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InfoSpace Inc. (INSP)

Q4 2006 Earnings Call

February 2, 2007 5:00 pm ET

Executives

Stacy Ybarra - Director of Corporate Communications

Jim Voelker - Chairman and CEO

Allen Hsieh - CFO

Analysts

Scott Sutherland - Wedbush Morgan

Mark May - Needham & Company

Aaron Kessler - Piper Jaffray

Jeff Shelton - Natexis Bleichroeder

Robert Hobart - ThinkEquity

Lloyd Walmsley - Thomas Weisel Partners

Clay Moran - Stanford Group

Richard Fetyko - Merriman, Curhan and Ford

Presentation

Operator

Good day everyone and welcome to the InfoSpace Q4 2006 Earnings Release Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'll turn the conference over to Director of Communications for InfoSpace, Ms. Stacy Ybarra. Please go ahead.

Stacy Ybarra

Good afternoon and welcome to InfoSpace's fourth quarter 2006 and full year 2006 Earnings Call. I am Stacy Ybarra, Director of Corporate Communications. With me on the call today is Jim Voelker, Chairman and CEO, and Allen Hsieh, Chief Financial Officer.

Before we get started, I want to remind you of two things. First, this is an investor call. Accordingly, we will only be taking questions from the investment community. Second, this conference call contains forward-looking statements related to the development of the company's products and services and anticipated future operating results. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Factors that could affect the company's actual results of operations include, but are not limited to, the progress and costs related to development of our products and services, the timing of market acceptance of those products and services, our dependence on companies to distribute our products and services, the performance of our systems, the effectiveness of the development and implementation of our strategy, possible changes to that strategy, the ability to retain key contracts and personnel, and the ability to successfully integrate acquired businesses.

A more detailed description of certain factors that could affect actual results of operations is contained in the company's most recent annual report on Form 10-K and quarterly report on Form 10-Q, as filed from time to time with the Securities and Exchange Commission in the section entitled "Risk Factors".

Listeners are cautioned not to rely on these forward-looking statements which speak to the company's prospects only as of the date of this conference call. The company undertakes no obligation to update publicly any forward-looking statements due to new information, events, or circumstances after the date of this conference call, or to reflect the occurrence of unanticipated events.

Now, I will turn the call over to Jim. Following his comments, Allen will review the fourth quarter and full-year financial results and first quarter outlook. Then we will open up the call to your questions.

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Jim Voelker

Thank you, Stacy, and welcome to the call today. In the fourth quarter our primary focus was the execution of our restructuring program related to the pending loss of significant revenue from one of our carrier partners. Overall, the restructuring plan has been progressing effectively and in line with our expectations.

In September, we began streamlining for our priorities to achieve profitability for our business. We've organized into two units mobile services, including portals, storefront, messaging, and mobile search assets; and online, our search and directory properties as well as our private-label distribution business.

As previously announced, we suspended investment in mobile content initiatives and accordingly we plan to substantially exit that business over the first half of this year. At that point, our mobile revenues will be reduced by approximately three quarters from today's levels.

We had announced a reduction in headcount by roughly a third of our workforce and we plan to end 2007 with slightly less than 500 employees.

To date, we've recorded $62.3 million of restructuring charges, of which $60 million are cash. And we expect additional cash charges over the next two to three quarters to range between $1 million and $2 million, as we complete this process.

For the year, revenues were $372 million, up 9% year-over-year. Online revenues were a $187 million, up 2% year-over-year, and mobile revenues were a $185 million, up 17% from 2005.

Revenue in the fourth quarter was $89 million, below our guidance of $91 million to $93 million and up 3% over the same quarter last year. Our mobile revenues were in line with our expectations, we experienced lower than projected online traffic and monetization in the quarter. The majority of the shortfall is attributable to our removal of poorly converting distribution traffic from our network. However we also have lower than expected performance on our owned and operated sites. Our balance sheet remains strong. We ended the year with $402 million in cash and no debt.

