Noble Financial Capital Markets' Tenth Annual Equity Conference
January 21, 2014 11:30 a.m. ET
Bill Stuart - Chief Financial Officer
[Starts Abruptly] we are as most people know – we are a publicly held company. And really we are focused on what consumers want access to today. They want access to all of their stuff, it’s TVs, movies, sports news and whatever other content they want to be able to see on any device anywhere, anytime. And I think there is a song that goes something like this. “Anyway they wanted that’s the way that they needed and that’s the way that we deliver it.”
So it’s a large market opportunity as I am sure most of you would be aware. Just given the data traffic, you can see some statistics there, some of the key ones. Again data traffic increasing 14 times over the next five years with mobile video being a large part of that.
With people watching TV and using their device, their laptop, tablet or smartphone more and more work [ph] that’s serving as the second screen and that potentially as the remote controlling the TV. And it’s expected today about 50% of the U.S. population is using their smartphone while watching TV. That might be to check their e-mail. Most of us are multitaskers. So we are checking e-mail but we could also be watching TV and ultimately as android TVs are developed people would be using those android devices, smartphones and tablets as in fact the remote to be able to control that TV.
You may also be complied [ph] with some of the statistics for android over billion installations already, 80% of the smartphones in use today are android and the global mobile advertising opportunity is a pretty significant one and one where we also play a significant role.
So we really work within that ecosystem on one side of advertisers and you can see some of the brands that we advertise on our customers’ sites and some of our key customers on the consumer electronic side, Lenovo and Toshiba; on the operator side, Centurylink, Verizon, DISH, a satellite operator of course and Cincinnati Bell, Charter some of the other names you see there.
And really we integrate all of that on our customers [indiscernible] with the content. On the other side of the screen you’re looking at Google being the search provider that we use as well as some of the other content from CBS, Hulu, Star, Cinemax. You could see a lot of familiar names there and also delivering the apps for the TV Everywhere experience for our customers.
And for customers, for our customers’ customers for you, for the consumer, the experience is fragmented and it’s frustrating because frankly you have to remember a lot of different IDs and lot of passwords to be able to get access to all of that content and we simply that. So rather than for our customers, the operators just basically being stuck in what sometimes referred to as the dumb blocks or dumb pipe conundrum, not basically getting anything other than the revenue that they get for the transmission of the experience. We deliver advertising, search and more value added services to bring a revenue opportunity to them.
So at this point probably it helps to kind of step back, look at the ways that we make money and we’re [ph ] going to some more detail further in the presentation, but there are three ways that we may believe that we generate revenue. First is search. About 50% of our revenues comes from search. So if you go to our customers’ site, for example Centurylink.net, there will be a Google search bar. Do a search with that search bar, you land [ph] on the sponsored link, you look for cool neck sweater for example and then Google will give you back several responses and some of those will be advertisers, for instance J.Crew or Abercrombie & Fitch and whoever their customer might be. You click on that sponsored link. The advertiser pays Google and they share it with us and we share with it our customers.
That represents as I said about 50% of our revenues. 30% comes from advertising. We sell advertising. And we also place advertising from networks and exchanges like Google, DoubleClick or ad.com. And about a portion of that 30% also comes from direct advertising where we’re selling to the advertisers and some of those are names that you would be familiar with the automobile companies, Progressive, Capital One, State Farm Insurance, Geico. Frankly, our customers’ customers are people who are spending $150 to $200 or more per month for cable TV and high-speed access and they are very attractive demographic to all of those advertisers.
And then the last piece of our revenue – subscriber-based revenue includes e-mail and security. It also includes TV Everywhere that we collect either fixed fee or a fee related to the number of users from that operator on a monthly basis.
So consumers do come back to where we left off here. Our platform then gives these consumers a single point of access to all of their content. And with one simple login, they can access all of that content. It puts all of their media in one place on any device.
