Executives
Daryl Otte - Interim CEO
Greg Barton – Executive VP
Rich Broitman – Chief Accounting Officer
Analysts
Richard Fetyko - Merriman Curhan Ford & Co
Sameet Sinha - JMP GroupMichael Moscoff – MRM Capital
Bob Sales – LMK Capital Management
Robert Coldbrook – Think Equity
Joseph Garner - Emerald Advisers
George Grose - American Capital Partners, L.L.C
Mark May - Needham & Company, LLC
William S. Morrison - ThinkEquity Partners LLC
TheStreet.com (TSCM) Q2 2009 and Q3 2009 Earnings Call January 25, 2010 4:30 PM ET
Operator
Good day, ladies and gentlemen, and welcome to the quarter three 2009 TheStreet.com Earnings Call. My name is Jennifer and I will be your operator for today. (Operator Instructions).
I'd now like to turn the presentation over to your host for today, Daryl Otte, CEO. Please proceed.
Daryl Otte
Thanks, Jennifer. Thank you very much. Hello, everyone. I’d like to welcome you to the TheStreet.com’s 2nd and 3rd quarter 2009 earnings call. I’m Daryl Otte, the company’s CEO. In addition to covering the final results for the second and third quarter of this year, we’ll also be providing you with preliminary Q4 results for revenue, bookings, and cash balances as of yearend, a hint of the full results we’ll be issuing shortly.
With me today are Greg Barton, the company’s EVP and General Counsel, and Rich Broitman, the company’s Chief Accounting Officer. Before we start, I’ll hand the call to Greg to read our legal statement.
Greg Barton
Thanks Daryl, and welcome everyone. All statements made on this call, other than statements of historical facts, are deemed to be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to risks and uncertainties, including those described in the company’s filings with the Securities and Exchange Commission that could cause actual results to differ materially from those reflected in the forward-looking statements. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, the company cannot guarantee future results or occurrences. The company disclaims any obligation to update these forward-looking statements, whether as a result of new information, future developments, or otherwise. You may obtain copies of the company’s filings with the SEC at the commission’s website, www.sec.gov. Additional information related to the matters discussed today also will be set forth on the company’s quarterly reports on Form 10-Q for the quarters ended June 30, 2009 and September 30, 2009, and any amended filings related to other periods discussed on this call.
Now I’ll hand the call back to Daryl.
Daryl Otte
Thanks, Greg. Let me start by thanking our investors for bearing with our silence in the last couple of months and quarters as we were completing an accounting review for our former promotions.com business unit, which we divested in December. We’ll discuss the findings of that review later in the call and as you see from our press release, we will be restating our 2008 results, which will raise revenue in some quarters, lower revenue in others, decrease expenses, and improve the bottom line in some quarters and lower it in others.
Importantly, the issues we found impacted solely promotions.com, which by way of history, we acquired back in August of ’07 and only impacted accounting entries, not cash. The follow on impact of correcting the 2008 accounting impacted 2009 accounting, so we were not able to release our Q2 and Q3 numbers at the standard time.
We are glad to have completed the review and to resume reporting our results as we’ve been enjoying favorable trends in our remaining businesses for the last couple of quarters.
I’m confident that investors’ patience will be rewarded and that potential new investors will have a compelling opportunity before them. Specifically, the new streamlined thestreet.com has the business model today that most publishers hope some day to achieve with both paid access and advertising revenue streams. We are one of the leaders in successfully implementing the pay well on the web and we also enjoy a robust and resilient advertising business.
I’d note that while we did suffer like the rest of the media industry and broader market during the past several quarters, due to the macroeconomic environment, we were profitable on an adjusted EBITDA basis for the full cycle of the recession and remain so thus far when you exclude the results of our former promotions.com business.
This speaks to the strength of our dual revenue strategy, the power of our content and the great work of our employees, contributors, and partners.
Before we get into the details of which that are plenty, let me set the stage with an overview of the general themes we see in the results of our two lines of business.
First with respect to the paid services business, bookings grew by double digit percentage increases in the second half of 2009 compared to the prior year period having been down in the first half. Bookings are the best measure of current performance as they are precursored to future paid services revenue and our strong recent bookings position helps us well for 2010.
We’ve come to see our ability to generate user revenue as a differentiating characteristic and key strategic advantage for us as noted a moment ago. As such, we strengthened our capabilities in this area in December by acquiring Kikucall, Inc, an online subscription marketing firm. Going forward, we intend to aggressively integrate their technology and know-how to expand and refine our paid services offering, which are already an envy of the industry.
As a reminder to our investors, paid services includes our information services businesses, rate watch in thestreet.com ratings. And what I hope will be a pleasant surprise to those that follow the advertising markets closely, our ad supported site, thestreet.com, mainstreet.com, stockpicker.com, and bankingmyway, excluding the drag of the divested promotions.com business, also experienced favorable trends.
The large year-on-year revenue decline we witnessed in the first quarter flattened in each of the second and third quarters and our fourth quarter results exceeded the prior year’s results for the first time in five quarters.
This relative outperformance speaks to the value of our content, the desirability of the demographic characteristics of our users, and the creativity of our sales teams. We are especially gratified by the solid support we have seen from our co-advertisers and we look forward to serving their desire to connect with our highly desirable audience, which is one of the most affluent and active in our competitive sets.
