LiveDeal Q4 2007 Earnings Call Transcript

Dec.17.07 | About: LiveDeal, Inc. (LVDL)

LiveDeal, Inc (LVDL) Q4 2007 Earnings Call December 17, 2007 4:15 PM ET

Executives

John Evans - Investor Relations

Daniel L. Coury Sr.- Chief Executive Officer

Gary Perschbacher- Chief Financial Officer

John Raven - Chief Operating Officer

Analysts

Colin Gillis - Canaccord

Kenneth Smith – Lennox EquityResearch

Peter Ceris – [Carula] Capital

Luigi Ravel – Sport USA

Bill Withington – RSInvestments

JoeJolson – JMP Asset Management

Operator

Good afternoon, ladies and gentlemen, and welcome to thefourth quarter and fiscal year 2007 LiveDeal, Incorporated earnings conference call.(Operator Instructions) I would now like to turn your presentation over to yourhost for today’s call, Mr. John Evans. Please proceed, sir.

John Evans

Good afternoon, my name is John Evans. Thank you for yourinterest in LiveDeal,Inc. With me today arethe Chief ExecutiveOfficer of LiveDeal, Mr. Daniel L. Coury, Sr., John Raven, COOof LiveDeal; and Gary Perschbacher, CFO.

Some of thediscussion today will involve forward-looking statements. I will now read toyou the followingwarnings about reliance on forward-looking statements. During thecourse of this presentation we may discuss LiveDeal’s business outlook, whichcontains forward-looking statements. These particular forward-looking statements-- and all of thestatements that may bemade during thepresentation – that arenot historical facts aresubject to a number ofrisks and uncertainties, and actual results may differ materially. Please referto our periodic filings and Forms 10-K and 10-Q made with theSEC for more information on risk factors that could cause actual results todiffer.

Theimportant factors that could cause actual results to differ materially from thecompany’s expectations include, but arenot limited to those factors which aredisclosed under theheading “Risk Factors” and also arein thecompany’s documents filed from time to time with theUnited States Securities and ExchangeCommission and other regulatory authorities.

Forward-looking statements made during today’s call areonly made as of theday of this conference call, and thecompany undertakes no obligation to publicly update such forward-lookingstatements to reflect subsequent events.

This conference is being webcast and will be available onour website for replay following the call.

Now let me turn it over to Daniel Coury.

Daniel Coury

Thank you everyone for taking thetime to listen to our conference call. This hasbeen an important yearfor LiveDeal, Inc. We have made alot of changes to thecompany since this time last year. We have united theweb properties YP.com and LiveDeal.com, creating thefirst combined classified/Yellow Pages marketplace. This makes us aunique and important player inthe exciting andgrowing local Internet marketplace.

Full year 2007 earnings before write-offs was $0.52. Afterthe one-time write-off, earnings were $0.37 per share. We hope to increaserevenue and earnings per share every quarter this year and next. We have beenbuying back shares in the open market and the total year-to-date is over 60,000shares at an average price of $3.80 per share. We are working through our boardauthorization to buy back $1 million worth at this point.

On a revenue basis, we did $7.1 million for the quarter,which represents an 18.9% increase over the third quarter of 2007. For the 12months, total revenue was$26.4 million. We believe that we have successfullyweathered the storm that started last year at this time and have made manypositive changes this past year.

We continue to expand theproducts and traffic that will make this afirst-class website for small to medium businesses to advertise on. We’reworking on a modelthat includes revenue, more even margins and net income targets for ourbusinesses to make iteasier for you to analyze and track our progress inthe future. As revenueincreases and theaverage revenue percustomer grows, our margin should growas we leverage our platform and costs for thelarger group of customers.

We also areincreasing the numberof products available to our small to medium-size customers, expanding beyondjust the Yellow Pageslisting, expanded listings, CPC products and premium listings. We will dothis with a moreprofitable platform that should allow us to increase our EBITDA and net incomemargins to bring them inline with other Internet companies.

