head count increases in ’08, stock based compensation, operating costs related to our acquisitions which were not part of our operations in ’08, transactions costs associated with these acquisitions, bad debt expenses, the newly formed software development center in China and higher depreciation and amortization.

These seven items were partially offset by lower travel and entertainment expenses and lower recruiting expenses.

For the third quarter depreciation and amortization increased by approximately $468,000 to $2.5 million compared to $2 million for the prior year quarter. For the nine months, depreciation and amortization increased by $1.2 million to $7.7 million compared to $6.5 million for the first nine months of 2008.

These increases are primarily related to the accelerated amortization on the Macy’s relationship intangible assets which occurred in Q4 of 2008.

On a sequential basis, our total operating expenses were approximately $300,000 higher in the third quarter than in the second quarter of ’09.

I mentioned earlier that our effective tax rate is expected to be 63% for the full year of 2009 and that it was primarily due to declining tax exempt interest income from our auction rate securities. There was an additional reason which relates to the computation of future tax benefits or deferred tax assets that are recorded on our balance sheet.

As a result of a recent change in tax regulations, we were able to reduce the amount of income that is allocated to the State of New York which has a higher corporate income tax rate than many other states. Therefore, this reallocation of income had the effect of lowering our overall corporate state income tax rate.

What’s ironic though is that the decline in the tax rate lowered the amount of our future tax benefits which therefore results in an increase to our current tax provision. However, it’s important to note that actual cash paid for income taxes has been approximately $1.1 million per year since 2007.

Cash paid for taxes consists primarily of Federal Alternative minimum taxes and State and local income taxes. At December 31, ’08 we paid $60 million in NOL carry forwards and we are limited to using approximately $3.6 million of these NOL’s per year.

Now turning to cash flow, cash flow from operations for the third quarter was approximately $6.2 million and approximately $11.9 million for the nine months ended September 30. Capital expenditures for the third quarter of ’09 were $800,000.

For the first nine months of ’09 capital expenditures were $1.8 million. This is a decrease of over 62% from CapEx at $4.7 million in the first nine months of ’08.

We ended the quarter with cash and investments totaling $129 million on the balance sheet and no debt. We have about $6 million of our cash in operating accounts, $76 million in money markets which are generally invested in U.S. Treasuries and $1 million is invested in high quality commercial paper.

We also hold approximately $46 million of short term investments in auction rate securities. These investments were previously classified as long term investments, but have been reclassified to short term investments as we plan to exercise our right to receive cash for these investments on June 30, 2010, less than eight months from now.

The auction rate securities are debt securities collateralized by student loans and the Federal Government guarantees a substantial majority of these loans.

I hope this commentary has helped everyone understand our results for the second quarter of 2009 as well as some of the key items on our balance sheet. This concludes for The Knot and we will now open the call to questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Matt for Jeetil Patel – Deutsche Bank.

Matt for Jeetil Patel – Deutsche Bank

I wanted to start out with a discussion about the gross margin profile of the business. As I understand it the recent e-commerce acquisition has had an impact on the margins until you’re able to transition their model to yours. How much of that gross margin impact do you think you can recover over time through that transition and just generally what you think the drivers of the gross margin pressure in the quarter were?

John Mueller

Let me start with the last part first. Gross margins declined about 3% from prior year’s third quarter which was about 81% down to about 78%. Of that, about 1% was related to just the change in mix of revenue in the quarter and 2% was an actual decline in the actual gross margin, the majority of which could be associated with the acquisition of that e-commerce company as well as we had a number of promotions in our e-commerce business where we reduced shipping costs and in some cases due to back orders of certain items had to do split shipments.

In order to improve customer service we had to pick up shipping costs in that regard and some of that relates to not having enough through put to handle the demand on a quickly enough basis to satisfy our customers’ service requirements.

The second part of the question in terms of how long do you think it will take us to essentially go from a drop ship business model with this acquisition to a more direct business model to incorporate a lot of our shipping directly to customers rather than to other providers and we have already started the process.