During the past several quarters, we sought to make our content more widely available to users throughout the web and are glad to have formed more deepened relationships with a number of leading companies – Yahoo, Market Watch, MSN, and United Online among them. We certainly enjoy working with these teams at these great organizations and we value the growing partnerships we are developing with each of them.
We have made it a priority to grow and expand our web relationships further and we expect more good news on this front in 2010.
As I touched on above, we are pleased that through the depths of the recent financial crisis and recession, we maintained positive EBITDA every quarter but Q109 and even that quarter was positive excluding promotions.com.
Going forward, our bottom line will benefit from both a divestiture of promotions.com, which had a negative contribution of $2.2 million in the first nine months of 2009 and from the high operating leverage inherent in our business model.
Because of these positive results and even after the payment of our quarterly dividend, the purchase of Kikucall and costs associated with the accounting review, we ended the year with approximately $82 million in cash, cash equivalents, restricted cash, and marketable securities. This is an increase of $6.3 million from December 31, 2008.
With no debt, our rock solid balance sheet is a source of great strength and opportunity. During the past several quarters, we have concentrated on strengthening our board and management team, aggressively managing costs, and honing our strategic focus.
With the acquisition of Kikucall and sale of promotions, we sharpened our focus on our core business of providing financial information services to paid subscribers and through ad-supportive platforms.
We added two strong new members to our board, Rodney Ballou with deep experience as a senior media executive in both the online and offline world, and Woody Marshall, of Technology Crossover Ventures, who has a long career investing in and nurturing companies and who provides us with a strong link to the west coast technology universe. We also hired a new Chief Information Officer, Daniel Fox. Hired Greg as Executive VP and General Counsel. Appointed Brian Hech, formerly CEO of Kikucall as the publisher of premium services, and promoted Glen Hall to editor in chief of our Flagship properties.
We believe we now have the team in place to execute on our strategy and to deliver consistent, above-market revenue growth profitably.
Before handing the call back to Greg for the financial metrics, I extend a particular note of thanks to our employees and contributors for their focus and great work during these uncertain and challenging times. If you visited our services lately, including realmoney, Real Money, Real Money Silver, Action Alerts Plus, and of course our flagship property, the street.com, they are doing great. It is this quality that enables us to have such success both in front as well as the paid wall, and that is the foundation of which we think there is opportunity for shareholders and all stakeholders going forward.
We would love for our investors and potential investors to become more familiar with our paid services. If there are participants on the call who would like a subscription, please send an email to IR@thestreet.com and we’ll be in touch with a special offer.
In summary, we’re excited to be starting 2010 with a solid business model, with all of our businesses showing good momentum, having a strong balance sheet, and generating positive adjusted EBITDA. We believe that 2010 will be a year of many opportunities for us and we look forward to reengaging with our investors and reporting on that progress.
With that, I’ll turn the call over to Greg.
Greg Barton
Thanks, Daryl.. First, I’d like to note that as Daryl mentioned, as discussed below, the company will restate certain items of its consolidated financial statements for the year ended September 31, 2008 and the quarters within such financial year. The 2008 period results discussed below reflect the impact of the anticipated restatement. Please see the unaudited tables attached to our press release for a description of previously reported 2008 period results, anticipated adjustments in connection with the restatement and anticipated restated results.
The company recorded revenue of $15.0 million in the second quarter of 2009, a reduction of 19% as compared to a restated $18.4 million in the second quarter of 2008.
Operating expenses in the second quarter of 2009 were $15.2 million, an improvement of 14% as compared to a restated $17.6 million in the prior year period.
The company had net income of $0.3 million in Q209 as compared to a restated net income of $1.1 million in the prior year period. The company recorded basic net income per share attributable to common stockholders, of a penny a share and penny a share in the second quarter of 2009 as compared with the restated $.03 and $.03 a share respectively in the prior year period.
Adjusted EBITDA for Q209 was $2.0 million, as compared to a restated $3.3 million for the prior year period.For Q309, the company recorded revenue of $15.2 million, a reduction of 11% as compared to a restated $17.0 million in Q308. Operating expenses in Q309 were $16.9 million and a proven 6% as compared to a restated $18.0 million in the prior year period. The company had a net loss of $1.4 million in Q309 as compared to a restated net loss of $0.7 million in the prior year period.
Recorded basic and diluted net loss per share attributable to common stockholders of minus $0.5 and minus $.05 respectively in Q309, as compared to a restated minus $.03 and minus $.03 respectively in the prior year period. Adjusted EBITDA for Q309 was $1.7 million as compared to a restated $1.5 million for the prior year period.
The profile of the company has changed with the divestiture of promotions.com and to provide better transparency to you, we included in our press release a schedule showing the impact of promotions.com on a quarterly basis since January 2008. Without running everyone in detail, I’ll highlight whereas the company recorded adjusted EBITDA during the nine months through September of 2009 of $3.0 million, the figure excluding revenue and direct expenses of promotions.com would have been $4.8 million. Similarly whereas the company reported adjusted EBITDA for 2008 of $10.6 million, the figure excluding revenue and direct expenses of promotions.com would have been $12.8 million.
Today, we also announced certain estimated results for the quarter ended December 31, 2009 as follows. We expect our paid services revenue to be in the range of $9.5 to $9.7 million as compared to $9.9 million in the prior year period with the decline primarily reflecting the year-over-year decline in paid services bookings experienced in the first half of the year.
We expect our paid services bookings to be up from the prior year period by approximately 10 to 13% in the quarter and note certain 2008 period results does not affect our paid services revenue.