LiveDeal’s telemarketing capabilities inour Philippinescall center are provenand highly regarded within our industry. By February, our call center inLas Vegas, which focuses onLiveDeal’s premium SME marketing solutions, will beramping up inanticipation of its moveto LiveDeal’s new corporate headquarters.

LiveDeal’s headquarters, located inLas Vegas, Nevada,is state-of-the-art and will include a96-seat call center as well as thecompany’s executive offices. This expanded telemarketing team now hasthe products targeted atvertical and geographic segments that make acompelling case for small business owners to advertise.

Thelocal Internet space is finally getting theattention it deservesas more and more media companies realize that companies arewilling to pay apremium to bring customers to their local Internet site and local businesses. Inthe CPC business alone,the average localclick can cost two tofour times what anational click costs. Currently, some estimates show that 55% of SMEs spendmoney on advertising and 43% of those spend online. These small and mediumbusinesses are lookingfor multiple places to advertise to optimize their ad budget, and we believeLiveDeal.com represents acompelling value proposition for them.

As atrusted marketing partner for small and medium businesses, we will keep themcoming back to us. Thekey to executing thisstrategy will be to addcontent to the siteand expand thepresence of this content across theInternet. This will beaccomplished inseveral ways. We will target with content providers that have thousands ofsmall business listings that, as abusiness asset, arebeing underutilized. These content providers will benefit from our expertise aswe help them fully monetize their customers.

We will work to increase thenumber of classified listings atour site by targeting with existing companies inthis key element ofour business plan that LiveDeal evolves to one of theInternet’s aggregator of classified content. We will seek out partnerships withestablished media brands inspecific targeted local areas inorder to provide our classified technology platform to power these publisherclassifieds and/or Yellow Pages platform.

We will continue to build out compelling content for ourstrongest vertical markets: autos, real estate, jobsand specifically, pets. Ultimately, thekey to success for ourbusiness will be tocreate users out of visitors. Consumers become habitual visitors because of theutility and value that our online media provides.

We areworking on partnerships that offer small businesses without web presence aturn-key and hassle-free basic web solution to complement themarketing solutions that our IYP and classifieds provide to them. This willinclude a web page,URL, e-mail capabilities, premium virtual stores, and keyword advertising.

We’ll work with companies to create some cool and relevantgadgets and widgets for our site, gadgets and widgets that will not befound anywhere else on theInternet. These cutting edge tools will further enhance LiveDeal’s stickiness. Itis our goal to: offer compelling products and services; optimize our salesstructure and staffing; capitalize on technology and content partnerships withcompanies like Yahoo!, Idearc, Ingenio and others; improve user experience; growour paid and organic traffic; and deliver ROI to our customers.

Rajesh is currently visiting our tech group inIndia and socould not be with usas a speaker on thiscall. He and his teamcontinue to drive thetechnology needed to continue to drive theLiveDeal product roadmap. Hewill return to Santa Clara after theholidays.

I’d now like to turn themeeting over to John Raven, our COO.

John Raven

Thanks, Dan. As Dan talked about, we’ve been combining theoperations of LiveDeal.com and YP.com into acombined classifieds and Yellow Pages platform. As we have said before,LiveDeal.com is now powering theclassified and Yellow Pages to agrowing number of first-tier websites like thePhiladelphia Inquirer and allof the CBSaffiliates.

Our strategy is to continue to build such partnerships withleading publisher websites. This allows us to create alocal community that leverages great brands with our ability to market and addvalue. We believe that this will help us growour brand and our web traffic and continue to make LiveDeal.com and YP.com thelocal marketplace of choice for consumers and businesses.

For companies, not only will they have aYellow Pages listing, but theopportunity to upload alltheir products on our classified platform online. For theconsumer, they will beable to find real time products and save time and effort to seeus as more than just Yellow Pages.

Inaddition, Yellow Pages innovative technology platform allows us to power ourfour principle marketing channels: directories, mobile services, classifiedsand advertising distribution networks into afirst of it’s kind hyper-local marketing solution for businesses and consumers.LiveDeal offers such industry leading classifieds functionality as fraudprotection, identity protection, listing enhancements, photos, communitybuilding, package pricing, premium stores, featured Yellow Pages businesslistings and advanced local search capabilities.

