Vertro CEO Discusses Q1 2011 Results - Earnings Call Transcript

May.12.11 | About: Vertro, Inc (VTRO)

Vertro, Inc. (NASDAQ:VTRO)

Q1 2011 Earnings Call

May 12, 2011 5:00 pm ET

Executives

Michael Buchanan – Director of Investor Relations

Peter A. Corrao – President and Chief Executive Officer

James G. Gallagher – Chief Financial Officer

Analysts

Eric Martinuzzi – Craig-Hallum

Aram Fuchs – Aram Fuchs of Fertilemind Capital

John Gilliam – Point Clear Strategies

Operator

Good day, ladies and gentlemen, and welcome to the Vertro First Quarter 2011 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions) As a reminder, this conference is being recorded.

And now, I’d like to turn it over to the new Director of Investor Relations for Vertro, Mike Buchanan. Please begin, sir.

Michael Buchanan

Thank you, and good afternoon, everyone. Welcome to Vertro’s first quarter 2011 financial results conference call. Joining me today on the call today are President and CEO, Peter Corrao; CFO, Jim Gallagher; and General Manager, Rob Roe.

I’d like to remind everyone that today’s comments include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially from those expressed in the forward-looking statements. These risks or uncertainties and uncertainties will be outlined at the end of the conference call, and are also detailed in our filings with the SEC.

Before handing over to Peter, let me review how we measure our financial performance. In addition to the standard GAAP measurements, we utilize certain profitability-based metrics to evaluate our period-to-period and year-over-year performance. They are EBITDA, earnings before interest, income taxes, depreciation and amortization; adjusted EBITDA; adjusted income or loss and adjusted income or loss per share. A description of our reasons for utilizing these measures as well as our definition of them and a reconciliation to the corresponding GAAP measurements can be found in the earnings release we issued today.

Certain of the ALOT user metrics we’ll be discussing this afternoon are broken out by Region One and rest-of-the-world. As a reminder, Region One comprises English-speaking users in the U.S., Canada, U.K., Ireland, Australia and New Zealand. To comply with the SEC’s guidance on fair and open disclosure, we have made this conference call publicly available via audio webcast through the Investor Relations section of our website at www.vertro.com, and a replay of this conference call will be available for 90 days.

I’d now like to turn the call over to President and CEO, Peter Corrao. Peter?

Peter A. Corrao

Thank, Mike and good afternoon, everyone. Thanks for joining us. So Q1 was a challenging quarter in which we continue to be impacted by the issues that we faced with the bundle distribution partner from Q4. We started the quarter behind where we wanted to be from live users’ perspective and this issue is compounded by seasonal effects of Q1, which is traditionally a weaker quarter than Q4 for it anyway.

Since our last call, our focus has been to get back to growth in Region One live users and while Q1 results were down on Q4, as of today we have returned back to growth in live users. As we began Q2, we decided to take a step back and look at cost structure of the business, we’ve always been proud of the tight cost controls we have in place particularly given the global reach of our product portfolio, despite what we believe are already low operating expenses, we felt that there is room to take further costs out of our business.

As a result, we’ve reduced our headcount from 49 at the beginning of this year to 36 as of today. Jim will talk about the positive financial impacts of these headcount reductions, but I want to stress that we believe that the streamline team we now have in place is the right size and has the right skills to execute on our growth strategy for 2011.

In addition to reducing headcount, we also took the opportunity to restructure the business somewhat. There were two main changes we made. The first was to increase our direct marketing team to help us drive more live user growth. And the second was to focus certain aspects of our business development product and engineering resources on the development of new high quality apps primarily apps built with third parties.

On recent calls I mentioned the positive impacts that high quality apps have and can have on our business to help us with distribution, to help us with retention and additionally can deliver incremental non-search revenues for us. A key focus of our reorganized team is to develop more of these high quality apps primarily by partnering with third parties to build them or build them on our behalf.

Since our last call, we’ve already launched several new apps that we’re particularly excited about. One that we built is a new eMusic app that offers users a free track everyday and promotes the benefits of the eMusic’s multi-subscription package. The new app is an exciting valuable app for our users and has great potential for our business on a number of different levels. The free daily music download helps us with distribution and the app also drives non-search revenues we delivered new subscribers through to eMusic.