Going forward, we do not intend to report gross subscriber numbers as we feel that the more important metrics to use are bookings and revenues, but since we have reported this number previously as a type of exit report we’d note that our subscriber counts were sequentially higher at the end of each quarter in 2009 after March.
We expect that our marketing services revenue, including promotions.com through its divestiture in December 2009 will be in the range of $6.7 to $6.9 million for the quarter as compared to a restated $7.5 million in the prior year period.
We expect that our marketing services revenues excluding promotions.com will be in the range of $5.5 to $5.6 million for the quarter as compared to $5.3 million in the prior year period. The restatement of certain 2008 period results will not affect our marketing services revenue figures, excluding promotions.com.
I want to highlight that despite all the difficulties of 2009, our marketing services revenue, excluding promotions.com, will rank as the third best year in the company’s 13-year history. As Daryl noted earlier, we think this speaks to the exceptional demographics and scale of our audience, which has made us a must buy for our core advertisers, for which we are grateful.
As Daryl noted, our balance cash and cash equivalents, restricted stock, marketable securities at December 31, 2009 will be approximately $82.7 million, an increase of $6.3 million from December 31, 2008. The increase primarily reflects the company’s operating cash flow, together with receipt of $1.0 million dollars in cash from the sale of promotions, offset in part by cash payments totaling $5.5 million, in connection with the acquisition of Kikucall, fees to professional advisor, in connection with the acquisition at Kikucall and divestiture promotions, and expenses incurred in connection with the accounting review, and also payment of $3.6 million in dividends. The company had no debt at December 31, 2009.
The above estimates for the quarter ended 12/31/09 are preliminary and may be subject to change.
I’d also like to note that the year-over-year numbers for Q2 and Q3 like previously reported for Q1, reflect particularly difficult comparisons, as the 2008 period almost entirely preceded the shock with the collapse of Lehman Bros. in mid-September 2008 and the severe disruption to the economy, in particular the financial and advertising sectors.
Conversely, the prior period comparables will become easier in the next couple of quarters, particularly when comparisons are made to the first quarter of 2009 in which our results like those of many other companies bottom.
Now I’d like to provide a summary of the results of our accounting review.
We previously announced that we’d identified an issue relating to the recording of certain revenue of our promotions.com subsidiary, which we’d acquired in August 2007 and as a result, our audit committee engaged outside counsel Skadden, Arps, Slate, Meagher & Flom , and accounting experts Alex Partners and conducted an independent review of accounting matters related to promotions.com. As a result of the review, the audit committee concluded that due to certain inaccuracies in the previously issued consolidated financial statements for the year ended 12/31/08 and for the fiscal quarters within such year, such consolidated financial statements no longer should be relied upon.
We will restate our consolidated financial statements for the year ended 12/31/08 and we anticipate filing on or before February 8, 2010 a Form 10-KA for the year ended December 31, 2008, which shall contain certain revised results for the quarters within such fiscal year.
We also anticipate revising certain amounts in our consolidated financial statements for the quarter ended March 31, 2009, including reduction of revenue of approximately $0.5 million, a reduction of expense of approximately $0.1 million and an increase in each of operating loss and net loss of approximately $0.4 million.
A summary of the anticipated restated financials is attached to our press release. The restatement will not affect the company’s previously reported cash, cash equivalents, restricted stock, and marketable security.
The restatement will make adjustments to track errors related to the timing of recognition of revenue within the promotions.com business unit and to make adjustments to revenue and expense related to transactions with certain third parties involved in the promotions.com unit in which the company contracted both to provide services to and receive services from such third parties.
The adjustments will result in reduced revenue in certain quarters, increased revenues in other quarters, as compared to results previously reported. Reduced expense in certain quarters, compared to results previously reported, and reduced net income or increase net loss in certain quarters, and reduced net loss in other quarters, as compared to results previously reported.
Moreover as a result of the restatement, certain revenue previously reported within 2008 period will be deferred and recognized in 2009.
Certain inaccuracies identified in the review affected the company’s previously reported consolidated financial statements for the year-end December 31, 2007 and for the quarters ended September 30, 2007, and December 31, 2007; however, the company concluded that such errors were not material to the company’s consolidated financial statements for the 2007 periods and therefore such consolidated financial statements will not be restated.
The company does, however, provide disclosing the impact of the errors identified on the review on the 2007 period statements as follows. Revenue, all of which was recorded in the company’s interactive marketing services within the company’s marketing services line, was overstated by $0.8 million, $0.1 million, and $0.8 million respectively in Q308, Q407, and fiscal year 07 respectively.
Operating expense was overstated by approximately $0.03 million, $0.04 million, and $0.07 million respectively in Q307, Q407, and fiscal 07 respectively. Each operating income, net income, and EBITDA was overstated by approximately $0.7 million, $0.03 million, and $0.8 million respectively in Q307, Q407, and fiscal year 07 respectively. The errors did not affect the company’s previously recorded cash flows from operating activities, cash flows from investing activities, or cash flows from financing activities for the 2007 periods.
As previously recorded, we received from Nasdaq an exception for February 8, 2010, within which time to regain compliance with the Nasdaq listing rule that requires the filing of all required periodic financial reports with the SEC and we anticipate regaining compliance with that Nasdaq listing rule on or before February 8, 2010.
Now I will turn the call back over to Daryl.
Daryl Otte
Thanks, Greg. Again, we’re proud of all the many actions we’ve taken over the past year to strengthen the company which are already beginning to bear fruit.