LiveDeal technology also lets consumers search or browse foritems in aparticular city, state, or zip code and sort by distance. As aprofitable, strong classifieds company, LiveDeal will continue to invest inand provide the best possibleuser experience to local consumers and businesses. What matters to consumersand businesses is results atan affordable cost,and we will provide that.

We have announced some of thenew Web 2.0 features and functionality that we discussed on our last call. Inthe last quarter wehad announced Feedback 2.0; this is thenext generation of our feedback system. Consumers can search over 13.5 millionlocal businesses such as restaurants, farmers, breeders, et cetera and ratetheir experience in arange from one to five. These feedback ratings will bepropagated across and bevisible to other consumers on theLiveDeal Yellow Pages and classifieds platforms.

Community Board 2.0 is athreaded forum allowing users to create topics and invite other communitymembers to contribute by adding content. Over time, these forums will generate user-generatedcontent around interesting topics and categories.

LiveDeal videos will enable businesses to upload videos oftheir stores and products inYellow Pages and classified platforms. We’ve completed aunified Yellow Pages platform that will power both YP.com and LiveDeal’s YellowPages. In thenext quarter we will add other features focused more around our mobiledistribution platform.

To improve organizational effectiveness, eliminateredundancies, reduce costs and enhance the company’s overall competitiveposition, LiveDeal plans to complete next quarter the transition of thecompany’s Mesa, Arizonacustomer service function to its Manila call center andconsolidate its corporate and customer service administrative services, IToperations and other support functions to its international headquarters in Las Vegas, Nevada. LiveDeal plansto implement a shared services concept throughout the company, therebyeliminating redundancies of staff and function. Benefits will begin to berealized in mid 2008 with a majority of savings to occur by late fiscal 2008.

Thecompetitive advantage of this consolidation and moveare access to anexperienced pool of outboundand IYP-specific salesforce; itpositions LiveDeal’s offerings for further cost-selling and upselling to anexisting customer. Thesalesforce in Las Vegas is better equipped to maximize ARPU on sales originatedor upsold from the Las Vegas operation.

Live-Deal will continue to innovate and add value toconsumers and businesses.

Now I’d like to turn thecall over to Gary Perschbacher, our CFO.

Gary Perschbacher

Good afternoon. Net income for the12 months ended September 30, 2007was approximately $1.8 million versus approximately anet operating loss of $1.1 million infiscal 2008. Earnings pershare increased to $0.37 pershare versus fiscal 2006 operating loss pershare of $0.23. Net revenues for fiscal 2007 were $26.4 million as compared to$32 million for fiscal 2006. Thedecrease was primarily attributable to theAttorney General settlement which resulted inthe loss ofapproximately 15,000 customers.

Revenues declined inthe first three quartersof fiscal 2007 but have since increased inthe fourth quarter.Net revenues for thefourth quarter of fiscal 2007 was $7.1 million versus approximately $6.0million in thethird quarter of fiscal 2007.

Costof services increased infiscal 2007 as compared to fiscal 2006, due to anincrease in theusage of web billing which hasa higher costthan other billing channels. We also incurred anapproximate $377,000 charge to bad debt expense as one of our aggregators hasfiled for Chapter 11 protection.

Gross profit for fiscal 2007 was $22.1 million versus fiscal2006 gross profit of $27.9 million. This decrease again was attributable to thehigher cost ofservices and lower revenues. Gross margin percentages were 84% for fiscal 2007and 87% for fiscal 2006.

Operating expenses totaled $18.8 million for fiscal 2007 ascompared to $29.5 million for fiscal 2006. This represents a 36% decrease fromfiscal 2006. The decrease is primarily due to decreases in compensationexpense, customer service related expenses, settlement expenses, and a decreasein direct mail campaign related expenses. Again, most of this was attributableto the Attorney General settlement.

Partially offsetting thesavings were increases intravel expenses which were related mostly to investor relation activities andincreased amortization costs, themost significant of which were marketing and technology related intangibleassets that were acquired through our recent acquisitions.