Another that we have is a new app from PeopleDeals, which offers our users coupon at increase in value when they are shared with friends via social network. This new app was developed for us by PeopleString and is part of the strategic alliance we have with the company that will drive great app distribution.

We’ve also recently began testing a ALOT rewards app that was build for us by an online marketing services company Inuvo. The new app will offer cash back to our user some of the world’s largest online retailers. The app notifies users when cash back is available and then credits users ALOT rewards account once the qualifying purchase is made. This is a potential significant new app for us as it offers real value for our users and also delivers a new source of non-search revenue as we generate revenue each time a qualified purchase is made.

Finally, we just introduced the ability for individual users to create their own apps from their app bar. Users are able to publish their own RSS feeds, create links of their websites or build custom apps using standard HTML. After creating an app, our users can share their app with friends and could also promote the app on their blog or their website. This is a great opportunity for us to utilize user-generated contents and at the same time promote distribution of the ALOT Appbar.

We believe that all these apps that I’ve just mentioned will also helps us with long-term retention of all of our users. We’re really excited by the progress we’ve made with our app strategies since the beginning of the year. We believe that partnering with high quality companies like eMusic, PeopleString and Inuvo will enable us to grow our distribution channels without the need for us to increase internal fixed costs.

In addition to the new apps that I’ve outlined, we’ve also began testing display ads to our users each time they interact with one of our apps. We’re currently only testing these app ads in a small number of apps, but expect to roll these ads out more widely in the upcoming months. As the rollout continues we expect to be in more direct sales of our app ad inventory to increase the revenue that these new app ads deliver.

Along side our new apps, we’ve also continued to expand the test for distribution on our new ALOT Appbar. As I mentioned in the last call, we’re little behind where we wanted to be with the ALOT Appbar rollout as our attention was focused on addressing the buying issues that began for us in Q4.

Now that we’ve returned to growth in our Region One user base though, we have began refocusing our app distribution and we remain excited by the potential of the new product and expect our app user base to become more meaningful over the upcoming weeks and months. The new apps that I previously mentioned today are all currently available on both our toolbar product and our app bar platform.

Another key focus for the business in Q1 was to explore ways to increase our search revenue, we work closely with our monetizing partners to explore ways in which we can improve our actual search experience for our users. During Q1, we tested a number of optimizations to our search result pages including the addition of seller ratings. These are graphical ratings that appear alongside our sponsored listings.

Further we’ve introduced site links which display multiple links under sponsored listing and enable our users to deep link through to different section of various advertisers’ website. Early results in these search tests have been encouraging and in early Q2 we rolled the search featured ALOT to all of our existing and our new users and they are available now.

Now and importantly, I want to be proactive and inform our investors that last night we received written notice from Google that they are implementing a new client applications guideline. Google’s client applications guidelines apply to clients’ applications that use Google Search or advertise in syndication services and because of that they apply to our use of Google’s page search results.

The client application guidelines cover a wide range of subject matters including the number of advertisements available for us to display the end users and the layout of those advertisements. In anticipation of these changes to the client applications guideline, we’ve been testing various ad formats and working on ways to minimize the revenue impact of any changes to the client application guidelines.

Additionally, we are in the process of reviewing the changes to the final client application guidelines and working with Google on their implementation. As we implement these changes, we expect to keep our investors up to date on the impact of our business on our earnings call or through under Reg FD compliant communications.

Overall, we’re looking forward to executing our app strategy in the next few quarters. We have a streamlined, refocused, reenergized team in place. We further reduced our cost base. We are back to our strategy of rolling out our ALOT Appbar, we are aggressively pursuing our app strategy and have already made some significant progress there.

So with all that said, let me turn the call over to Jim to discuss our financial results. Jim?

James G. Gallagher

Thanks, Peter, and good afternoon, everyone. As Peter discussed, Q1 was a challenging quarter, but one which we believe we got issues related to Q2 behind us and made some real progress on a range of exciting initiatives, particularly the new app development and the optimization of our search result pages.

Continued impact of our Q4 buying issues coupled with the effect of seasonality in Q1 resulted in revenue declining from $9.6 million in Q4 to $8.4 million in Q1. Despite the revenue decrease, we maintained EBITDA and adjusted EBITDA profitability in the quarter by achieving $0.1 million in EBITDA and $0.3 million in adjusted EBITDA.