With that, I’d like to open up the call for questions. Jennifer?
Question-and-Answer Session
Operator
(Operator Instructions). The first question comes from the line of Richard Fetyko - Merriman Curhan Ford & Co
Richard Fetyko - Merriman Curhan Ford & Co
First more of a housekeeping question, just to make sure the third quarter revenue of $15.2 million includes promotions.com?
Daryl Otte
Through Q4 December of when we sold it.
Richard Fetyko - Merriman Curhan Ford & Co
Somewhere in this long press release you stated how much of a contribution promotions.com was?
Daryl Otte
Yes, and we’ve taken that a step further. We’re restated the historical quarters excluding promotions so you can look at the underlying trends.
Richard Fetyko - Merriman Curhan Ford & Co
Your marketing services revenue line sort of bottomed out in the first quarter and improved in the second and third and looks like in the fourth quarter as well. Is that right?
Daryl Otte
Yes, Q409 looks to be ahead of Q408.
Richard Fetyko - Merriman Curhan Ford & Co
What types of advertisers are you seeing strength from? What kind of trends in CPMs are you seeing, and also on the line that what kind of traffic trends have you seen throughout 2009 previously the company used to disclose page views, I think even some unique visitor numbers, I assume you guys decided not to, but at least trendwise, can you give us some idea how visitors and/or page views were trending throughout 2009 and what contributed to that strength on a year-over-year basis in that marketing services line?
Greg Barton
As we noted with respect to subscriber metrics, in the past, the company’s prior management I think was disclosing live granularity with respect to the operating data of the company. We thought about it and taking a look around at our competitive set, we view that this really would kind of put us in a competitive disadvantage, because we’d be pretty much the only people out there providing that type of transparency into our operating metrics in a way that we feel could be useful to our competitors to the detriments of the company and our shareholders.
So going forward, we thought that we would be focusing on kind of the key financial metrics. You know, clearly, with respect to the ad supported sites, what’s going to drive that revenue is primarily a function of traffic times revenue per page, but we decided we’re not going to be breaking out those statistics going forward. We’re going to focus on the revenue numbers.
That said, obviously there’s some third party data sources like COM score, which although we like every other publisher feels that COM score kind of undercounts versus what our own server log show. Nevertheless, to the extent you want to get a sense for our performance relative to the competitive set in terms of trends or sequentially you could certainly look to datasources like that.
Richard Fetyko - Merriman Curhan Ford & Co
So you’re not going to talk about trends in the traffic in 2009?
Greg Barton
No, we’re not going to. We’re reluctant to share the information, because we know many of our competitors are on this call, for example. We don’t want to put our sales teams at disadvantage in terms of pricing.
Richard Fetyko - Merriman Curhan Ford & Co
Okay, even directional information, you feel like it’s kind of productive.
Greg Barton
My perspective is that the shareholders and the management team to worry about the metrics and we are responsible to you guys to deliver the financial results.
Richard Fetyko - Merriman Curhan Ford & Co
With respect to the expenses related to the restatement, the economic restatement so forth, I guess more general, what types of one-time expenses or unusual expense were there in 2009, if you could quantify?
Greg Barton
With respect to the accounting review, it’s essentially professional fees for the law firm, our accounting experts, our auditors who needed to perform a good deal of additional work in connection with this process as well. As you can see from the schedule attached to our press release, we quantify, we put a line item for that and you can see that in the third quarter, we had about $1.3 million of expenses incurred in connection with the review. There were some additional expenses in Q4 as well that are much less, probably in the range of about 500,000 or so and there may be much smaller amounts of follow-on expenses as we get through having our amended filings made with the SEC.
Richard Fetyko - Merriman Curhan Ford & Co
So the 1.7 million in adjusted EBITDA in Q3 is after the 1.3 million in expenses?
Greg Barton
That’s correct.
Operator
Your next comes from Sameet Sinha - JMP Securities
Sameet Sinha - JMP Group
Could you talk about some of the trends in your paid services revenue line? Have you shut down certain products? If you have, what type of products have you shut down? Are these the lower ARPU products or the higher ARPU?
Secondly, obviously the previous management team made some acquisitions, Rate Watch and BankingMyWay. Pretty aggressive plans for those companies as it grows against bank rate. Now that BankRate goes up private, can you talk about some trends there?
Third, can you talk about the latest acquisition of Kikucall and what’s the strategic rationale behind it?
Rich Broitman
We have indeed held the subscription portfolio. We cut out five or six of the lower value services where we didn’t see a lot of opportunity.
We report Ratewatch as part of the premium services line. It’s doing great. The team is terrific. I think we still have some work to go in terms of Bankingmyway. Certainly looking for an opportunity there to take the data that Ratewatch has in the B-to-B marketplace and making it available more to consumers and that’s a big initiative for us in 2010.
Bankingmyway presently, as you could probably tell from going to the site is not generating material revenue for us for the time being.
With respect to Kikucall, they are experts in subscription acquisition and management. They bring to us both technology and know-how in the workforce. It’s accretive already and you’re seeing the results in the booking results that we’re delivering for the second half of the year, which I think I mentioned a double digit over the prior six months which was still a pretty good period for us.
So we think they’re integral to our strategy going forward in terms of delivering on a promise of having a well balanced sources of revenue, both advertising in front of the wall and of course subscriber revenue behind the wall.