Operating income increased 313% from prior year. Income fromoperations in fiscal2007 was $3.3 million versus anoperating loss of $1.6 million infiscal 2006. Again, thedecrease is attributable to lower revenues offset by lower operating expenses.

Income tax provision for 2007 was $1.9 million as compared toan income tax benefitof $312,000 in fiscal2006. This increase is primarily due to our changein pre-tax income.However, in fiscal2007 we incurred anadditional income tax expense of $500,000 due to booked tax difference andrecognition of restricted stock awards as aportion of our restrictive stock grants vested atstock prices lowered than thestock price atinaudible] date, and thus thetax effect on theawards vesting were less than thecarrying value of the relateddeferred tax assets.

LiveDeal had $5.7 million of cash on hand and $11.3 millionof total working capital as of September 30, 2007. Thecompany still has nolong-term debt and shareholder equity grew to $37.7 million atthe end of fiscal 2007as compared to $22.4 million inSeptember. This increase was due to profitability and theissuance of shares for theLiveDeal acquisition.

Net cash provided by operations before thepayment of $3 million Attorney General settlement was $4.8 million. Afterincluding the one-timesettlement expense, net cash provided by operations decreased approximately$657,000 to $1.8 million for fiscal 2007 as compared to $2.4 million infiscal 2006. Net cash used ininvesting activities totaled $2.2 million infiscal 2007 and included net cash outflows of $4.1 million for theacquisition of LiveDeal and on-call subscriber management. LiveDeal hadapproximately $1.1million inexpenditures for equipment, software and other intangibles and thecompany liquidated $3.1 million incertificates of deposit and other investments.

Net cash for financing activities was $310,000 and consistedprimarily of repurchases of stock owned by dissenting shareholders inconnection with theLiveDeal acquisition.

I’ll turn it back over to Dan Coury.

Dan Coury

Thank you, Gary.

As you can see, we had avery exciting 2007. We’re going to have aneven more exciting 2008 as we became and become asolid player in thelocal Internet search market. Atthis time, I’d like to open itup to questions.

Question-and-Answer Session

Operator

Our first question comes from Colin Gillis – Canaccord.

Colin Gillis -Canaccord

Good afternoon, everyone. Gary,with all thestrides that LiveDeal hasmade over the lastyear, a lot of otherplayers are talkingabout setting up their own call centers and pursuing direct marketing to localbusinesses. Do youexpect to see morecompetition coming forward in2008?

Gary Perschenbacher

Yes, I expect there to bemore competition. But there is one thing: that is very, very difficult to make acall center profitable and working. We’ve worked through some unbelievabletesting and trials to getto the call center wehave now. We areabsolutely not worried about us getting our share. It’s alarge market out there and we’re already set up to beable to do it.

John Raven

I’d like to add to that. Having acall center is not theonly ingredient you need. There areseveral barriers to entry. One is thesalesforce, the callcenter component. Then there’s thetechnology platform, then there’s theInternet component and being able to unify and monetize each of those into abusiness model such as ours is not aneasy task, not to mention thetypes of agreements that you have to have inplace in order tosuccessfully execute on that type of business plan. Those areall going to besignificant barriers to entry; we’ve got roughly five to tenyears experience inseveral of those areas.

Colin Gillis -Canaccord

Great. Just looking atthe RKV, you’ve got apretty healthy number going on there. Any color as to thedirection of where that can go inthe next year or so?

Gary Perschbacher

Well, we are, right now atthe present time,putting together themodel for that, but we arenot giving any forward-looking statements. As you can seefrom where we are inthe past quarter, wehave been making progress. One thing we have been saying publicly is that wewill continue to beprofitable while we invest into thestructure and platform of this company going forward.

Colin Gillis -Canaccord

Got it. But interms of themonetization levels, could you give us any color as to whether that can liftforward, or whether pricing pressure is going to cause that number to pullback?

Gary Perschbacher

I don’t seeanything pulling us back.

Operator

Your next question comes from Kenneth Smith – Lennox EquityResearch.

Kenneth Smith – Lennox Equity Research

Arethese results audited or not? On your statement itsays they are not, butI would assume they would besince they are yearend. Can you answer that?