Now let me share a few thoughts on our business units. Although we're disappointed with the fourth quarter results, InfoSpace's online business is solid with great products, a proven business model and strong partnerships with distribution and monetization. In October, Dogpile.com won the prestigious J.D. Power and Associates Award for the highest customer satisfaction across all search engines. Dogpile scored top ratings in all three categories; ease of use, functionality and results. We were not really surprised as independent studies have proven that our meta-search technology consistently yields a higher search success rate, than all the major engines. And the major search engines are diverging in how they search; Google, Yahoo!, Ask, and MSN use fundamentally different methodologies to crawl the web. In fact, about 85% of first paid results are unique on the major engines. As the leading meta-search provider, this enhances the value of our offering as we assemble an ever expanding and more relevant set of results.

Our distribution partners benefit as well, as we consistently monetize better than any single engine, while delivering a great user experience.

In the fall, we extended our technology to a new brand, the kid friendly search site, Zoo.com. Zoo offers children the opportunity to experience the wealth of education, in form of a fun material on the Internet, while filtering adult and other inappropriate content.

On the mobile side, our core technology products are in high demand and we continue to grow users and revenues. We are the leader in the mobile data technology solutions for operators, providing portal, mobile search, messaging and our storefront solutions to three of the top four carriers in the US, as well as several carriers in Europe. More than 20 million US users accessed our portal and mobile search services in the fourth quarter, an increase over 60% from a year ago.

As we sharpen our focus on mobile platform services, we remain optimistic that we can further strengthen our market position and in search and advertising move to mobile devices, we are well-positioned to capture value in the chain. In fact, we expect to enable via partnerships, search-based advertising products, with both in North American and European carrier, in the first half of this year.

In addition, our mobile local search product InfoSpace Find It!, has been upgraded with a feature of [voice-out] capability, that delivers turn-by-turn spoken directions. We've also deployed a WAP version across six carriers in the U.S. Between the WAP and downloadable version InfoSpace Find It! has approximately 200,000 users.

Going forward, we remain on solid financial ground with a strong balance sheet and a positive cash flow business. As we complete this restructuring, we will pursue opportunities to grow the business as well as cash flow. With that I'll turn the call over to Allen.

Allen Hsieh

Thanks Jim, and welcome to our call today. I will start with a review of our fourth quarter and full-year '06 results, and then discuss our outlook for the first quarter of '07. Our revenues for the fourth quarter were $89.3 million, an increase of $2.8 million or 3% from the fourth quarter of '05. Sequentially revenues were down 7% from the third quarter. As Jim mentioned, revenues were below our expectations and I'll address this in further detail when we discuss our segment results.

For the fourth quarter in '06, adjusted EBITDA was $1.9 million, a decrease of $13.9 million from the fourth quarter of '05. However keep in mind that we recorded an incremental $4.5 million restructuring charge in the fourth quarter, which was in addition to the $57.8 million restructuring charge we took in the third quarter. Excluding the restructuring costs, our adjusted EBITDA was 6.4 million in the fourth quarter. On a sequential basis excluding the restructuring cost, adjusted EBITDA was essentially flat with the third quarter.

In the fourth quarter of '06, we had net income of $30 million or $0.91 per share as compared to net income of $37.9 million in the fourth quarter of '05, and the net loss of $46.7 million in the third quarter. Included in the fourth quarter net income was a tax benefit of $32.6 million, primarily from realizing a deferred tax asset related to net operating loss carry-forwards, which was similar to the tax benefit of $25.4 million we recorded in the fourth quarter of '05. Weighted average fully diluted shares were $33.1 million for the fourth quarter of '06.

For the full year 2006, we had revenues of $371.7 million, an increase of $31.8 million or 9% from 2005. Adjusted EBITDA for '06 was a negative $27.8 million, which includes a restructuring charge of $62.3 million. Excluding the restructuring charge, adjusted EBITDA is $34.5 million in '06 compared to $70.9 million in 2005.

