Full Transcript of iVillage’s 3Q05 Conference Call — Q&A (IVIL)

Here’s the entire text of the Q&A from iVillage’s (ticker: IVIL) Q3 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Q&A

Operator

Operator Instructions We have our first question coming from William Morrison of JMP Securities.

Q - William Morrison

Hi, Doug, I was wondering if you could talk a little bit about how much of your inventory looking forward is tied up in longer-term deals that were negotiated maybe a year or two ago? And when do some of those longer-term deals start coming up for renewal? And just what kind of an impact that might have on pricing across your network when those deals do come up. And then secondly, I was wondering if you could comment about the new relationship with Yahoo!? What you have been seeing in terms of modernization now that you have switched from Google to Yahoo!? And that's it. Thanks.

A - Doug McCormick

As far as deals are concerned, interestingly enough, years ago we had far more longer-term deals in the beginning of the Internet. I would say that now a good deal is maybe two years or one year. There's still a lot of business coming in, much like spot television, in the quarter for the quarter. Which actually in an environment like this is great, because in a seller's market you can really take advantage of pricing and optimize the revenue. I think we also put a press release out during the quarter that we're doing business, we hired a company called Rapt, which is an inventory optimization software company to help us better get the highest possible yield we can from our revenues. So we feel pretty good about that. And we're happy to be in a market where we don't have to live a lot of deals that might have been cut years and years ago. To give you specifics of how much goes into a long-term basis, it is really diminimus in terms of that. So we're not living with any bad deals.

Q - William Morrison

While you are on that subject, I was just curious if you could comment about how the relationship with Rapt is developing? And exactly what they're doing for you, and what kind of a benefit you might see in terms of translating the better inventory management into, whether it is pricing or revenue uplift?

A - Doug McCormick

I'm a big believer in inventory management and optimization. But some of the crew that worked with me at Lifetime Television to help get those rates where they needed to be is actually still with me over here at Lifetime. So we have got a, I mean at iVillage. So we have got a good team together and capable of working on it. I think that is smart money. I think they have two other customers, which are Yahoo and MSN, which have been doing pretty well on being able to raise their yield over the years. So we feel good about them. Look, it is a fourth quarter installation. My hats go off to the guys that are working, and women who are working, in inventory optimization because they have, obviously this is our hottest quarter. They're doing what they do. I would like to give a shout out to them, because when they finish all doing that, they work on the inventory information and software here that is really double duty for them. We have brought some extra help on to help guide us through this. But it is petal to the metal. This will have its yield, obviously, in the future quarters. Not to say that we can't already start to pick up some information from them, which we have. They are a good professional clean team. We are pleased with that. But again, it puts a certain amount of, and I'm happy to say that they are up to the task, but obviously whenever you put a new software installation in, you want to make sure that it gets done well. And so that is enough on that one. But on Yahoo!, again this is a recent installation in September. And it is proceeding absolutely as we anticipated, and they are a great partner to have. And by the way, so are our friends at Google. They were great partners too. This is a very professional group, very innovative. We are pleased to be working with them, and some of the smartest people on the planet. That is where it is with Yahoo!, and we feel that is going to have a very nice yield for us.

Q - William Morrison

Thank you.

Operator

Thank you. We have our next question coming from Youssef Squali of Jefferies & Co.

Q - Youssef Squali

Hi guys, this is Youssef Squali. A couple of questions. Going back to your Q4 guidance, if I look at the midpoint it kind of implies that 25% sequential growth, but on the bottom line basically I think it implies flat operating expenses in dollar terms. Can you help us walk through that? So that as sales go up, your sales and marketing G&A should stay flat? I guess that is kind of the first question. Second, Steve, I was wondering if you could just provide us any color, even directionally, on '06 just in terms of topline, and maybe you can speak to margins?

A - Steve Elkes

I can't answer the first question. The second question first. And that will be we're not really discussing '06 at this point.

A - Doug McCormick

But thanks for asking.

A - Steve Elkes

We know it is on everybody's mind. And as we do our, probably the first quarter call that is when we generally give our '06 guidance.

A - Doug McCormick

Right. Let me give you some color though on fourth quarter and how we get there. Because one of the things -- we implemented some cost cuts, as you can see, going into third quarter. We knocked $1 million off our expenses, 1 million plus actually from second quarter to third quarter. And frankly we were a little late on some of the things we wanted to implement. We had a choice between doing things faster or doing things right. And what we did was we took a little bit more time on some of the full of cost cuts, the full effect will take place in the fourth quarter. We will have, I believe we've got one month in one of the areas, and we will begin getting some nice residual benefits in that. So there were more costs to come out just in some changes we have already implemented.

Q - Youssef Squali

And are these kind of both on the sales and marketing G&A?

A - Doug McCormick

This was in the --.