Gary Perschbacher

Please repeat that question?

Kenneth Smith – Lennox Equity Research

Thefinancials that you report today, arethey audited or not? On thereport it saysunauditied.

Gary Perschbacher

Theattachment to thepress release shows as unaudited because the10-K has not beenreleased. Itshould be released inthe next day or so.

Kenneth Smith – Lennox Equity Research

That’s theonly thing missing then?

Gary Perschbacher

Yes. Because we changedauditors, we had two years from our prior auditor and they need to review theK and issue areport. I should have that later this afternoon.

Kenneth Smith – Lennox Equity Research

Okay. Can one of you reconcile therevenue you reported to the81,000 Yellow Pages listings customers? When you dothe math, itcomes out to about $1 million higher than thenet revenue. Is that because this is really thegross revenue that makes up this monthly amount?

Daniel Coury

Right. We dothe ARPU, averagerevenue per unit, on agross basis.

Operator

Your next question comes from Peter Ceris – [Carula]Capital.

Peter Ceris –[Carula] Capital

I ama little confused, somaybe you can help me getunconfused. First, just soI understand thenumbers, I know you said that you arenot giving guidance, but you said somewhere inthere that the comingquarters would bebetter than the pastquarters, or something like that? I just want to understand what you said aboutthat, first.

Gary Perschbacher

Yes, what we plan on doing is continuing to beprofitable while we invest inthe company, and we donot see apulling back.

Peter Ceris –[Carula] Capital

Sothat means you expect higher profits, theoretically higher profits, inthe coming year thanyou had in this year?Is that what I heard, or amI misreading that?

Daniel Coury

No, you arenot misreading that, but like I mentioned and spoke with you about, we aredoing a lot ofinvesting in ourplatform, going through 2008.

Peter Ceris –[Carula] Capital

Sowhatever big earningsbump you were going to getwould be 2009, not2008?

Daniel Coury

We aregearing everything sowe can ramp up at theend of 2008 even more, with allof the investment thatwe are doing into 2008into our platform, but we will stay absolutely profitable while we dothat.

Peter Ceris –[Carula] Capital

There area lot of moving pieceshere; there is what I call theoriginal Yellow Pages business; there is thecall center business and then there is theLive Deal business. Is there any way to figure out where theearnings are comingfrom and which is which? How doI look at that?

Daniel Coury

Let mehelp you with that. There is one company, which is LiveDeal.com, that hasthe YP.com URL also, sothat as you are goingto see inthe next comingquarter, you are goingto see how this isbecoming more and more blended together. Our marketing will befor taking care of thesmall and medium businesses. Alot of them now areasking for CPC, cost perclick. Some of them want acomplete spread of their entire products out there.

We aregoing to give theservice, including theYellow Pages ad, their miniwebpage, so itis all one, which isservices to the smallbusinesses. We will beexpanding on that. Now if you say, which one is going to draw more revenue thanthe other? Itis sort of alltogether, because by offering this, as acompany needs additional services, they aregoing to be comingback to us because of theservice we gave them. Soreally, It is aservice provider on theInternet for small and medium businesses.

Peter Ceris –[Carula] Capital

Soshould I be lookingfor higher numbers of customers/advertisers? Should I belooking for higher average monthly ticket peradvertiser? What are themeasures that I should belooking for? Because if I listen to you, with what you areinvesting and what you have got, looking atthe earnings now, ifthings work you should make alot of money in 2009.Is that a reasonableview?

John Raven

That is areasonable assumption. Thecomponents, to add to what Dan was talking about, itis really three areas. One is themonthly subscription base, which is currently averaging atabout $30 a month peruser. We plan to add to that, and we have exactly, by theway, 1.0 products percustomer. We hope to expand that over thecourse of the businessplan to a point wherewe have 2.5 to 3.0 products percustomer, on average, sowe are going to geta bump there.

Theother bump we areshooting for is related to theRKV question earlier, theincreased monetization. We areadding components such as traffic generation, areselling of traffic and partnering with distribution, and then revenue shareswith partner sites where we distribute our content with other large brands. Soall of those together,combined, should have aneffect of lifting therevenue in multipleways.