Let me provide you a little more detail on the reduction of headcount that Peter previously discussed. We reduced our headcount from 49 at the beginning of the year to 36 today. The expected annual savings from the reduction will be over $1.2 million and the charges for the reductions, which were partially recognized in Q1 and some of which will be recognized in Q2, were 40,000 in Q1 and 100,000 in Q2.

We see the headcount reduction as a positive move. Our focus on third-party app development has enabled us to operate with a more streamlined team. The reduction in headcount means that we now expect our monthly operating expenses that is excluding customer acquisition costs to be approximately $780,000 for the remainder of 2011.

Cash and cash equivalents decreased from $6.5 million in Q4 to $5.1 million in Q1 of 2011. The decrease was primarily the result of lower payables in the balance sheet and CapEx in investment of approximately $200,000 that was made in Q1. We expect this to be the only material CapEx investment for hardware and software purchases we will make in 2011.

We believe that we have sufficient cash for continuing ongoing operations. As a remainder, we continue to maintain our untapped credit facility of up to $5 million with Bridge Bank and as we discussed on previous calls, we have no immediate plans to draw on that line.

I’d also like to mention that on February 15, we announced a stock purchase program of up to $1 million for a period of up to one year. This repurchase program is subject to restrictions on timing of purchases and the company has not made any repurchases under the program until the current date. The company will report any repurchases under the program on its next Form 10-Q or Form 10-K.

Although, we believe that we’re in good financial position for the remainder of 2011, furthermore, we believe we’re getting back to growth in our Region One user base.

With that, I’m going to hand the call back to the operator for any questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) We have a question from Eric Martinuzzi of Craig-Hallum. Your line is open.

Eric Martinuzzi – Craig-Hallum

You talked about getting back to growth in the installed base and I’m curious we didn’t get guidance for the second quarter. I know seasonally we get into Q2 and Q3 are not strong click based quarters. Just curious to know if you anticipate the 8.4 million number being up, down or about the same?

Peter A. Corrao

Yeah, so Eric, let me tell you where we stand on live users. As we closed the quarter at 8.6 million and as of close of business last night, we were at 9.3 million live users. So that’s good news for us, we are definitely back to growth in this quarter. That’s again 9.3 million live users as of last night.

Importantly the ratio of those users is heavily skewed back towards more Q1 users. We’re right on the nose 50% Q1 Region One users and 50% region other users last night. So while we’re not forecasting revenues mostly because of this Google issue that I just mentioned to you, until we see what becomes to that, we do feel good about our live user growth for sure even in this quarter I’m saying.

Eric Martinuzzi – Craig-Hallum

And my question have to do with exactly that, this change from Google. Is it anyway related to the fact that on the mobile side, there’s a lot of android development going on and in some ways ties back in to Google Search and performance-based marketing. Is that what’s driving it or is it just kind of an across the board them reevaluating how syndicate partners are able to take advantage of Google AdWords?

Peter A. Corrao

I think it’s more of the latter, Eric, that it’s more how they deal with their syndicated partners. And I’ll tell you what we know from lots of discussion with the partners of Google.

In general, Google believes and we owe to prove, believe me, but Google believes in general the lesser ads displayed on a page and then consequently more algorithmic results displayed on a page is generally good for consumers. So the basics of what their new guidelines mean to us is that we would display after a key word is typed in for a consumer, less ads per page, then we would have displayed than we display currently.

So I think it’s really nothing more than Google expects that consumers using get their results, especially with companies like us, they utilize Google’s attribution, what we say powered by Google, that those consumers would have a good Internet experience utilizing Google Search and to them that means less ads.

Now, we don’t know what that means to us, less ads generally isn’t a good thing, because if there is less ads to click on, we anticipate that perhaps there’ll be less revenue coming through, but we have to learn that as we go.

This for us it will kick in this quarter still in about 30 days. So to the extent that we’ve done some minor testing on this, because we’ve been talking with Google over the past years about what could and might happen, but frankly we’ve never tested exactly what’s the new program calls for that I know we’ve never exactly tested that, so we don’t know.

Point in that though, Eric, the point is we are back to growth and live users ended the quarter at 8.6 we are right now at 9.3, so all else being equal, we feel really good about things other than that’s going on.