We put in place some new equipment already that will enable us to do that and I think, I’d be hesitant to guess on the timing to convert everything over, but I would think our goal would probably be to get 80% of it done over the next 12 to 18 months.

Matt for Jeetil Patel – Deutsche Bank

On the national side of the business, perhaps you could give us more insight into the major changes that took place between the second quarter where we saw a nice little rebound which proved to be temporary in the national business to the current condition today. Did you retain your advertisers or are we seeing just more cautious spend across the board from existing advertisers.

David Liu

I think the climate has stayed relatively the same. It’s still pretty tentative a climate from the buyers point of view. I think the other thing you have to realize is that if you look at the quarter sequentially, in general the third quarter for national advertising has always been a little softer. You’re talking about the dog days of the summer. A lot of the agencies particularly in August are not very active, and so we generally don’t expect strong performance in August or in the third quarter.

We were up against some pretty tough comps. Last year we did have a pretty strong third quarter so that was the other challenge for us to improve on last year. But for the most part, we saw national advertising at least replay what we had seen in the second quarter.

Matt for Jeetil Patel – Deutsche Bank

Another way to ask this is to talk about some of the conversations you’re having right now with your customers. We’re into November and I imagine that many of them have begun their 2010 planning processes. Have you begun to get a sense from them what type of commitment levels they’re talking about as we head into next year?

David Liu

It’s a mixed bag. We are seeing larger dollar value RSP’s so that is a good sign. For the most part all this year it’s been, we’re kind of like seeing a perpetual spot market out there where you just kind of fight tooth and nail for everything you can get and it’s all relatively planned extremely short term.

The problem is historically, prior to last year or this year, usually by the end of November, early December, I could tell you with great confidence what 60% of the next year’s national advertising is going to look like. I mean the commitments would come in and they were generally six months if not a year, some even multi-year commitments.

We’re definitely not seeing that. I think we are looking very anxiously at the fourth quarter to see whether or not there’s going to be last minute opportunistic buys. If the Christmas season goes okay, then will see a more aggressive stance by some of these marketers going into next year, but our anticipation is that the 2010 planning session will probably run well into 2010.

We’re not going to see people really closing up their entire marketing commitment before the end of the year.


Your next question comes from George Askew – Stifel Nicolaus.

George Askew – Stifel Nicolaus

On the magazine closure, how have advertisers responded in the last few weeks to your decision to add two new issues to The Knot magazine and what could that mean in terms of 2010? And on the online side, is the closure of those two magazines creating some opportunities to move offline dollars online?

David Liu

I wish I could say there was going to be an opportunity to put all those print dollars on line but that just flat out is not how this whole industry works. It’s incredibly frustrating and vexing but the reality is, those print dollars are generally handled by print agencies who are now looking for new print homes for those dollars.

And as much as we try to pitch and market and try to explain and cajole, the transition from the print investments to online is just not happening as quickly as we’d like. As we said, the increase of frequency for the national book is something we’ve been considering for quite some time.

Just imagine, we are closing our national magazines close to four months before they go to print, three to four months, so it makes it very difficult for us to compete with a lot of our trade competitors because of the infrequency and the fact that we lose out on the topical, seasonal and product launch type advertising that you’ll find in the other publications.

So increasing frequency is something that we think will be able to give us some upside. You also have a lot of these premium advertisers who will only buy premium placement; inside front cover, back cover, the inside back cover.

By increasing our publications from two to four, we double that premium inventory and we have seen a flurry of activity. Our fashion sales person has been able to increase commitments from our partners because they were running 20, 30 pages in publications and are now looking for other places to actually invest their marketing dollars.

So we’re cautiously optimistic about this move and I think the closure of those two magazines were for us a window of opportunity to capitalize on these print dollars that are looking for a new home.

George Askew – Stifel Nicolaus

What’s the feedback been from vendors regarding the Vendor Dashboard now that they’ve had four or six weeks to play with it? You mentioned bad debt expense a couple of time in the quarter. Was there anything unusual going on there?

