infoUSA Inc. Q4 2007 Earnings Call Transcript

infoUSA Inc. (IUSA)

Q4 2007 Earnings Conference Call

February 1, 2008 4:00 pm EST

Executives

Stormy L. Dean - Chief Financial Officer

Vinod Gupta - Chairman, CEO, President of Small Business Division

Analysts

Kyle Evans - Stephens Inc.

Kevin Wink - Polynouth Capital Management

Patrick Brennan - Mark Boyar & Co.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2007 infoUSA earnings conference call. My name is [Denise], and I'll be your coordinator for today's call. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Stormy Dean, infoUSA's CFO. Please proceed, sir.

Stormy L. Dean - Chief Financial Officer

Thank you, Denise.

Good afternoon, everyone. Before we get started on our financial performance for the fourth quarter of 2007 and for the fiscal year 2007, I need to get all those legalities out of the way.

During the course of the conference call, we may make projections or forward-looking statements, and actual events may differ materially. We will refer you to the documents the company files from time to time with the Securities and Exchange Commission. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

Now I would like to continue with the financial highlights from the fourth quarter of 2007 and for the fiscal year 2007.

During the fourth quarter, revenue was $185.8 million versus $125.1 million for the same period in 2006. That's an increase of 49%.

For the 2007 fiscal year, revenue was $688.8 million compared to $434.9 million in 2006, and that's an increase of 58%. The fiscal year revenue numbers reflect the Naviance settlement of $9.9 million in the third quarter of 2007.

Excluding the Market Research group, the revenue for the quarter was $118.8 million, or an increase of 8%. Excluding the Marketing Research group, revenue for the fiscal year was $467.3 million versus $420.2 million, or an increase of 11%.

The Services group fourth quarter revenue was $37.2 million versus $33.8 million for the same period last year. That's growth of 10%. The Services group revenue for the fiscal year 2007 was $136.8 million compared to $120.9 million in 2006. That's an increase of 13%.

The Data group fourth quarter revenue was $81.5 million versus $76.7 million for the same quarter last year, a growth of 6%. The Data group revenue for the fiscal year 2007 was $330.5 million compared to $299.4 million in 2006, and that's an increase of 10%.

The fourth quarter revenue for the Marketing Research group was $67 million, and the fiscal year revenue for the Marketing Research group was $221.5 million.

The Marketing Research group is comprised of Opinion Research, Macro International, and the newly acquired NWC Research in Australia, Northwest Research group in Boise, and Guideline, Inc., based in New York. The Opinion Research acquisition was closed in December of 2006, and NWC Research and Guideline, Inc. were closed during the third quarter of 2007. The Northwest Research Group acquisition closed in the fourth quarter.

Our fourth quarter operating income was $26 million versus $21.6 million during the corresponding quarter of 2006. Operating income for the full year was $88.3 million versus $64.6 million for 2006.

Our EPS for the fourth quarter was $0.22 per share versus $0.20 per share in 2006. For the full year, 2007 EPS was $0.76 per share compared to $0.61 for the full year in 2006.

EBITDA for the fourth quarter of 2007 was $35.9 million compared to $29.2 million for the fourth quarter of 2006. EBITDA for the full year of 2007 was $127.8 million versus $94 million for the full year of 2006.

Our capital expenditures for the fourth quarter of 2007 were approximately $4 million compared to $6 million during the fourth quarter of 2006.

Capital expenditures for the entire year 2007 were $21.3 million compared to $21.1 million for the entire year in 2006.

We believe that the company will continue to grow in 2008, but because of the uncertainties in the broader economy and the problems in the financial sector, combined with the changing mix in our business models, we've decided to provide guidance in 2008.

Additionally, the company recently announced a $0.35 per share annual dividend to be paid in March. Because of the strong performance and cash flows generated in 2007, the Board wanted to reward shareholders with a significant return on their investment.

I will now turn the call over to Vin Gupta.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Thank you, Stormy.