For the full year 2006, we had a net loss of $12.7 million comparing that net loss in '06 to net income in '05, it requires consideration of a couple of items. First, we had litigation settlements and an income tax benefit in 2005 resulting in a gain of approximately $102 million. Secondly, in 2006, we recorded a restructuring charge in stock-based compensation expenses, which were partially offset by the income tax benefit, but nevertheless netted to -- a net charge of approximately $38.2 million, negatively impacting our results.

Now let me turn to our segments. Starting with online. In the fourth quarter of '06, revenues were $41.8 million, down $2.5 million from the fourth quarter of '05, and sequentially down $6.7 million from the third quarter. As Jim mentioned, search revenues were below our expectations, approximately one-third of the underperformance is from our owned and operating sites, and the remainder from our distribution partner sites. The shortfall from our distribution partners was primarily the result of us removing 40 converting search traffic.

Segment gross profit was $27.8 million. Gross profit decreased by $0.5 million from the fourth quarter of '05 and was down by $2.6 million sequentially from the third quarter. Our gross profit margin was 66%, up compared to the fourth quarter '05 gross profit margin of 64%, and up 4% sequentially.

For the fourth quarter of '06, the search distribution revenues were approximately 54% of our total search revenues as compared to just over 60% in prior periods.

For the full year '06, online revenues were $186.9 million, up $4.3 million or 2% from '05. Segment gross profit was $120.2 million, up from $114.5 million in 2005. Our gross profit margin was 64%, up compared to 2005 gross profit margin of 63%.

Now, turning to the mobile business. Revenues in the fourth quarter of '06 were $47.5 million, up $5.2 million from the fourth quarter of '05 and in line with our third quarter. Our segment gross profit was $18.7 million, a decrease of $1.7 million from the fourth quarter of '05 and an increase of $400,000 from the third quarter. Our gross profit margin was 39%, down compared to the fourth quarter of '05 gross profit margin of 48%, and in line with the third quarter gross profit margin of 48%, and in line with third quarter gross profit margin.

For the full year 2006, mobile revenues were $184.8 million, up $27.4 million or 17% from '05. Gross profit decreased by $6.9 million from '05. Our gross profit margin was 40% down compared to 2005 gross profit margin of 51%.

Regarding our balance sheet, we ended the year with $401.9 million in cash and marketable investments, down approximately $9 million from the third quarter, primarily due to timing of the collection of receivables and payments-related to our restructuring. For the year, cash and marketable investments were up $27 million.

Now let me turn to our first quarter outlook. For the first quarter of '07, we expect revenues to range between $82 million and $84 million. This guidance anticipates that the major record labels will go direct to our carrier partners. Media revenues, which were primarily label [tone], sales represented about 80% of our total mobile revenues in the fourth quarter of '06.

While we expect a transition to occur over the next two quarters, the negative impact to revenues may not be linear and could happen faster or slower than anticipated. Keep in mind, the ongoing mobile service revenues generated between $9 million and $10 million per quarter in '06. We expect adjusted EBITDA to be between $6.5 million and $7.5 million and have a net loss to range between $1 million and 1.5 million or $0.03 to $0.05 per share.

Our guidance includes an approximate $1 million gain on the recent sale of assets of our U.S. Games Studio. We also expect an effective tax rate of 40% to 45%.

This concludes our prepared remarks. I'll now turn the call over to the operator and we will be happy to take your questions.

Question-and-Answer Session

Operator

The question-and-answer session will be conducted electronically. (Operator Instructions). We'll have our first question from Scott Sutherland at Wedbush.

Scott Sutherland - Wedbush Morgan

Thanks. Good afternoon.

Jim Voelker

Good afternoon Scott.

Allen Hsieh

Hi Scott.

Scott Sutherland - Wedbush Morgan

Just a question -- clarification in mobile. I mean it sounds like you are going to completely exit the publishing and content business and focus on infrastructure. Is that accurate or are you keeping any sort of content business by the end of this year?

Jim Voelker

Well Scott the intention is to substantially exit it. And basically, we're looking at the first part of the year. Halfway through the year, we believe all of the kind of label tone business and associated with that will be gone and then there is some other ancillary graphics business, etcetera that we'll make decisions on. But substantially I agree, that's correct.