A - Steve Elkes

It is really an editorial product development, as well as some other areas. We focus on all the areas.

A - Doug McCormick

Another thing that we did, and I think we talked about it in previous calls, some other ways that we improve our margin is to move from using barter, which was a key part of ours to, barter is basically roughly every if we do 1 million a quarter and barter on revenue and we take 1 million in expense so it is flat. What we have been doing is taking less barter revenue, which increases our margin. And we have been selling that time to actual buyers out there. You'll see that our barter came down Q2 to Q3. And you'll see soon that it came out on the financials we put out. And so that is another area that we see some incremental improvement on. There are some, the mix here of online to off-line gets better in Q3 to Q4, where we have a margin improvement on that. And that is another area that is, all of which come together. It is about revenue mix online to off-line. It is about increasing our move to completely tweak the barter, which is I guess a derivative of that revenue mix. As well as certain businesses, like even BWN, which is an off-line business, the margin for that will go up dramatically in Q3 to Q4, because that is when we have our gala. There are some moving parts in there, all of which can help to increase our margin. Hopefully that gives you a little light on where we're going.

A - Steve Elkes

I think if you look at the movement from Q2 to Q3 on the revenue on expense and the EBITDA lines, you'll see the beginning of a trend that should give you quite a bit of confidence in Q4.

Q - Youssef Squali

That's helpful. And then, Doug, lastly, we certainly agree that the health vertical it is very, very important and very promising. We have seen a number of kind of players coming into the space who have built up a little more. WebMD recently went public. Heathline is making a lot of noise. Are you seeing increased competition for that space, or are we still so early in the game that this is kind of a future market that will allow for multiple success stories?

A - Doug McCormick

I believe it is multiple success stories. Even the broadcast networks, right, there is four or five of them fifty years later that are all in that business. I believe that, especially in the health verticals, where the fuel Internet, Robbi said it, I didn't. I would like to take credit for it, but the definition of a second opinion began in health where people, and it turns out that people go to multiple health sites all the way, as they look for health information. What we try to do is provide, as I say, diagnostic and living information from the health centers and continue to rolls out, while providing kind of support, if you will, from iVillage and this distribution network that we have in Healthology. Right now I believe we are the number five commercial player on the health side. And that is a great position to be in. But we didn't get there by accident. The health information that we put together, we have an M.D., Dr. Steven Haimowitz runs our Healthology area. And he's a very credible physician. We did this because we knew that if we were to expand on women franchise, we needed to go to a place where women really depended on editorial information. And we know that health is going to be something that is frankly not going to be blogable. You're not going to be interested in lay persons' opinion when it comes to health information, where it has to be vetted and it has to be certified. We think that there's plenty of room for new players and old players. We've got a great position. And our advertisers are certainly looking for places to get their dollars down, and to reconnect with some of their customers that, you know, the Internet can be very self-selecting. It provides the anonymity and it allows for a more in-depth basis than those 30 second commercials you see on television in prime time with dancing pills. So we think that we are in pretty good shape here. The money coming in to the health vertical last year was coming at the rate of four times that of the rest of the medium. So we think it is a pretty good place to be.

Operator

Jeetil Patel of Deutsche Bank.

Q - Jeetil Patel

A couple of questions. First of all going back to the health category, can you at least give us a sense of what the maybe percentage difference is in CPMs between pharma and non-pharma advertising, just as a rough kind of idea of where you are on the kind of targetability of health versus the rest of the business? Second, I wanted to just get a sense, you announced the Viacom stations relationship with Healthology. Was that a deal that was struck with Healthology before they were acquired or after? And is this exclusive or non-exclusive, could there be more stations involved over time? And then I have a quick follow-up.

A - Doug McCormick

Let me give you the Viacom answer first. It was done after we acquired them. It was done in the quarter, which is why I think we announced it in the quarter. And it is not exclusive. We had deals with two of the larger station affiliate groups. One of which is, with IBS is the big one. I don't know, have we booked the other one now? World Now, I know we have a relationship with them on astrology. But there's a lot of television out there, and we're still working on others. No, we don't put exclusive deals together on this network. That would answer that. It is great video content. As I say, 1,200 instant videos up there gives a lot of credibility, especially in an environment where people are looking for the per video.

A - Steve Elkes

There's demand from almost every area for their content.

A - Doug McCormick

Right. And as far as CPMs are concerned, without getting, let me give you a range here. I'm not going to try to avoid the question, but if you can deliver an active diabetic, who is looking to change their therapy, you can get literally in the 50 to $100, $1,000 area for that. If you can get suffering oncology patients that are looking for information, and have raised their hands and say I want more information. Because that definability is really the core of what these pharmaceutical companies need to do to get the message out on their products. And so they are very smart. They will pay for a very high cost per thousand because they are waste free. And so you could have a CPM that is ten times the norm going in. But I would say it is probably, because the audiences are so defined, it is probably in the 2X minimum range overall.