Secondly, sort of anecdotally you would think, again, we hope to prove that that in the short-term this might hurt revenue, but that in the long-term because of attrition variances being different because of a better consumer experience that our revenue would actually come back and perhaps over time this is actually a better experience for consumers and better than consequently experience for our shareholders as well.

Eric Martinuzzi – Craig-Hallum

Alright. But this Google ecosystem, it sounds like you’re not the only ones that are going to be impacted here right, Google has a number of different partners, there is various combinations. I have to believe you guys have experimented with those combinations as to how many as you show per page and that the system is currently optimized, any change to that would mean a reduction in number of ads, would mean a reduction in revenue?

Peter A. Corrao

In the short-term that’s generally our anticipation, Eric, but the exact guideline that they’ve given us we’ve not tested anything really close to it.

Let me give you an example, so that we’re not so far off. We currently display, if we get a maximum of returns back from Google, our page, this is a combination of above and below the fold for maximum results could display as many as 18 ads. Long story shorter, seven on the left, more on the right and three at the bottom.

The new Google guidelines are going to limit us to a total of 11 ads. Generally speaking, three on the upper left and eight on the upper right. And like you we anticipate that short-term that will negatively impact revenue in the short-term. Further, we think that from what we understand this is their new industry standard. They are not in anyway deploying this against just us.

And then lastly, we believe from what we’ve seen, and again we don’t have much testing on this that there is reason to believe that you take a initial dip in revenue from this change and after that revenue begins to come back so that on a cumulative basis, reasonably that you could get back to parity, but we’ve not experienced that yet.

Eric Martinuzzi

Is the costs structure that you’ve restructured to – is that OpEx kind of what you’re anticipating that you’ll still be able to be break-even or better?

James G. Gallagher

So actually, honestly on this one too, we made our changes in OpEx on the cost structure earlier this quarter completely unrelated to this. The reason we made that change is we were living our dream and our strategy, which is to get more, better, high-quality apps; mostly delivered by third-parties the likes of eBay, we’ve already got an app with the likes of our new renewal app and the rest that requires less of our people to do the work frankly and more of their people to do the work. So, most of what we did was restructure around that.

I think we will see the cost differential for us won’t be so much in the ongoing OpEx, which comes down from round figures of million a month to round figures a little over 750 a month. While that’s good, I think the biggest variance of fee for us would be in the variable expense on ad spending. So as an example, if – I’ll try to be real clear because certainly everybody on this call understands that we got to buy low, sell high figured out.

So if today on a CPA we’re able to spend one unit to get a consumer to download our product and the consumer returns after a year 1.6 units to us that’s a good thing and that fits our model well. If after early next month, we expect that our LTV would drop and we don’t know that until we start living some of those new LTVs that will get from our new Google guidelines. What we would do would be drop the price that we’re willing to pay or the CPA that we’re willing to pay vis-à-vis display ads or bundled partners or search ads that we’re willing to pay for those consumers. So I think the biggest variance for us will be variances in advertising spending as we learn how to get ourselves back to third and beyond with the new guidelines.

Eric Martinuzzi

One more and I’ll let someone else take the microphone. Is part of your rev share with Google volume based in other words, if there is a potential secondary effect here where you’re not able to show because you can’t show as many ads, your volumes drop and therefore you want to put a less beneficial rev share?

James G. Gallagher

Eric, it’s a good question. Ours is a two tiered structure and we’ve not been on the – we’re on the higher tier now and have not been on the lower tier. So I don’t think we’re at jeopardy of falling to the lower tier, because of the new design. But I’d have to look at that and that’s one that I’ll get back at a Reg FD method if we think we’re going to miss it and tell everybody, but I don’t think we’re at risk now. But, yes, our current contract and our past contract has been a two tiered one and we’ve always been at the higher level. And I don’t believe this will drop as below that.

Eric Martinuzzi

Thanks.

Peter A. Corrao

Eric, I think it’s also important to point out as well that when we’re talking about volume; the difference between user volume, right, the number of users we have and the volume of both the search activity and revenue. So it’s certainly possible for us to shift towards higher quality, acquisitions as we pursue our app strategy and maybe lower volume in terms of usage, but it doesn’t directly correlate to like direct reductions in volume – volumes of search or volumes of revenue. So I think you’re right to raise the question about whether there is any downside, potential downside on revenue share tiers but it sounds that we are predicting.