Scott Sutherland - Wedbush Morgan

Okay. So you get down to $9 million and $10 million plus a little bit of the remaining stuff there?

Jim Voelker

Correct, if you look at last years numbers. Yes.

Scott Sutherland - Wedbush Morgan

What is kind of the profile on gross margin or operating margin? Do you think these remaining infrastructure services have, like the search in [phone] and storefront stuff?

Allen Hsieh

Scott this is Allen. In terms of the gross profit margin on that -- and our core mobile services business. It's relatively high because of the fact that there isn't that same level of content costs that we used to have, alright. So you have to think about it as a very high profit, gross profit margin business.

Jim Voelker

But it's the people -- the cost of our people.

Allen Hsieh

Yeah.

Jim Voelker

So it has high gross margins and then it's a matter of can you operate it at a level that produces profit on the bottom line, which we believe we can.

Scott Sutherland - Wedbush Morgan

So let's just say 78% spare where it was in the past before you got (inaudible)?

Allen Hsieh

We have not actually talked about that -- disclosed it publicly. I think you'll see a lot of that information as we go through the next year.

Jim Voelker

As we go through the next few quarters, right.

Scott Sutherland - Wedbush Morgan

As online dropped, do you see yourselves taking any more distribution traffic out? And same question on that is, it looks like it had a positive effect on the gross margin in that segment, so would you expect gross margin to expand a little bit more?

Allen Hsieh

Well actually we wouldn't mind seeing gross margin return to where it was and have more traffic that produces bottom-line cash flow. The shift you saw in gross margin is because the -- it was just relatively more owned and operated traffic to distribution as there had been in many, many previous quarters. With the traffic it's kind of a cyclical thing really, there is always a certain amount of our distribution traffic that is depending on -- dependant on what's called SEM, kind of Search Engine Monitors or marketing and that kind of thing. And that traffic can come in and it can -- what we see frankly is, we launch it with our partners, its good traffic, maybe somebody stretches the envelope a little bit and the traffic isn't as good or else the kind of techniques they are using, to run their course and they come and go. So we'll always have some portion of our distribution traffic that is a bit volatile, that's just the nature of the game.

Scott Sutherland - Wedbush Morgan

Okay. So more stable from this point, is that what you would expect?

Allen Hsieh

Well, yes or no. Again, our view has always been that -- if this is good quality converting traffic, we'll do business with it and we'll keep at our partners like that too, Google and Yahoo!. But as soon as it stops converting, we're very quick to move it off the network. So it can be -- as I said it can come on and be quality traffic for a while and then all of a sudden whatever scheme they are using, scheme is probably the wrong word, whatever approach they are using doesn't yield as good a results, then we move it off.

Scott Sutherland - Wedbush Morgan

My last question is as you get out of the kind of the content and publishing part of business. Is there any kind of ease to breakup the contracts? And are you -- is that already in the restructuring?

Allen Hsieh

No, that's largely within the restructuring charges already.

Scott Sutherland - Wedbush Morgan

Okay. Great. Thank you.

Allen Hsieh

It wasn't too significant even.

Scott Sutherland - Wedbush Morgan

Okay. Thank you.

Operator

Our next question comes from Mark May, Needham & Company.

Mark May - Needham & Company

Thanks. Couple of questions. One, what do you think by the second half of the year what the base kind of cash operating expense run rate for the company as a whole will be in the second half of the year? And for the remaining mobile businesses that you'll begin, when you finally exit content? What was the -- did that business grow in the fourth quarter, if so, what was the growth rate? And I had one other follow-up question. Thank you.

Jim Voelker

Yeah, in terms, Mark, in terms of kind of forward guidance, right now we're in a position, to only give out quarterly guidance out right now. So I can't actually forecast that far head for you. In terms of the -- I think you're asking about a growth rate in the mobile services business. I think that's like grows, it doesn't grows as quickly as you saw with the media download business. But so it doesn't have that similar growth rate there.

Allen Hsieh

But we did have growth in the fourth quarter.

Jim Voelker

We did have growth, yeah.