Peter Ceris –[Carula] Capital

But those areall ways of basicallylifting the revenue percustomer, persubscriber, whatever way you want to express that.

Daniel Coury

For aspecific measurement, you should seeover time an increase inthe average revenue perunit.

Peter Ceris –[Carula] Capital

Right. Will we beseeing, in your view,is there also a goalto see anincrease in that83,000 or in thenumber of businesses using theservice?

Daniel Coury

You’ve got to understand, we areincreasing the numberof users of theservice because of theclassified platform also, and this is anumber that is going to increase, inaddition to others. We would like to seethe bottom linerevenue grow, but we will begrowing it inevery area, specifically theclassified area to bring more traffic and use to thesite. Inturn, there will begrowth, most likely inevery category. Now thepercentage of that growth is something that we will beable to test and seeas we move forwardthrough ’08.

John Raven

Then to add to that, if you recall earlier inthe discussion, we hadmentioned an increase inaverage listing price, sothat is a specificmetric you probably want to track over time. Thecustomer ASP increase over 10% from third quarter of ’07 to 405 from 369 theyear before on anannualized basis, sothat is an example of ametric you could use to track over time.

Peter Ceris –[Carula] Capital

Is there any way to figure out – I mean, there areso many moving pieceshere. My gut tells meyou make a lot ofmoney. I can’t figure out how to doan earnings model.

Gary Perschbacher

That’s what we areworking on, as Dan mentioned.

Peter Ceris –[Carula] Capital

When doyou think it will beat apoint where some sort of semi-educated person like mecould figure this out inan easy way?

Gary Perschbacher

Very soon. We areworking on it, we would just like to make sure that we have themodel tested and working before we give itout; but it won’t belong.

Operator

Your next question comes from Luigi Ravel – Sport USA.

Luigi Ravel – Sport USA

Great job, great quarter. What doyou think is going to bethe savings incost on thelease term that you have, moving allof those facilities from one; closing up theMesa one and combining thenew facility with theold one?

What percentage of lease, what areyou going to pay on amonthly basis?

Daniel Coury

There area couple of ways we aregoing to be saving –we will save, straight off thebat. That is probably going to beanywhere from $30,000 to $80,000 permonth. But that is not thereal savings completely. Being closer tothe truetelemarketing-trained people that can dothe upsell, that isgoing to be very largein this transition.

Also, we arewithin an hour to anhour-and-a-half of our engineering inSanta Clara, so wehave already had this going on, where people can come down for aday and work with our sales crew sothat everything is working inunison together as ateam, so this isworking out very well because itis quick for a daytrip. Soall theway around there aregoing to be some goodsavings that will help our profitability.

Luigi Ravel – Sport USA

I amvery pleased that you mentioned you repurchased some shares, around $1 millionworth of stock, that is very good newsfor me, I really appreciate that. Doyou have, in thefuture, any other vision to purchase more shares with thecash that we do have?

Gary Perschbacher

We have been authorized by theboard of directors to buy back $1 million worth. Whether they aregoing to authorize to domore is something that theboard of directors will bediscussing, but thank you very much on that.

Operator

Your next question comes from Bill Withington – RSInvestments.

Bill Withington – RS Investments

What is fully diluted shares number?

Secondly, since we arealmost done with thequarter, maybe without giving guidance, just current trends? Arethings like the ARPUstill trending in theright direction? Areyou still tracking to your goal of adding anet 5,000 Yellow Pages customers perquarter?

Gary Perschbacher

Interms of shares outstanding itis roughly 4.7 million.

Bill Withington – RS Investments

That is thefully diluted number?

Gary Perschbacher

Right.

Bill Withington – RS Investments

What was the6.7 million number?

Gary Perschbacher

We have arestricted stock program, unvested shares. You have to look atthe unvested amount asproceeds and you end up buying back those shares on theopen market, that is why itis lower than the 6.7million that is normally out there as outstanding shares.

Bill Withington – RS Investments

So thereal number is 6.7 million?