Traditionally, our business has been based on star pages for the operators and for the consumer electronics manufacturers. So it’s where you go, when you go to charter.net, that’s us for example, or centurylink.net that would be us. That would be our star pages running on our servers in our data center. So we are providing that experience for them.
Now over the last year, more and more searches have moved to mobile devices and we have started to move that way as well. We acquired a company called Technician based in Ottawa, Canada towards the latter part of last year and we are working on a solution which will bring then true watcher [ph] experience or home screen for mobile devices.
The star page is the traditional part of our business with the cable and telecom operators, represents about 27 million high-speed access subscribers and that represents about a 30% share of the market --of domestic US market for a high-speed access. We get about 15 million unique visitors per month and I talk about the way that we monetize that through search and display advertising and also the subscriber-based revenue.
We have just a little bit of business over the UK and we recently announced our relationship with Cable Ecuador. There are some other bigger opportunities for us outside the U.S. that we’re really just starting to line up.
On the home screen part of the business again, now focusing on the consumer electronics manufacturers and wireless operators, we generate about 4 million unique visitors per month and we will be delivering also for android devices through this acquisition that we mentioned before Technician.
Today, we have a relationship with Toshiba and Lenovo and we’re looking to expand that over time with other consumer electronics manufacturers. Frankly, [indiscernible] more handsets and more tablets, because we all know from our personal experiences more and more searches and more and more of our daily experience includes the interface with the laptop – I am sorry with the tablet as much as smartphone.
Another part of business what we refer to as Cloud ID. That is really the experience of having now access to all of your content, your TV experience as well as music, games, whatever other content you want to be able to get access to. In the example here, you’re seeing HBO Go and that’s a relationship we’ve had with HBO for several years. We really are the go-to provider for authentication for HBO Go and for several of the other programmers.
If you are a cable provider, telco, and you want to provide TV Everywhere, [indiscernible] you’re programmer, you want to be able to work with all of those – those operators, you don’t really want to be able to have to deal – you don’t want to have to deal with each one separately. Frankly, we are in the middle between all of them in providing that authentication.
So if you go to HBO Go, for example, and download that app onto your tablet, you’d still have to be authenticated. So if you were to then click on HBO Go it’s going to ask you who your subscription relationship is with assuming it’s with one of our operator customers, it would then send you over to us, we then check against the database to make sure in the path that you are a paying subscriber for HBO and then we send you back to HBO.
And that’s basically the way it works with a lot of the operators here today. HBO Go is really at the forefront of that, but now several of the other programmers have started to get into the business just because their customers want it– people want to be able to watch TV wherever they are. They have a tablet. Even if they are sitting in their living room, they want to be able to watch the TV experience on that and not just on the screen.
Maybe somebody else in the household watching the big screen TV, they want to be able to watch the latest episode of True Blood or some other experience on one of these other channels. And again we sit in the middle between the programmers and the operators providing the authentication for that service.
We also, as I mentioned in our subscriber based revenue, we also provide e-mail. We’ve about 6 million – over 6 million mailboxes and providing that service to about over 10 – somewhere over 10 customers. Those tend to be -- those customers tend to be the power user. Those people that go on to the sites everyday whether it’s Charter, CenturyLink or whichever – where there are our customers that we’re providing e-mail to them, or they are getting e-mail from another provider. Those e-mail customers, anytime that they are sitting in front of their laptop, they are going to have that site open. That’s where the e-mail is and they’re going to go back there everyday. So they tend to spend more time online. They drive more search queries and more advertising impressions for us.
We also provide – within that subscriber-based revenue part of the business we provide value added services, games, music. And in third quarter, for example, we had over 40 customers offering this content to their subscribers and had over 95 million video streams and over 80 million news content views and over 15 million game content views. And revenue there comes through a revenue share as I described earlier and also comes through subscription fees.