Mark May - Needham & Company

Maybe in terms of the first question. Can you talk about the types of cost savings that you expect to recognize on an annual basis from the restructuring?

Allen Hsieh

Well clearly -- no I mean I think you can just look at the 250 employee reduction and you can do some math off that in the associated and there will be some -- as things play out and as the restructuring is done, there will be some savings on real estate and things of that nature and of course other expense that we were doing in the way of marketing or publishing expense on content, those kinds of numbers will change as well.

Mark May - Needham & Company

And just a follow-up, I think the search segment declined 14% sequentially, is that kind of a decent benchmark to use for the next couple of quarters? It would likely see double-digit declines for the next couple of quarters as you try to improve the quality of the network?

Allen Hsieh

Yeah I think Mark -- I think that as Jim mentioned before. When we bring on distribution partners, they are good traffic, as they kind of push that envelope of that edge there. We will discontinue it, we will move that traffic. At this point in time, I wouldn't suggest that it's -- there is anymore left to do, but who knows this is a very highly volatile part of our business there.

Jim Voelker

Yeah I think you can see by the forecast here for the next quarter, we are not assuming anywhere near that kind of -- we are not assuming a drop like that by any means.

Mark May - Needham & Company

Okay thanks a lot.

Operator

Our next question comes from Richard Fetyko, Merriman Curhan and Ford.

Richard Fetyko - Merriman, Curhan and Ford

Yeah hey guys. In terms of your first quarter guidance, I assume it does not include the full impact of the loss of the carrier and basically the exit of the content business on the wireless side I guess you made it sound like it's going to happen over the next couple of quarters, correct?

Jim Voelker

Correct, it assumes the beginning of that if you will, Richard, and I think that Allen has pointed earlier, the -- this may or may not be a real linear process right? But we expect it to -- and we're operating under the assumption with our partners but that will happen over the course of the first six months but in -- is it going to be exactly linear? No.

Richard Fetyko - Merriman, Curhan and Ford

So the volunteers that you lost or losing, is that also a set of a process or as they are being cut off and the other carriers that you're sort of exiting one-by-one?

Allen Hsieh

No, it's -- the whole thing is one process.

Richard Fetyko - Merriman, Curhan and Ford

Alright. In terms of the online business, what's forcing you to clean up to -- I mean I know you're talking about quality, but the quality I guess is assessed by the advertisers which you don't really have, direct advertise relationships, it's your feat partners, Yahoo! and Google. So are those the partners who tell you and give information about the conversion rates and the quality of the traffic of your sources is and that's -- is that how the process works in terms of identifying low quality traffic?

Allen Hsieh

Yeah, it's a collaborative effort. There is no question and our partners have different kinds of tools that they use to measure. We also look at -- we look at traffic in certain ways, they look at traffic in certain ways. It can be dealt with in terms of geography, where traffic is coming from. It also can be a factor of conversion. Conversion can be defined in a variety of different ways depending on the partner and the advertiser, and collaboratively we look at all those factors and say, is this traffic converting as well as we want it to, and if it's not, we remove it.

Richard Fetyko - Merriman, Curhan and Ford

Okay. And then finally on the strategy, I felt like in the last year or so you had really emphasized the wireless business increasingly more and talked about your online business increasingly less. Does this exit of the content business change your strategy on your emphasis in your focus of the resources? I mean just kind of trying to figure out where you're going to place more of your emphasis going forward now?

Allen Hsieh

Well -- clearly the exit from the content business is a change. We had felt that as we talked before, we felt that we had a pretty unique opportunity. We created a pretty interesting technology and content ecosystem. And it was working quite well and growing quite fast, but as the issue really became for us, that content did not broaden, it narrowed and consolidated around one type of content. But even though I know from an external point of view, it might have seemed like we talked more about mobile and we did because the marketplace and partners needed more education about the mobile business. We never -- we love our online business, it's the best business model out there and going. So we definitely have never deemphasized that internally at all and whereas we focused on growing that business as we always have been and we will remain that way. We do have to step backward in the current mobile business and say what are the ancillary opportunities for growth? We're really well in a great position with our -- doing the portals here. The users are growing dramatically, I think you saw that 60% year-over-year. But what else can we do to help monetize that position that we're in and what else can we do to branch-off of that? That's something we have to spend some time on now and decide how we want to use our resources.