Gary Perschbacher

Right. Thereal number is 6.7 million; with thebuyback, we are goingto be down around 6.6million real soon. That is thetrend of where it is attoday. Everything else is progressing well. We aredoing a large focusnow, going forward, on our classifieds listings. We expect them to go up quite abit. Whether theYellow Pages goes up atexactly 5,000 or whether we have surges on that or less, we arenot saying; but we aresaying that this quarter I amfeeling fine, let’s just put itthat way. These numbers will beout soon. We arenot including in someof that some of thenumbers we are gettingfrom our classifieds and soon. It is lookinggood.

Bill Withington – RS Investments

I heard acouple of different things on thecall. One I heard we aregoing to continue to beprofitable while we invest inthe company; thatcould mean that you earn apenny next year. Then another time Iheard that you aregoing to earn more in’08 than you earned in’07, which would imply greater than $0.37 pershare.

Which is it? You aregoing to be profitableand maybe only make acouple of pennies this year, or you aregoing to earn more than you earned in2007?

Gary Perschbacher

We plan on investing alot in this company, atthe same time stayingprofitable equal or inexcess – probably inexcess – of last year.

Bill Withington – RS Investments

Okay, soyou are going to earn$0.37 or more infiscal ’08.?

Gary Perschbacher

That’s theplan.

Bill Withington – RS Investments

Thank you.

Daniel Coury

Thank you allvery much. We really do– do we have anotherquestion?

Operator

Yes, we have one more question inthe queue from theline of Joe Jolson –JMP Asset Management.

Joe Jolson – JMP Asset Management

I was alittle confused with thelast question as well. Did you sayearlier that you thought that each quarter would behigher than theprevious quarter?

Daniel Coury

Yes, revenues should continue to grow. Yes.

Joe Jolson – JMP Asset Management

That was for revenues, not necessarily for earnings?

Daniel Coury

That is correct. Gross revenues should continue to growand we don’t plan on doing anything negative with our earnings, but we doplan on continuing to growour revenues.

Joe Jolson – JMP Asset Management

Was $0.13 theoperating number in thefourth quarter?

Gary Perschbacher

Would you repeat that question again, please?

Joe Jolson – JMP Asset Management

Well itsays in thepress release non-GAAP earnings were $0.13. I assume that bad debt reserve is non-recurring.

Gary Perschbacher

There were some expenses inthere; for instance, there was $1 million for adirect mail campaign inOctober which obviously wasn’t carried forward inthe remainder of theyear due to theAttorney General settlement. And thenthere was $377,000 charge for bad debt expense for theChapter 11 filing of one of our aggregators.

Joe Jolson – JMP Asset Management

But just looking at$0.13 as the run rate,is that fair?

Gary Perschbacher

I amsorry, I am having adifficult time hearing you.

Joe Jolson – JMP Asset Management

$0.13 is therun rate?

Gary Perschbacher

Basically, yes.

Joe Jolson – JMP Asset Management

And you expect thetop line to growwithout anything crazy on theexpense side. Wouldn’t thenumber to look at –

Gary Perschbacher

-- having to invest inour future, for 2009 and we areputting together amodel as to what our expenditures aregoing to be. We don’t anticipate itdropping, but we areinvesting for 2009.

Joe Jolson – JMP Asset Management

I just want to beclear – when you saythat you expect earnings to behigher than they were ayear ago, are youtalking about $0.37 or $0.52?

Gary Perschbacher

Higher than the$0.37.

Joe Jolson – JMP Asset Management

Okay, thedifference between thetwo though are thingslike this bad debt reserve though, right?

Gary Perschbacher

Yes, that is correct. There was some inthere and it will allcome according to how much we invest inthe company and whichof the verticals thatwe are beginning tomarket take off quicker than others. We know what is working, some we will beramping up sooner than others. That is why we arenot saying that it isgoing to be “how much”higher at this time aswe put our model together for going forward, but we definitely plan on itbeing higher than last year.

Operator

We show no more audio questions.

Daniel Coury

Thank you allvery much, I really doappreciate it. We look forward to talking to you again on our earnings call inthe next quarter.Thank you.

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