Q - Jeetil Patel

Just a quick follow-up. You're building out the health and pharma categories quite nicely. And I guess the question is, do you think it is more of a function of your ability to really scale up this business that you have the right content, or is it more so that you also have maybe competition in the marketplace that is somewhat, they are exclusive to one or two major partners out there that may limit their ability to scale their audience. What do you think is going to become more relevant to you in differentiating your health-related offering relative to others in the marketplace?

A - Doug McCormick

I think that one of the things we had tried to stress is the medical credibility that we offer to our users. The fact that we have doctors, doctor runs -- that every single Healthology video has the Curriculum Vitae from the doctor that is delivering it. And we have very high standards there. We have a peer review process. And so we thought that, certainly in the area of health, you would want to be as credible as possible. We knew that. I guess this comes back to studies that I have seen for the last 20 years where women are, and I have said this before, but they are the chief operating officers of the home when it comes to health. They take care of their health, their kids' health. Oftentimes to help, obviously their husbands. And scheduling the appointment. Making sure that the pills are taken from, picking up the more information. So it is so important and so closely associated with women that we just thought if we are going to go credible, and we already have some of the best content on the planet in other areas, whether it has to do with parenting or being a good mom, a new mom, or having a toddler-- with our Newborn Channel. We are in hospitals. So we just look to try to be as credible as possible. And I just feel that this is a great attribute to append to our brand. And we feel, and as long as it also happens to be great business for our investors because the CPMs are so desirable. And from a competitive standpoint, when you look at the numbers against other sites that target women, we seem to have really hit a nice chord, struck a nice chord with our core users and with women. And we want to give them more. We want to continue to upgrade and update the brand, and so health was a natural extension for us.

Q - Youssef Squali

Thank you very much.

Operator

Thank you. Our next question is coming from Kit Spring of Stifel Nicolaus.

Q - Kit Spring

Great job in the quarter. Can you talk a little bit about what Lifetime.com is up to? It looks like they have revamped their site a bit. Is there an opportunity to partner with them since that is another property owned by Hearst? And then can you comment, you probably can't, but I will ask you anyways. Are you guys for sale? And what do you think your Company is worth? Have you hired an investment banker? And did you give page views, and what the trend with page views? I heard you give unique, but I didn't hear page views.

A - Doug McCormick

Our page views were about even with last year. And so of course with revenue up obviously that speaks to price and talent there. We can't comment on any rumors that are out there. But thanks for asking. Because at least it took that one off the table. And with respect to Lifetime, I read that thing in the paper this morning. Interesting I think I put the original Golden Girls deal together there. When I was there we brought Golden Girls on to Lifetime. I understand that some 16 million people a week watch Golden Girls seven times. And I guess that was going to be the thrust of some of their revamp was Golden Girls. But we don't, we look at that because it is interesting. But there's no -- we wish them very well in what it is they do. We do think that they are far more entertainment oriented, and we're information oriented. And it is a great vehicle for them to promote what it is they want to promote on Lifetime. But ours is a different community that really has sprung up on the Web.

Q - Kit Spring

Thank you.

A - Doug McCormick

Thank you.

Operator

Thank you. Our next question is coming from Jordan Rohan of RBC Capital Markets.

Q - Jordan Rohan

HI guys. I believe the MSN contest syndication or distribution deal, however you want to phrase it, is up at the end of this year.

A - Doug McCormick

Yes.

Q - Jordan Rohan

Can you confirm that? And talk about the prospects for renewal, and explain whether there is a similar agreement yet with Yahoo!, or how you might address the loss of that big contribution to your total page views?

A - Doug McCormick

We don't anticipate that we will lose that contract at all. And when the time comes, we will talk more about that. But we do not, they have been great partners for us. And it is our full expectation that we will be back and talking about our plan going forward in '06.

Q - Jordan Rohan

Any chance of getting a Yahoo! deal in a similar way?

A - Doug McCormick

Interestingly enough, again, Yahoo! has turned out to be a great partner. They always have been. We are part of their RSS deal already. As you know, we provide astrology to them. And we are working together creatively on search. And we have, there are other things in line, but nothing that we can discuss at this point with any specific partner. But we maintain a focus on trying to expand our content distributions. But those are, of course, it is always a mixed bag, right, because you don't want to give away too much of your content. It is good to stimulate new usage, but we just always try to follow the balance to make sure that our salespeople are the ones there are selling iVillage and that great content. But we've got some pretty good things cooked up that hopefully we will be able to announce before the end of the year in terms of expanding the iVillage brand franchise.

Q - Jordan Rohan

Thank you.

Operator

Thank you. Our next question is coming from Richard Fetyko of Merriman.