Richard Fetyko - Merriman, Curhan and Ford

Can you talk about the use of cash and that's my last question, thanks?

Allen Hsieh

Well there's always thoughts about it, in terms of -- I think that, Rich, you are probably asking about is acquisitions that's just not something we comment on.

Richard Fetyko - Merriman, Curhan and Ford

Stock buyback?

Allen Hsieh

We have done a buyback in the past, a pretty significant one. We did not do any buyback here in the last quarter. Although we have an authorization for one and we just wouldn't comment on what we might do in the future.

Richard Fetyko - Merriman, Curhan and Ford

Thank you.

Operator

We'll take our next question from Safa Rashtchy, Piper Jaffray.

Aaron Kessler - Piper Jaffray

Hey guys. Couple of questions, Aaron Kessler for Safa. First in the mobile, any sense that you can give us what the operating margins were in the quarter for that business. And second, it's for the search business. Can you give a sense for what the quality control measures that you have in place? I believe in the past you've also had an issue with some of the poorly converted traffic, but how are you exactly screening these customers? Thank you.

Jim Voelker

Hey Aaron, I'll take the first one. In terms of the operating segment margins. Right now we're working through that process in terms of just kind of forward looking and I think you will see kind of in the first quarter results that we will be breaking out segment results similar to not exactly the same, but similar to how we have done before. But at this point I can't comment on exactly what that'll be for you.

Allen Hsieh

Okay. Aaron, it's an opportunity I guess to let you understand what the process is here, when we bring a partner on, and with any of our partners. And it's not one -- I want to make sure we fully dispel -- I think thoughts that anybody has that we are trying to [thrust] against the wall and hope it sticks or something like that. It's a collaborative effort, we run through a series of tests with our partners, we test the traffic. There is a pretty extensive process with both partners and in fact one of our partners uses a third party to [do] all new distribution partners that come on. And so, these are not things that are done capriciously, by the time a partner gets turned up on our network, they've been fully wedded by all of our advertising partners. And so, that's something that we view, ahead of time to ensure that we're getting good traffic. And when we say, this traffic is being groomed, these might be partners that we've had for quite a long time who again change their techniques or trying and expand them to areas that don't convert as well etcetera, geographically and actually it's part of the business here, the part of the business all of us are in is constantly monitoring what kind of traffic and how it converts our advertisers. And sometimes it's just that when you think about downloadables and applications, but they are just applications but that do pretty well for a while and then don't, don't do well after a while and nobody has a real answer for that. But it's a process that is very much front loaded in terms of looking from the quality and that it's a constant collaborative effort whether as to make sure the quality stays there.

Aaron Kessler - Piper Jaffray

Great. And how are you thinking about growing your owned and operated traffic at this point.

Allen Hsieh

Well, in a few ways. I mean we continue to work on the main brand, Dogpile, we get great critical reviews. Obviously we used some online marketing to do that. We've been fairly successful throughout the years in maintaining our market share and even growing a little bit there. We've launched a new brand, Zoo.com, we're going to use a lot of PR effort around that to try and move that. It's essentially, you know, it is really the same backend as our other engines, it's just highly filtered and we have a different front-end about it. Different interface and that's really the approach we're taking is try and take different niches if you will and try and exploit those.

Aaron Kessler - Piper Jaffray

Great. Thank you.

Allen Hsieh

Thank you.

Operator

We'll have our next question from Jeff Shelton, Bleichroeder

Jeff Shelton - Natexis Bleichroeder

Thanks. I have another quick question on the online segment. Fourth quarter of last year, sequentially referred to the first quarter, revenues were up. Should we be expecting that in the first quarter of this year as well?

Jim Voelker

Jeff. I don't break out guidance in terms of between few items there, but as you can see there, we expect that revenues would go down in the aggregate from the fourth quarter primarily from the mobile media transition.