Sameet Sinha - JMP Group
Tough recession. Can you talk about the strategic rationale behind being in each of the businesses that you are? One is advertising support, the other one is subscription services, a surprising fact and I guess is good to you that subscription business, you close subscribers every month since March, but do you think it’s helpful being in both businesses or do you think you could potentially get rid of one of the other businesses?
Daryl Otte
Everywhere I read is everyone wants to have the business model that we have, which is in order to have good content, subscribers have to be paying part of the freight. So we completely think we’re in the right spot strategically and we are working hard to build our capabilities as quickly as we can, because we think this is where the world is headed. Users are going to have to pay for quality content as part of the mix.
Sameet Sinha - JMP Group
More than $80 million in cash. What sort of plans do you have for that?
Daryl Otte
I think that we are certainly on the lookout for anything that would be additive to our strategy. We are going to stay far fields from acquisitions in the vein of promotion.com which would take into new fields, but certainly within our stated strategy and marketplace, there are accretive acquisitions that we can do to grow. We are very excited to put our cash at work.
Operator
Next question comes from the line of Michael Moscoff from MRM Capital.
Michael Moscoff – MRM Capital
Being one of your larger shareholders, I will say that to not get the clarity of the metrics is extremely disappointing, because it surely helps out a hell of a lot on how your business is progressing.
Daryl Otte
I’m sorry about that.
Michael Moscoff – RMR Capital
In your press release, you basically implied that you’re almost going back to how you guys started. For you to buy this new company you’re focusing on the existing business and going back to your core. Would that be a correct assessment, which I’m very happy about, versus some of the other things that have been done in the past?
Daryl Otte
I think that is a fair statement, although I would say that as we are going back to the core, the world is catching up with kind of the model that TheStreet has always had. So whereas to the extent we took, perhaps to commit flack in the past for having subscriber revenue as part of the mix and the questions arose such as why don’t you make the paid content free and therefore generate a lot more page views…so I think those kind of questions are going to subside. I think the logic of the company’s strategies are going to be more apparent going forward.
Michael Moscoff – RMR Capital
When you mention the metrics, you don’t want to discuss the subs, but you won’t discuss anything else? You know, bookings or monthly renewals, average subscriber number?
Daryl Otte
I think my perspective of the bookings encompass all of that, right? Bookings, what we sold, on a current basis, new, plus renewals, less what we’ve lost in terms of cancellations. So from my perspective, in terms of evaluating our performance in the last quarter, you should be very happy that we’re growing that and you can bet that every day of the week I am looking at all those statistics and making sure they’re all going in the right direction. I just don’t want to hand that, the good work that all our folks are doing here in terms of pricing and other tactics, over to our competitors.
Michael Moscoff – RMR Capital
Would you do it offline?
Daryl Otte
I don’t think a lot of them allow me to. Everyone or tell no one.
Michael Moscoff – RMR Capital
Rich was nominated as Chief Accounting Officer back in June? Is there going to be a CFO or is he basically the guy now?
Daryl Otte
He’s the guy. Rich is doing a terrific job serving the need that the company has.
Michael Moscoff – RMR Capital
When I go back to the last conference call on May 5th, when you guys were talking about a new CEO, and you said things were looking good to hire a new CEO and then quickly thereafter you were nominated and the search was over. For curiosity, what transpired that?
Daryl Otte
I think there were several good candidates eager to take the job. I think that once I got involved in the company and saw the promise of these amazing assets, I got much more excited about taking the position over the long haul and I’m frankly a little bit of a fixer and the minute I got involved we started working on some of these changes and became clear to the board that I could do the job. I was excited to do it and it seemed natural.
Michael Moscoff – RMR Capital
As far as with the stock being so disheveled, trading pretty much at cash value in the business, that’s it. I’m surprised or should we except some insider buying. As well as far as buybacks, I’m not sure if I’m more enamored with that versus, you know, would you consider even raising the dividend to make it even that much more beneficial, which is incredible to get a 4-5% dividend for $2.5 stock.
But you have so much cash and I really would love you to husband the cash and just do what you’ve been doing and because, again, we’re in an uncertain world and also because now of the lack of transparency, which we’re supposed to be going into a transparent environment across the board, when the power is down, and obviously when you guys are giving less, just like any company that any shareholder buys, you’re betting with management, but we need to get some feel and we really don’t have too much, except for what you guys come out with.
So be that as it may, I just want to know these other things, because if I see insider buying, you put your money where your mouth is, let alone you guys have so much cash, a dime if it went to $0.15 cents, I mean we’re talking about an astronomical dividend. That alone would be better than a buyback and probably stock would be fine, just from a raise of a dividend.
Daryl Otte
Thanks, Michael. I appreciate the sentiment. We get a lot of feedback from our shareholders, both pro and con, on dividend. So I’m not sure everyone agrees with you, although I do agree it’s a great return.
Our agreement with TCB, with respect to the preferred traunch that they own, limits the flexibility the company has in terms of stock buybacks or raising the dividend.
So I think the logic goes, which I support, that a traditional technology company would support the stock traditionally by buying shares back, but we’re limited from doing that and so we have some limited return of capital to our shareholders in the form of dividend.
Michael Moscoff – RMR Capital
So if you think the stock is so cheap, were you waiting, because you were prevented of doing anything, right?
Daryl Otte
Until we get all this information out, the insiders can’t do anything.
Michael Moscoff – RMR Capital
So should we be expecting some things, because you guys think, you know, it’s so cheap. I’m just trying to read between the lines here.