So we have the pretty significant advantage having positioned ourselves as the gateway between the cable operators and the telcos and satellite operators and the programmers. We have a lot of experience now in providing integrations and we developed significant, in fact we’re probably one of the world’s largest aggregators of metadata and we have frankly this based on our position -- we really have developed the first mover advantage in TV Everywhere and have won several awards for both TV Everywhere and Cloud ID.
So the business model, again going back to search advertising, we had 166 million search queries in the third quarter and -- So again, consumer visits the star page, type in a keyword into the Google search bar, click on the sponsored link, the advertiser page, Google shares that with us and we share with our customers. And again see some of the familiar names there such as Lenovo, Verizon, CenturyLink, RCN and Truck seller [ph], our recent customer as a result of the acquisition of Technician.
Display advertising again, that’s about 30% of our revenues. I mentioned some of the names earlier in addition to Progressive which I mentioned, Kohl’s, BestBuy, Infinity, most of the car companies are display advertising customers and again think about the demographic, the subscribers to the cable operators and telcos are paying $150 to $200 a month for high-speed access and TV. They’re not having to get down to Starbucks in order to be able to get high-speed access.
So it’s a very attractive demographic and we have been pretty successful with that. That represents a little under 50% of our total display advertising – total advertising revenues and then the rest of the inventory. If we have inventory to fill, we put it in networks and exchanges. But again the display advertising with some of these names would obviously be at higher raise because they are – those are the brand names.
And the breakdown again we saw in the third quarter was 51% search, 28% for display advertising and 21% for subscriber-based revenue. The subscriber based part is recurring revenue. Those are usually year plus contracts and have much more of a recurring flavor to it.
Display advertising and search are fairly predictable. Search activity generally is pretty forecastable from one quarter to the next.
So some of the key metrics for us are we had 90 million unique visitors in the third quarter of last year, 15 million coming from cable operators and telcos and satellite companies and the other 4 million coming from the customer electronics manufacturers. 166 million search queries, that number is down from the prior year. That’s a function of two things. The release of Windows 8 where Microsoft has forced the hardware suppliers to use Msn.com as the start page, we are the second tab behind that – but frankly that resulted in some loss of traffic with the consumer electronics manufacturers. And also more search queries are moving onto mobile devices and the acquisition of Technician positions us to be able to take advantage of that – that move.
And we also had 9.5 billion advertising impressions. The revenue in the third quarter, 26.6 million and EBITDA $900,000.
For the year looking back in 2010-11, $66 million to $91 million to $122 million in 2012. The year to-date through the third quarter, we did $82.4 million. EBITDA we are break even in 2010, $12 million in 2012 and $3.7 million through the third quarter in 2013.
So the growth opportunities for us are expanding into mobile and android devices, working with more consumer electronics manufacturers especially as android to these are released and the androids, smartphones and tablets become in fact the second screen and the remote control for those TVs.
In TV everywhere we are uniquely positioned as being the gatekeeper or authenticator working with programmers on one side and the operators on the other side. Cloud ID is an extension of that capability to provide more content, music and gaming and other content that you’d like to access and also delivering more value added services which is often in the form of apps, again would be accessible via the Cloud ID, single sign-on type of experience.
More advertising especially video is a great opportunity for us and frankly international is really a greenfield for us. We’ve got a fairly small amount of revenue coming from outside the U.S. today. We announced a joint venture earlier in 2013 in China. And as our partners over there said the first time I met with them everything that works in the U.S. works in China except it’s 10 times bigger, but it takes a lot longer.
So it will take a while, but I think over the next couple of years we will see revenue starting to flow from China. It does represent, as everyone knows, significant opportunity for Internet providers such as ourselves. And elsewhere international, there are broader opportunities for us both in Western Europe and in South America that we expect to exploit over this year and in the coming years.
So and then just an example of where we are today, a lot of those offices in the U.S. are advertising sales offices and this just as a quick look at some of the awards that we’ve won.
And that’s it, thank you very much.
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