Jeff Shelton - Natexis Bleichroeder

How much was the games business that you sold in terms of revenue?

Jim Voelker

It wasn't a meaningful amount of money from this -- and this is the small shop we had down in our studio down in the Bay Area.

Allen Hsieh

It was di-minimus.

Jeff Shelton - Natexis Bleichroeder

And last question, the NOL tax benefit adjustment you made in the fourth quarter. Was that on expectations of positive net income over the next 12 months or --?

Jim Voelker

Yes, it's really, Jeff, this is -- it's really more of an accounting hindsight work in terms of how much have you had, collectively from a [lacuna] standpoint, your earnings from your operations over a period of time and then you calculate how much of your deferred tax asset you will record in that period. So it's not a forward-looking view. It's more of a hindsight.

Jeff Shelton - Natexis Bleichroeder

Okay. Thank you.

Stacy Ybarra

Operator, do we have any more call?

Operator

We will have our next question from [Robert Hobart], ThinkEquity Partners.

Robert Hobart - ThinkEquity

Hi, everyone, this is Bob in for Stew. Just quickly what's the tax benefit at this quarter how does the NOL expense?

Jim Voelker

In terms of -- I'm sorry Robert maybe can you explain me what you mean by expense?

Robert Hobart - ThinkEquity

Well, the value of the NOL carry forward. I believe recently, we had talked about it being 1.1 billion or 1.0 billion somewhere around there so --

Jim Voelker

Yeah the overall value is still there. We still have the billion and one NOL. The question is how much of the valuation allowance to our reverse and that I mentioned earlier, is really more of a [canopy of] exercises looking back historically in your cumulative income. Excluding all these extraordinary items, these one time items. And that's how you calculate how much the benefit it will have in a particular period.

Robert Hobart - ThinkEquity

Okay and a lot of things have been asked so far. I just wanted to ask quickly, it seems like [more] of your competitors are getting more interest in the mobile search segment, can you talk about the competitive environment who are partnering up with carriers or handset providers?

Jim Voelker

Well a little bit sure. Our effort has been mainly to support the carriers and it's -- I would put it this way the carriers are still in an early stage of -- somewhat beyond experimentation and not quite really firm strategies on how they want to go. We've used different -- and on different carriers there are different kinds of implementation, when you use the word mobile search at this point, it is really covering a lot of ground. Some carriers are focused very, very highly focused on just searching their own catalogues, in other words trying to improve content sales. Others are more focused on what they can do around advertising and off-deck. Frankly, some are hardly focused at all on it. So our efforts have done really the private-label and support the carriers there. We've got a couple of things, as we mentioned that we expect to enable here in the first quarter or first part of the year in terms of North American carrier and a European carrier and supporting an ad model. The Find It! product that we have out there now and the WAP usage, we have some advertisers in that at this point too. So it's all pretty informative stuff and I would say that nobody has -- no carrier has really said this is exactly the way we want to go and how we want to attack this. They are all trying to figure out what's the user experience, etcetera-etcetera. So it's still a wide-open field.

Robert Hobart - ThinkEquity

Alright, that should do it. Thank you.

Jim Voelker

Thank you.

Operator

We'll have our next question from Clay Moran, Stanford Group.

Clay Moran - Stanford Group

Thank you, I have two questions. You mentioned that a third of the sequential decline in online was due to the owned and operated sites. Can you explain what was the cause of that and is there anything we should be concerned about going forward? And then the second question, there was a question early about the use of cash. You said you wouldn't comment on acquisitions and you haven't bought back stock, at least in the most recent quarter. Can you talk about how you view your cash in terms of what's the benefit to you and what is your sort of comfort range cash that you'd like to have on the balance sheet? Thanks.

Allen Hsieh

I can take the first one. In terms of our owned and operated, it wasn't actually of sequential decline of one-third. Really it was that we were at -- forecasted that in.. We are had projecting a lot, a larger growth in our owned and operated, as well as our distribution and we did not achieve that same -- that projection growth that we are hoping for here. We don't think it's -- we don't believe its decline in situations here. It's really more that we didn't -- we were hoping much better.