Following my prepared remarks, we will be ready for questions and answers.

As you all know, the economy is slowing, the credit markets are in turmoil, the financial industry is going through a lot of problems, the direct marketing industry is not experiencing growth like it did previously.

Despite all of that, infoUSA had a great fourth quarter and a great year in 2007.

During the fourth quarter, we had record revenues of $185.8 million. For the fiscal year 2007, we had revenues of $689 million.

Our operating income in the fourth quarter was $26 million compared to $21.6 last year. The operating income for the entire of 2007 was $88.3 million versus $64.6 million for the entire 2006.

Over the years, infoUSA has stayed away from overreliance on any particular industry or vertical growth or any geographical area. Today, we have over 12 proprietary databases which are viewed as the finest in the industry. On top of the databases, we create solutions for our customers to be used in their sales prospecting, direct marketing, database marketing, email marketing, and market research efforts.

Due to the acquisition of Opinion Research and Macro International, we are no longer a one-trick pony. Today, infoUSA is a diversified provider of services to sales and marketing departments of private and public sectors.

With the recent acquisition of NWC Research in Australia, Guideline in New York, and Northwest Research in Boise, Idaho, we have expanded our international presence and increased our presence in the market research sector.

The CNN Opinion Research poll has been recognized all over the world as the most reliable political poll. In addition to that, we offer market research services that include customer service, product surveys, employee surveys and other surveys to the public and private sector.

Our revenue breakdown by major sectors are as follows: Our Database revenue is about $330 million, Service sector is about $137 million, and Research sector is about $222 million.

Our largest customer in the private sector accounts for less than 2% of our revenue. That means we are not dependent on a few large customers or the performance of one industry or the economic conditions in any geographical area.

We are continuing to build on our successful subscription model that is the engine for future growth. The company added approximately 9,400 new subscribers to our subscription services during the quarter.

We just announced the appointment of Mark Israelsen as the new President of Salesgenie. And by the way, he was on TV today on CNBC promoting Salesgenie.

Salesgenie will be based in San Carlos, California. I created Salesgenie about four years ago. Within four years, the revenue's approaching about $40 million. I believe that Salesgenie will be the platform for providing online sales and marketing solutions to millions of salespeople and small business owners.

We were looking for a top-notch executive to head this jewel of a service for infoUSA. Mark has extensive background with Oracle SalesForce.com, specifically related to software development, systems integration, outsourcing, implementation and management consulting. Under his leadership, I'm confident that he'll take Salesgenie to its rightful place in the software service industry.

For the second year in a row we will have three commercials in the Super Bowl. That includes one commercial during the pre-game and two commercials in the game itself. These commercials will be offering 100 free sales leads to anyone who comes to our web site. While most advertisers spend millions of dollars on the script and production, we did this in-house and saved a lot of money. Last year's commercial was a great success. I'm expecting the same success this year.

We also announced our plan to compile the U.K. business database. As we speak today, the database is being compiled in Manchester, England. They will use the same process of compiling the database from public sources like we do in the U.S. And then all the businesses in the United Kingdom will be telephone verified for accuracy and additional information will be compiled on the businesses. When the database is complete, it will be the finest database ever compiled in the history of the U.K. We will be creating products and services from this database, and they'll be sold to salespeople, small business owners and large companies in the form of customized sales lead products, online access subscription services, and license agreements to value-added resellers.

The Opinion Research acquisition is performing quite well. The Macro International acquisition, which provides services to the public sector, exceeded their projections for the newly awarded contracts with the federal government in the fourth quarter and the whole year.

We also announced the acquisition of Direct Media, Inc. Direct Media is the bluest of the blue-chip companies in the direct marketing industry for the last 40 years. With this acquisition, it will give us a better market share in the direct marketing and database marketing industry. We also wanted the domain name, MailingList.com, and it is our plan to monetize that wonderful domain name.