James G. Gallagher

Eric, I don’t know if I answered the first part of your question, if I didn’t – if I did it will be redundant, if I didn’t let me do it again. You asked something about this, I think this is just for you or is it for everybody. No, I can’t speak for any other companies other than my own. The way I understand it is that everybody in the industry is going to be impacted by this and that everybody in our industry is going to be impacted within days of when it goes into, when it goes into effect for us.

Eric Martinuzzi

Thanks.

James G. Gallagher

Thank you.

Operator

Thank you. (Operator Instructions) We have a question from Aram Fuchs of Fertilemind Capital. Your line is open.

Aram Fuchs – Aram Fuchs of Fertilemind Capital

One of your competitor’s conduit just made a lot of noise when they switch to Bing. The consumer results on Bing have been, the Bing Yahoo! integration has been pretty impressive. I’ve heard some issues with the revenue yield, given this letter from Google, have you thought about following conduit?

James G. Gallagher

Well, it’s a good question, Aram. Remember in our particular case we’ve already got a deal with Yahoo! Our deal with the Yahoo! kind de facto gets us back to a combination of the Yahoo! and Bing Feed anyways. We intend to deploy feed as much or more than ever after the new guidelines. But I think our early intention is to utilize Yahoo! Bing to the fullest extend that we can. And of course, we want to explore everything that we can, but we feel like we’re a good stead with our partnership set up with Google, our partnership with Yahoo! the way it is. And our intention is to continue to manage that way and to live up to the contracts that we have at both.

Aram Fuchs – Aram Fuchs of Fertilemind Capital

And this customization is interesting. This is for the user, user and the consumer and to just sort of hinge, go to RSS feed what they are like, is that basically what it is?

Robert D. Roe

Yes, it’s basically ALOT, this is Rob. It allows the user to create their own apps. So we have a set of template that we provide to the users that makes it relatively straightforward for them to produce a variety of different kinds of functionality. They can produce apps that are simple links to websites, apps that contain multiple links to websites. They can plug in, as you just mentioned, any RSS feed. They don’t even need to know the RSS feed, they can just plug in the address of the website, we will discover the RSS feed for them and publish it into an app.

But for more sophisticated users, they can even use cut and paste code to display with the mini website or a game window and create an app for that purpose. So it really is the intention is to allow users to publish apps for their own use and then share them with their friends. Anyone they share it with, who is not currently a user of ALOT will install the ALOT app bar in order to use the app. So we see as a real value potential for value distribution.

Aram Fuchs – Aram Fuchs of Fertilemind Capital

And this is live right now.

Robert D. Roe

It is if you go to www.alot.com you will see a button that says create app.

Aram Fuchs – Aram Fuchs of Fertilemind Capital

Okay. And I am trying to understand the reduction in employees. So these are people developing in-house apps like that ALOT Radio product that you said was doing well?

Peter A. Corrao

No, actually Aram this is Peter again. Actually no they were more content people. They were gathering content up from other sites that frankly is good content but isn’t the bogus that we’ve got now going on our new apps. So that was more of the toolbar story. Today we’re more down the app path. So, developers specifically what you’re talking about we’ve got as many or more than ever developers working on our app products with our third-party outsiders but just content providers before we made the biggest change and those people are now not with us. We’re expecting to get better content than ever from third-party developers like we’ve discussed in the call here. And we also bolstered our buying rates by a change in the way we do, a little bit change in the way we do our buying and putting some more people on the focus on the front end of the focus there.

Aram Fuchs – Aram Fuchs of Fertilemind Capital

Okay. Can you talk a little bit more about your Tier 2 LTVs? Are they – you had a big push there about six months ago, how are they progressing?

Peter A. Corrao

Yes, so Tier – well, I’ll tell you about Tier other rest of world versus Tier 2 if you would Aram. So actually the push in general is sort of the same I kind of say it again that we have always said in the just –then the results become the results. To us what matters, what we’re buying is about 700 to 800 different categories daily. Those categories run from Tier 1, which is our language thinking countries that we sort of made our mark and in the first place to all of the other three Tiers that we market to, which are the rest of the world for us. What matters to us is where we get the best return. So we’ve used as an example there the three different markets that we kind of use as flagships to make the explanation, the U.S. being a good margin for us, Brazil being a good margin and the good market for us and India. And to us what matters that we get the markets coming through that have the best margins possible.