Q - Richard Fetyko

Hi Dough and Steve. Just one question, a housekeeping question. How much was the buy revenue in the third quarter?

A - Steve Elkes

It was about 1.2 million.

Q - Richard Fetyko

And then you talked about video creating more video and multimedia content. Is that becoming meaningful in terms of your revenues generated off of sponsorship revenues with that area within the deal on multimedia sort of format? And then secondly, I was just wondering how your salesforce goes about, now that you have consolidated the salesforces with the Health Centers Online with your own, how do you go about selling the ad space on your own sites and the health sites. Is it a one buy across all the sites? I am just curious about the process there.

A - Doug McCormick

That is a bunch of questions. Let me answer the last one first. And the last, with respect to the sale of it, because we can approach an advertiser who is interested in identifying people that the, whatever the malady or condition that they have. They want to get those people, so chances are those people are going to be buying a schedule in our Health Centers Online area where people come to get diagnosed, or diagnostic information, and confirm that. And then what we will do, that same salesperson will say, now that you have found the arthritis suffer or whatever or the diabetic, you can also continue to reach that person when they come to the center where they get all their daily information. And I know in our Hollywood area we actually have a paid site where people come and they will get exercise regimens and diet information. It is really a good product. And then of course, if the woman, and she also want to find out how other women are dealing with this specific issue, we've got areas on iVillage for that. We are really, it is like a salesperson, it is like a Turner Broadcasting salesperson getting an order on TBS and TNT at the same time. And so it works out well for us there. Health centers, and it is being sold by the iVillage salesforce. Right now Healthology is not. Because it is a network and because the nuance of that is, a person really has to know all about their product. We are distributed on the Tribune and on Cox and on Viacom, and all these other areas. It is a little bit of a nuanced sale, so we have a specific salesforce going out there, talking to advertisers with that unique knowledge. And that seems to work well for us on that area. The other issue was the, as far as video is concerned, we try to get more and more streams of video every day. And this is why we are going to launch the in page player, and looking to have a seamless experience for people. But it is not as much revenue as we would like it to be, so we're doing a couple of things. Number one, we can take some of our video and syndicate it out there to video suppliers and do a revenue share with them. And they are interested in that. So that could be a way for us to also add to our revenue line. It is almost like, it is like the Healthology model, but instead of putting out health information, we will put out video. And once those sites sell it, it would be on a wide label basis, if you will. But more important, the biggest problem for the whole industry in video is cost per thousand. I think that when a time buyer will come in and try to buy video at cost -- CPMs that look like those of television. And we're giving such a specific audience, I believe it really, really under sells the product. So I have been a real advocate of trying to get the effective cost per thousand up there. As you know, we run a channel in hospitals. And the CPM for women 18 to 34 on that channel is over $500. And the CPM in prime time television for women 18 to 34 is about, I don't know, 75 to $100, depending upon what you're buying. And yet if you really go down and take the sense of the audience that has a newborn baby in the house, you are paying 5 and 600, $800 for that on network television. And so we like to, what we try to do is get people off of the generic CPMs and into the target users CPMs. Old habits die hard, but I believe that just in the wake of those around when we put cable in, and we fought the stronger CPMs there on targeted demos, that we are in the first inning of a seven-game series with transitioning advertising over to what I would call higher CPMs in video. And we will get there because it is the clients that are going to understand the value of being there. Especially as more and more inventory on the broadcast networks goes away. I can't imagine that people selling television shows the morning after is going to, which we have all seen, and with iPods, that is going to help the TV business. It is another way to avoid ads. If you want to touch your customer, I think some of the dollars are going to migrate into the Internet, and specifically to video on the Internet. A long-winded answer, but it is a good place to be where we are right now.

Q - Richard Fetyko

Thank you.

A - Doug McCormick

Thank you Richard.

Operator

Thank you. Our next question is coming from Daniel Barrack (ph) of MLP Capital.

Q - Daniel Barrack

Hi Doug, Can you deny what was reported in the Financial Times about the site about a week ago that you've hired an investment banker to explore the option of selling the Company for a price in excess of $700 million?

A - Doug McCormick

We have absolutely no comment on that.

Q - Daniel Barrack

So you choose not to deny it.

A - Doug McCormick

I choose to not comment on it, unfortunately.

Q - Daniel Barrack

Thanks.

A - Doug McCormick

Thank you.

Operator

Thank you. We have no further questions at this time. I turn the floor back over to management for any closing comments.

Doug McCormick, Chairman, Chief Executive Officer

We thank you for that. And thanks for joining us. And we look forward to catching up with you in another three months for our next call. Everyone have a great Thanksgiving, as it comes up. And thanks for being on the call. Okay, bye-bye.

Operator

Thank you. This concludes today's conference. Please disconnect all lines. And have a great day.

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