Clay Moran - Stanford Group

Was that a function of traffic, less than you had hoped to monetization? Can you give some color on that?

Allen Hsieh

It's a factor of really of kind of almost a monetization in terms of just -- we saw a similar level -- we saw the traffic that we're expecting. We just didn't have the similar [click-through] rate on our commercial results. So it was more of a monetization side.

Jim Voelker

It was just not the normal seasonal lift that we've had before in click-through rates.

Clay Moran - Stanford Group

Okay.

Jim Voelker

Clay, on the other one there on cash, I mean you say comfort level. I'm very comfortable with the amount of cash we have. That's my comfort level, though I don't think it's really the issue there. If we look back here, six months ago, we were in a completely different situation here in the sense that we had a business that -- in terms of the combination of our -- we look at a combination of our mobile content business. Our infrastructure business and our online business really working in concert towards a lot of growth and really developing if you will, a whole new kind of company here in terms of publishing content and bringing content through mobile devices. At that point, we looked at our cash, which is very opportunistic. There were other things out there we might look to acquire with. We really -- I don't think at this point have a firm vision on it yet and we do understand as Management as a Board what our fiduciary duties are here and we take them seriously, but we really can't comment on any use at this point.

Clay Moran - Stanford Group

Could I just follow-up, I mean I understand that you're comfortable today. I would be as well with the cash position, but I mean if you were to do an acquisition I'd assume you do it with cash or at least prefer to. I am we're trying to get an idea of what the size of that deal could be, if you did it completely in cash so that you would end up with a net amount of cash that you'd still be comfortable going forward.

Jim Voelker

That's just -- that's just pretty hypothetical. You would depend on the cash needs of the combined business obviously, if you are doing -- just talking off the top of my head, but I really don't think there is a way to comment effectively on that.

Clay Moran - Stanford Group

Okay, thank you.

Jim Voelker

Thank you

Operator

We'll have our next question from Lloyd Walmsley, Thomas Weisel Partners.

Lloyd Walmsley - Thomas Weisel Partners

Hey it's Lloyd here for Gordon.

Jim Voelker

Hi Lloyd.

Lloyd Walmsley - Thomas Weisel Partners

How is it going?

Jim Voelker

Well it's going.

Lloyd Walmsley - Thomas Weisel Partners

I was trying to reconcile your guidance with the fact that you said you expect such a steep decline in the next six months in the mobile business. I guess it would imply most of that decline will probably come in the second quarter and that you will still be getting a good say 85% of that. Does it expect to go away in the first quarter?

Allen Hsieh

Yeah Lloyd this is Allen. We do expect it to be -- right now the way we've look at is more linear, but I do want to caveat, a lot of this is outside of our control and so it becomes quicker or it could be pushed out longer. So this is what we've kind of baked in based on the information we have right now. That it will be probably a little bit more linear downwards and if you look at that from that standpoint, yes, it is probably larger in the second quarter.

Lloyd Walmsley - Thomas Weisel Partners

Yeah, okay. Thank you.

Allen Hsieh

Sure.

Stacy Ybarra

Operator, we have time for one last question.

Operator

We'll have our final question from Richard Fetyko, Merriman.

Richard Fetyko - Merriman, Curhan and Ford

Yeah guys just in light of the sale about the Atlas business I was wondering if you could comment on your intentions with the [games] business?

Allen Hsieh

Well I don't think we'd make a comment on that firmly I mean although we do plan to -- as we said substantially exit the content business, but not as if -- we have time for that if you will and so we -- if there is something to report, we will report it. So there is nothing to really report on that right now.

Richard Fetyko - Merriman, Curhan and Ford

But you consider the games business part of the content business?

Allen Hsieh

Yes.

Richard Fetyko - Merriman, Curhan and Ford

Okay.

Allen Hsieh

Thank you.

Stacy Ybarra

Thanks for joining the call today.

Operator

That does conclude today's conference. You may disconnect at this time. We do appreciate your participation.

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