And in the recent period, I’m talking over the last six weeks or so, we’ve been getting better margins in Tier 1 markets than we have in Tier 2, which is why our split of Tier 1 to Tier others gone back to 50/50, where 50% of all of our live users as of last night were coming from Tier 1. You’re right though, last time we talked we were having good margin improvements in Tier other I mean in the rest of the world. And so I don’t know, I think the last time we talked we were more like 46% Tier 1 and 54% Tier other. So, this is just reflecting the change, we want to be wherever the margin is the highest. And when we’re looking for ever seeking for that ROI the results become the results. But right now, it’s a 50/50 split we’re happy that it’s that way. If we were to change, because Brazil, or Spain, or India one of the other markets was returning richer results for us, we would make a switch.

Aram Fuchs – Aram Fuchs of Fertilemind Capital

But when you say margins, you’re assuming a healthy view there, right, because you’re just counting installs divided by price brand, right?

Peter A. Corrao

That’s exactly right. So as an example if we’re trying to get, celebrity gossip users in France, after one day, two days, three days up to 30 days, we’re projecting a life-time value for those particular users in France that will drive a different CPA or what we’re willing to spend to get back consumer.

But our life-time value expectations are pretty good Aram. By the time we get to 30 days we’re really after our market, we’re pretty certain of those life-time values will come through and then that caused us to drive more volume into more markets just like that. But at the same moment, if the LTVs were dropping in another market, the first thing we would do will be to lower our CPAs, follow that through and at some point we might get to the point where we just stop buying into that market at all.

You’re right, expected life-time values built into our model. We say we started reviewing them literally the day we start buying. We get comfortable with them after about a week, and we don’t get really comfortable with them to where we put a lot of ads spending behind a specific vertical for about 30 days.

Aram Fuchs – Aram Fuchs of Fertilemind Capital

Okay. Thanks for your time.

Peter A. Corrao

Sure.

Operator

Thank you. Our next question is from John Gilliam of Point Clear Strategies. You’re line is open.

John Gilliam – Point Clear Strategies

Good afternoon, Jim.

James G. Gallagher

Hi, John.

John Gilliam – Point Clear Strategies

You mentioned earlier that you are increasing your direct marketing team. Did I understand that correctly that you guys are going to have people in house that are doing some ad sales, is that correct?

James G. Gallagher

I’m sorry, when we talked about increasing the direct marketing team here John, we’re talking about the buying group.

John Gilliam – Point Clear Strategies

Okay.

James G. Gallagher

The buying group divides. We do have a BD team made up really of myself and two others. As you know for our ad sales we’re pretty much sold out. What we’re doing for ad sales is really optimizing all the time. But I think that the two of our BD people plus myself for our help system is what I think are plenty for doing that optimization.

John Gilliam – Point Clear Strategies

Okay, okay I just want to be clear on that, thank you. And did I hear you correctly, was the figure around for non-ad OpEx expectations were now around 780, is that right?

James G. Gallagher

That’s right. After we drop the headcount to where we are, our ongoing OpEx not counting ad spend of course as you know, but our ongoing OpEx would be down to 780. And that’s down from about $1 million or slightly less than a million, kind of the trailing 12 months.

John Gilliam – Point Clear Strategies

Okay, Okay. And just one follow-up on a question that the gentlemen asked earlier about the Bing Yahoo! part of the business. Do we have a setup somehow that the – that it’s – when consumer does a surf, it’s actually pulling – it could pull Google or Bing results depending on their potential ad, potential clicks? Is it divided between currently all that I have noticed is when it’s the web it’s all Google but if it’s like news or images its coming back with Bing results?

James G. Gallagher

I’ve got – a little different, you’re right about that John the way you said it. If you do an image search because our provider for image search results is Yahoo! and then that gives you Yahoo! and Bing results you’re accurate about that because Google doesn’t do that.

But way the majority of our pay per click revenue comes from regular web search. And it works a little differently than you said it and so I’m going to way over simplify it without getting into the algorithm. But if we call for 10 ads and Google doesn’t have any, then we fill them in with Yahoo! and now that Yahoo! is buddied up with Bing we fill them in with the combination Yahoo! and Bing.