Daryl Otte
Yeah, I’m not sure I want to speak for anyone, but I think we agree with you and I said in my prepared remarks that we think this is a great opportunity.
Operator
Your next question comes from Robert Coldbrook – Think Equity
Robert Coldbrook – Think Equity
I understand your hesitance to provide too many operational metrics, but I know in the past you’ve maybe given some color on financial versus non-financial advertisers. Performance versus brand advertising. Things of that nature. Visibility or trends in visibility. To the extent that it wouldn’t harm your business, can you give us any color in the ad business?
Secondly, can you describe what the situation was in promotions that led to the restatement?
Daryl Otte
So it’s hard to think of what it is that I could talk about in terms of the advertising business that wouldn’t breach the ground rules that we’ve set in terms of trying not to handover competitive information to our competitors.
I think we rely on the results in lieu of that. Q4 was up quarter-on-quarter and we’re quite happy about that. I think Greg is going to take what really happened at promotions question.
Greg Barton
The accounting review as we indicated in the press release, I guess in a number of filings that the company has made since July. It first came to our attention that there was an issue related to the recording of revenue. Obviously when we looked into it, the company felt that the appropriate thing to do was to hire outside counsel and accounting advisors to conduct a full blown review of the business unit. As a result of that, we found that there are errors in the financial statement that we call that kind of two types in today’s press release. The first type had to do with the timing of the recording of revenue. What I’ll say about that is that the promotions business was different than the type of business that this company had historically been engaged in. They did software development and there’s a kind of slew of specific revenue recognition rules connected with that line of business that the company had not previously had a need to be familiar with and as we looked at it more closely, we determined that we felt some of those policies ended up getting applied incorrectly.
The second thing that we also called out was that we, as a result of the restatement, are eliminating some revenue and expense from periods relating to transactions with third parties in which the company both got services contracted to receive services from and to provide services to the third parties.
Those type of adjustments end up essentially not having much of a bottom line impact. So clearly, anytime you restate, that raises issues around controls, which we’re obviously looking into and to the extent that we feel that we need to enhance any of the controls or the accounting manpower here, we will. With that, I’ll point out that we’ve had obviously turnover in the department subsequent to these events.
You know, Rich was elevated to Chief Accounting Officer and today we hired a new Controller. So I think we’re taking steps and we’ve been in close consultation with our auditors and accounting experts for the past several months and we intend to ensure that when we come out of this process that we have whatever kind of enhancements are perfect.
Robert Coldbrook – Think Equity
Was there an earn out on promotions or anything?
Daryl Otte
There was no earn out per se, but a lot of their consideration was taken in restricted stock.
Robert Coldbrook – Think Equity
Is there anything else pending on this matter or is it pretty much water under the bridge?
Daryl Otte
Trying to make it be water under the bridge as effectively as possible.
Operator
Your next question comes from the line Michael Moscoff – RMR Capital. Please proceed.
Michael Moscoff – RMR Capital
In the second quarter, you did $15 million revenue, third quarter $15.2, and you’re guiding for anywhere from $15 to $15.3 so far. So with the bookings being sequentially, or I should say subscriber growth, you said being sequentially higher, the revenue is up a tiny bit.
So are you seeing better numbers on the sub side from a revenue point of view than the advertising side, what are you seeing in advertising, you are a small company obviously a Google and names like that where we are comps grow like you were saying, you can get color there, but to get color from thestreet.com when you are not going to give us any metrics, how are you guys seeing from the first quarter report, which is the only thing we got to go by in ’09, how are the numbers, I’m talking about advertising because when you talk about the total revenue numbers, basically it’s kind of flat from second quarter to let’s say Q4 ?
Daryl Otte
So Q1, we did $3.2 million in advertising revenue, excluding promotions. Q2, $4.6 million Q3, $4.3 million, Q4, $5.6 million. So that strikes me as an upward trend. The $5.6 million in Q4 compares to $5.3 million in ‘08.
Michael Moscoff – RMR Capital
So the sub revenue in Q2 is $10.4 million?
Daryl Otte
Excluding promotions. The paid services is $9.4 million in Q2.
Michael Moscoff – RMR Capital
Can you give me the total revenue, because it’s tough the way this thing is printed out. So, the total revenue, excluding promotions, in Q2, Q3, and Q4. Can you give me that?
Rich Broitman
Q2 was $14.0 million. Q3 was $13.7 million. Q4 would be around $15.3.
Daryl Otte
And I think you need to look at the bookings for subscriptions, because that’s what’s going to feed future subscription revenue.
Michael Moscoff – RMR Capital
You didn’t give any numbers.
Daryl Otte
10 to 13% was said.
Michael Moscoff – RMR Capital
10 to 13% in the fourth quarter of this year versus the fourth quarter of last year?
Daryl Otte
Second half, both actually.
Michael Moscoff – RMR Capital
Because last year’s fourth quarter, you had 6.7 million in bookings. So, obviously I could do the math.
Daryl Otte
That 6.7, I think it was just in the – previously reported subscription service part of the paid service. So, all the paid services were 8.5, when we are talking about 13%, approximately that favorable comparison to the year-over-year period both second half of fourth quarter for paid services, we’re referring to the whole paid services line, not only to the subscription line in isolation. The company had 8.5 millin in Q408 on paid services and that’s what we’re expecting to be up by approximately 13% in Q4.
Michael Moscoff – RMR Capital
So it has nothing to do with marketing, correct?
Daryl Otte
That’s just paid services.