David Liu

The Vendor Dashboard response has been pretty extraordinary. It’s a little bit embarrassing because the response has been so positive, but it was so positive in the sense that some of the response was where the heck has it been? How come we haven’t had this before?

I think we reached a point in time now where the technology is something that people have become very comfortable with. Think about what our profiles really are. They’re essentially like a Face book profile, a My Space profile.

A lot of these vendors want to have more control over their representation online and I think being able to give them a space or a portal that they have real ownership over has been met with a great response so we’re going to continue to roll that out over the rest of the group and add more functionality over the coming months.

So it’s been a long time coming, something we’ve been working on for quite some time.

John Mueller

The bad debt is I think two primary causes or reasons for the increase. One was a specific reserve for one specific vendor and it’s actually a reserve we took in Q1 and have kept it on the books with the result that you’re getting unfavorable comparisons as you roll through the year due to that one specific vendor that we increased for.

And then we increased our general reserve just in light of the economic environment that we’re in.


Your next question comes from Meggan Friedman – William Blair.

Meggan Friedman – William Blair

Can you provide some historical perspective on how the business segments came out of the last downturn? What do you think you’ll see recover sooner and when do you think from prior experience we’ll start to see some increase in national advertising visibility?

David Liu

The last downturn was a very different animal. When I look back on that, I think the 2001, 2002 time frame when the bubble burst, we had approximately, don’t hold me to these numbers because it’s a distant memory, but we had approximately $9 million to $10 million in national advertising and in a matter of six or seven months that dropped to $1.5 million.

It was a real shock to the system. A lot of this was obviously fueled by dot coms that were spending recklessly online. And back then, we were actually able to maintain our top line. I think we came within a few hundred thousand dollars of actually meeting the same top line numbers the next year because our local and our e-commerce businesses were growing at an extraordinary pace.

We were also really operationally streamlining so we were able to actually improve our bottom line and back then it was pretty extraordinary because you were trading $9 million of extremely high gross margin revenue for e-commerce which is obviously our lowest gross margin revenue. We were still able to improve the bottom line. So it was kind of a different animal.

This time around you’re seeing weakness in the national advertising. If you actually look at the performance we’ve been provided for advertisers and the fact that we’ve been able to replace a lot of the business that was sold to be down just a few percentage points, we’re pretty pleased, although we do think we can do better on national advertising.

The local has been chugging along and we think we can actually improve on that as we are able to bring a lot of the investments in technology on board and operationalize a lot of that stuff. It’s not exactly knowledge. I can’t say that we can learn anything from the last downturn and tell you that these are the patterns we would like to see going into the next one.

Our goal right now is really to transition our efforts and our investments from simply fixing and upgrading and dealing with a lot of the antiquated technology towards really now building now the growth engines for each of our businesses.

The upcoming legacy 360 launch, the auction platform and the capability to purchase local advertising and our increase of frequency on the national magazine. I would describe all of those as investments and a real posture of our management team and our business of what we think we can do in terms of growing going forward.

Meggan Friedman – William Blair

How should we be thinking about the operating expense run rate heading into Q4 and 2010? And on registry, what was the exact timing of the addition of Target? Was that towards the end of September?

David Liu

No, that was towards the end of August. In terms of operating expenses we really aren’t giving any specific guidance, definitely not for 2010. Q4, we don’t really have any specific guidance to give you other than what’s happened in Q3 and that’s about as much as we can say at this point.

Meggan Friedman – William Blair

Is there anything that we should be thinking about that would be a significant deviation from the current run rate?

John Mueller

No, there’s no significant deviation. I would think within a reasonable percentage range plus or minus is where we will be but there aren’t any major items that would change what we’ve experienced in the past, that’s for sure.


At this time there are no further questions. Are there any further remarks?

Laura Cave

We’d like to thank you for joining us this afternoon. Our upcoming conference schedule is posted on the investor relations section of our website. If you missed any portion of today’s call you can access the replay of the entire conference call in the investor relations section of the company’s website at

A telephone replay is available for the next week at 800-642-1687 reference number 36827714. If you have any additional questions please don’t hesitate to contact us at

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