John Gilliam – Point Clear Strategies

Okay. Got you.

James G. Gallagher

If we call for ‘11 or ‘12 let’s say and they return one then we would – I’m sorry they return ‘11, then we would fill with one. And what I was talking about earlier as it relates to the new Google guidelines as Rob and I are reviewing literally right now the new Google guidelines, which we just got last night. And I can tell you, heard plenty about it and been holding them all day but haven’t read every single word of every line and about 30 pages of it right. I don’t think Rob has either. But we’re going to explore that and find out if there is a different way to deploy our Yahoo! Bing relationship along with the Google relationship than we do today. But either way – either the way we might do it in the future, which is unclear how we might change it or the way we do it today, we’re allowed to distribute all not just Google results.

John Gilliam – Point Clear Strategies

Interesting, okay, yes, Because I think in this space there is something kind of like what I think you’re getting at there that’s interesting and that’s what I was wondering. Okay, good view. You’ve mentioned that where we are currently, we’re kind of back on track with regard to our total users. Would it be fair to say that looking forward our app spend would be – the majority of that would be to attract apps bar users versus the legacy tool bar users?

James G. Gallagher

Good question. So today – literally today, we’re probably acquiring maybe 20% of our new users that we’re trying to acquire today that we’re setting up the bate for call it is probably for app bars. And again I would have to go back and look specifically. As we move to early June when the new guidelines kick in, we generally think from looking at the new guidelines that we’ve got more for ourselves from a high volume, lower quality provider to a lower volume, higher quality provider generally speaking. And the consequence of doing that is I’m not sure how much will be spended on a daily rate for advertising. But my opinion is that it will probably starting out a little less.

And it’s the same thing. So if we’re at about 70,000 a day today, we convert this back to, trying to get the high quality app sold through, trying to get a stickier consumer, trying to get more from less so that we can live up to the new Google guidelines. My sense is we’ll end up in the long haul with ultimately fewer total users than we would have had the way stickier users utilizing the products and the services that we’ve got. Retention will be a lot better. And I think that will be what bodes well for us in the long haul.

I wish I have the number for this I don’t, but again from a Reg FD perspective I get doc to build it for us, because I have talked about it before. I want to get the real fact they don’t have them right now. But remember, if we only change our retention by something like half a basis point per month on a stable model and I’m not claiming the model is stable with what’s happening to the Google, we’ve got to live it to see what happens there. But on a stable model that has the effects of loan of double in our revenue in the year right so.

John Gilliam – Point Clear Strategies

Right.

James G. Gallagher

Our focus right now is to try to improve that retention. I’m thrilled, we didn’t know this was going to happen, but I’m thrilled that we have changed our strategy against apps, against higher quality, against better retention. It looks like we’ve done exactly the right thing to seize the moment around these new guidelines and hopefully we will have a longer can start – a consumer that retain longer with us, grows out into the future, gets good returns for us and over the long haul satisfied seeing less ads on a page, and wants to keep our services longer, instead of shorter.

John Gilliam – Point Clear Strategies

Okay, very good. Thank you, thank you guys.

James G. Gallagher

Thank you. Good talking with you.

John Gilliam – Point Clear Strategies

Me too.

Operator

Thank you. I’m showing no further questions on conference at this time, I would like to turn the call over to Mike Buchanan for any closing remarks.

Michael Buchanan

Hi, this conference call contained certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Words or expressions such as plan, will, intend, anticipate, believe or expect, or variations on such words and similar expressions are intended to identify such forward-looking statements, including (1) our ability to successfully execute upon our corporate strategies, (2) our ability to distribute and monetize our international products at rates sufficient to meet our expectations, (3) our ability to develop and successfully market new products and services, (4) the potential acceptance of new products in the market, and (5) the impact of changes to our monetization partners implementation guidelines. These statements are based on management’s current expectations and are subject to uncertainty and changes and circumstances. Actual results may vary materially from expectations contained in the forward-looking statements. Key risks are described in Vertro’s reports filed with the United States Securities and Exchange Commission including Form 10-Q for quarter one 2011. In addition, past performance cannot be relied upon as a guide to future performance.

That concludes our call for today. Thank you for listening.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect and have a wonderful day.

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