Operator
Your next question comes from the line of Richard Fetyko - Merriman Curhan Ford & Co
Richard Fetyko - Merriman Curhan Ford & Co
Just curious, with respect to 2010 strategy, if you could give some guidance what your initiatives or areas of focus, whether you are looking to introduce new subscription products on the subscription side. Anything new on the marketing services side that you like to do or what do you think will be some of the revenue drivers?
Daryl Otte
On the premium services side, I think that we have a lot of legs to run on integration of the Kikucall operations into our business and I think that regardless whether we launch new products or not that we should see the core benefit from their being involved with us. That’s a huge focus of ours.
I feel also that we on the advertising side, we need to do a better part of our job of being partners with the rest of the web in terms of distributing our content. I alluded to that in the prepared remarks a little bit, and if anyone who has been to our site recognizes the bit of a user experience issue, and so we’ll be working on presenting our content better, and also adding a lot more data and kind of new functionality to the site. Anything we expect will be rewarded in terms of better page views, higher pricing, and a bigger better site.
(audio skips)
Richard Fetyko - Merriman Curhan Ford & Co
Anything new on the mobile side. At one point, the company had….
Daryl Otte
Awesome. Thank you very much. Just today, we launched a new blackberry featured on the homepage of their store. A lot more functionality. Integrates some of our paid services. Eventually we’ll integrate all of our paid services and we think that’s a terrific opportunity for us.
Richard Fetyko - Merriman Curhan Ford & Co
Anything on the iPhone platform?
Daryl Otte
Yes, we’re there as well, and we’re on Android as well. Our users generally tend to skew Blackberry, so that’s where we get the real performance.
Richard Fetyko - Merriman Curhan Ford & Co
And when you say Kikucall integration, I mean sounds like some sort of a platform to drive subscriber acquisition and management. When you say integration, I mean what does it mean, just rolling it out through all the products or what?
Daryl Otte
They’re taking their expertise while they define people, processes, and technology and helping us do a better job at selling our products.
Richard Fetyko - Merriman Curhan Ford & Co
When did the acquisition occur?
Daryl Otte
Mid December.
Operator
Your next question comes from the line of Michael Moscoff – RMR Capital
Michael Moscoff – RMR Capital
One last thing, guys. In regards to this lack of transparency, how do you guys expect to get analytical community coverage without really giving any clarity?
Daryl Otte
I think that we expect people to look at our financial results and we’ll try to work with the community to help them use outside sources effectively to do what they need to do, but if you have to balance handing over kind of our pricing and product strategies to competitors versus making sure people’s spreadsheets are correct, we would defer to the former.
Michael Moscoff – RMR Capital
And you really thing that this is a major detriment to whether you guys can grow your business or not versus what it transpired?
Daryl Otte
I’d absolutely seed it. I was recruiting for the CEO position, and I’ve spoken to some of the parties who were interested in this position, not surprisingly hole positions at these other organizations, and quite surprising the detailed level of competitive intelligence available. Also, if you looked at the screen here and people seem to recall, there would be some whole numbers that you would recognize, company affiliation.
Michael Moscoff – RMR Capital
But as far as the analytical – you guys want to hopefully get some coverage picked up by the analysts as these numbers get reported and I just --?
Daryl Otte
We’re not against helping folks understand our business better and getting as much visibility as possible, but I think we have to work with everyone to figure out a way to do that, that serves their needs or your needs but also doesn’t set our folks back in terms of what they are trying to do.
Michael Moscoff – RMR Capital
What’s the amount you have in NOLs?
Daryl Otte
$156 million approximately is what we have.
Michael Moscoff – RMR Capital
Is that because of promotions that went up or because it was a $128 million less of deferred tax, that’s what I believe it was.
Daryl Otte
After 2008. $123. Unchanged, basically.
Operator
Your next question comes from the line of Bob Sales from LMK Capital Management.
Bob Sales – LMK Capital Management
I thought you disclosed in some of the later quarters what the impact of non-recurring charges were?
Daryl Otte
The non-recurring charges associated with the accounting review were $1.3 million in Q3.
Bob Sales – LMK Capital Management
Was there anything else?
Daryl Otte
There was a restructuring expense of $200K in the quarter and about $600K in the second quarter.
Bob Sales – LMK Capital Management
Were there any one-time benefits in Q3?
Daryl Otte
No.
Bob Sales – LMK Capital Management
Can you, with respect to the subscription business, can you help give us an idea of what the trends and your expectations have been in terms of kind of the base thestreet.com subscription versus some of the premium subscriptions?
Daryl Otte
The bookings refer to the paid services affiliated with thestreet.com RealMoney, RealMoneySilver. There’s a suite of 13 paid services there. In addition, it reflects our Ratewatch business and to a lesser extent, TheStreet.com’s ratings, which is a proprietary stock rating service, stock, mutual fund, ETF, bank and insurance company ratings, and that information is sold in subscription historically to banks when they had to provide alternative rating information as part of the settlement, but that business has largely gone away and we’re now pursuing other opportunities there.
Bob Sales – LMK Capital Management
What I’m trying to get a sense of is how the business is evolving as the market recovers, whether you’re seeing more growth on the premium subscriptions like RealMoney or whether your growth is more so in the premium subscriptions beyond RealMoney or whether it’s kind of the core level premium subscriptions like RealMoney?
Daryl Otte
You are talking about the rate of growth within our subscription services?
Bob Sales – LMK Capital Management
Yes.
Daryl Otte
Not really sure to give that detail.
Operator
Your next question comes from the line of Michael Moscoff – RMR Capital
Michael Moscoff – RMR Capital
Regarding your assets, you seem to break down now on the current assets marketable securities as two line items. Can you discuss why that is? Number two. It seems like the PP&E went down about $1.5 million. Could you qualify that?
Daryl Otte
Marketable securities are simply just investments we have in corporate notes and bonds that will mature within the next 12 months.
Michael Moscoff – RMR Capital
So that’s the 2.8, and then the 17.4.
Daryl Otte
Longer than a year. Between one to three years.
Michael Moscoff – RMR Capital
Then you have a new line item, current assets held for sale.
Daryl Otte
Yes. That relates to the promotions.com subsidiary.
Michael Moscoff – RMR Capital
You already received the million and then you got the note if I recall?
Daryl Otte
Again, this is as of September 30. So when you’re looking at that, there is no sale at this point. These were the assets that we were identifying as of September 30 that related to promotions.com and that is part of the reason why as you pointed out the fixed assets are going down, because part of them have been moved down into non-current assets held for sale.
Michael Moscoff – RMR Capital
And the PP&E down, is that from the consolidation of the offices or something that you announced?
Daryl Otte
As I just pointed out, a lot of that has to do just with the assets that were out at the promotions.com locations that are now pulled out of the property line, and again you are looking at December to now down about 900,000. Part of that is a result of the promotions review, one of the transactions that Greg was referring to that had to do with us both being a buyer and a contractor or services had to do with a fixed asset that we had booked. So, some of that has to do with assets that we retired during the course of the year.
Michael Moscoff – RMR Capital
Last but not least, the deferred revenue from I believe the first quarter of this year, which is always nice to see, went up $1.2 million from Q1 to now? Is that right?
Daryl Otte
The deferred revenue if you’re looking at it in total or last year end?
Michael Moscoff – RMR Capital
March quarter when you still were announcing numbers.
Daryl Otte
So the March quarter was previous to the restatement. Part of this restatement in reversing some of the timing of the revenue being recognized flows money back into deferred revenue for future periods.
Also point out as we disclosed in the press release, the accounting review also identified some errors in the March 31, 2009 financials, which we quantified being a half million revenue, $100,000 expense roughly. So to the extent those end up getting revised could have an impact, if you’re just trying to identify certain discrete balance sheet items like deferred revenue as Rich noted. The timing corrections go in and out of deferred revenue.
Michael Moscoff – RMR Capital
So, if it was 15.7 in Q1 of 09 and 16.9 as of September, what would the $15.7 number approximately be, since you are saying there was in and outs of vision or whatever?
Daryl Otte
The fully restated numbers as of September were about $16.9 million versus about 16 points at last year end.
Michael Moscoff – RMR Capital
What about in Q109?
Daryl Otte
$15.7 as of March actually climbs up to $17.3 due to reversal of revenue that was put back into deferred. A lot of that came back out in the next six months.
Operator
Next question from Bob Sales.
Bob Sales – LMK Capital Management
In the press release, it says that promotions had a negative contribution for the first nine months of $2.2 million. What will the business look like if that’s gone? Should we assume the loss of $700,000 per quarter was linear or less of a loss in September as the business was being disclosed?
Daryl Otte
The press release included a schedule. In order to provide additional understanding around this issue, we showed the impact of promotions quarter-by-quarter since January 08, so you can actually see what the Q109, Q209, Q309 impact of promotions was. If you take a look at that schedule, the negative contribution in the first three quarters of 09 totaled about 1.8, but as we described in the press release and a couple of times on this call, that schedule is based on the as filed Q109 numbers, which as indicated had errors that made them look kind of 400k rosier than would have been the case had the errors not existed. So with those errors in there as well, the number would have been a total of $2.2 million of negative contribution for promotions during the first nine months of 09.
Operator
Next question from Richard Fetyko - Merriman Curhan Ford & Co
Richard Fetyko - Merriman Curhan Ford & Co
Ad sales force group, what kind of changes made in last nine months? Any color?
Daryl Otte
Relatively unchanged.
Richard Fetyko - Merriman Curhan Ford & Co
Any area where you want to hire in 2010?
Daryl Otte
We had a couple open positions. If anyone has any good recommendations, please send their resumes.
Richard Fetyko - Merriman Curhan Ford & Co
How many people do you have in that group?
Daryl Otte
Why is that relevant?
Richard Fetyko - Merriman Curhan Ford & Co
Just so I can track how many people you add or subtract over time?
Daryl Otte
We can give you the total headcount if you want. Headcount is about 274 as of yearend.
Richard Fetyko - Merriman Curhan Ford & Co
Can you remind us what it was at the beginning of the year or at the end of last year, 2008?
Daryl Otte
End of last year, we were 310. If you recall, we did go through this restruction early on in ’09 and some positions were excluded. That also reflects the net effect of acquiring Kikucall and selling promotions. And I would say generally as an HR strategy we have reduced the ranks of senior management and hired people who work on the products and services.
Operator
There are no questions at this time.
Daryl Otte
Okay. I really appreciate everyone dialing in. We apologize for the level of complexity. Thank you for your patience and look forward to speaking with you in a quarter, which we hope to be terrific results. So speak with you then. Thank you.
Operator
Ladies and gentlemen, that concludes today’s conference. Thank you for your patience. You may now disconnect. Have a great day.
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