We are also in the process of completing pictures of businesses in the U.S. and Canada. These high-quality pictures have been very well received by the major search engines, and we plan to complete this process in most of the major metropolitan areas by the end of this year.

We are also compiling more information from the web sites of businesses such as business description, executive names, hours of operation, credit cards accepted, et cetera. Once the information is compiled, we will be offering a more robust search so our customers can search businesses in any area by a more detailed business description such as customers will be able to search car repair shops who fix high-priced sports cars or the painters who specialize in faux finish. We will also be enhancing our executive search database. It will allow our customers to search executives by title in any industry or search for executives by ethnicity.

It is our plan to allocate more investment dollars towards upgrading our web sites. We will be offering more features and more solutions on all of our web sites so customers can select their sales leads, use our analytical models, and send a direct mail piece without human intervention. [inaudible] is leading the charge on that front.

Due to a highly successful performance in 2007, the Board has decided to reward the shareholders with a cash dividend of $0.35 per share.

This concludes our prepared remarks. I want to thank you for your interest in infoUSA, and remind you that the purpose of today's conference call is to discuss our fourth quarter and yearly results.

We are now ready for your questions and answers.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Kyle Evans from Stephens. Please proceed.

Kyle Evans - Stephens Inc.

Hey, good afternoon, guys.

Stormy L. Dean - Chief Financial Officer

Hi, Kyle.

Kyle Evans - Stephens Inc.

I understand you're going away from guidance. Could you provide us with some kind of basic vague outlook on cash flow from operations and Capex for this year?

Stormy L. Dean - Chief Financial Officer

Well, that kind of ties up into the guidance, you know?

I think you can assume that for 2008 our cash flows will, you know, be relatively constant to what they were this year, if not a little better, and our Capex will probably be slightly less. We had about $21 million in Capex last year and we kind of ratcheted that down a little bit, so we think it will probably be, you know, in that $18 to $20 million range, not significantly different.

Kyle Evans - Stephens Inc.

Okay. Thanks. Any one-time costs? I mean, you guys have the special committee creation and a lawsuit underway. Is there any way for us to kind of look at the expenses associated with those initiatives for the quarter?

Stormy L. Dean - Chief Financial Officer

Well, I think we've got about $2 million worth of expenses in the quarter that are related to that.

Kyle Evans - Stephens Inc.

Okay. And there's a comment in the press release about, you know, the investigation has only recently begun. The results of the investigation may impact the company's historic statements. Can you give any more detail or is that just something that your auditors forced you to put in there?

Stormy L. Dean - Chief Financial Officer

We really can't speak to that. That was a disclaimer that was put in there by the, you know, special committee and the auditors and, you know, there's really not much that we can say about it at this point.

Kyle Evans - Stephens Inc.

Okay. And you guys are cueing up more Super Bowl ads, and we've got, you know, a year behind us now on the original spend. Can you kind of walk us through the return on investment there in terms of the number of subs that you added, the churn rate that you saw, and how it was different from the other acquisition channels that you fund?

Stormy L. Dean - Chief Financial Officer

Well, our spend rate this year's going to be slightly higher than last year. You know, we did see a huge increase in - spike in - registrants and new subscribers during the second and third quarter following that, but, you know, we also saw an increase in our churn rate, which is why we hired Mark Israelsen to help us, you know, reduce the churn rate and to be more sticky and keep the subscribers.

I'll let Vin kind of weigh in on that as well.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Well, you know, we've come to a point where Salesgenie's reaching a - it's no longer a brand-new product anymore. And it's our plan to make the service more sticky, have more robust engine for selecting sales leads, and then offering solutions. Customers should be able to send out email, they should be able to send out direct mail pieces, they should be able to upload their customer database, they should be able to have a choice what to send to their customers and what to send to the prospects. So it's going to require more investment and more what I call more support.

So we hired Mark Israelsen, who has exactly the same kind of experience with SalesForce.com, and he'll be charged with, you know, product development, technology, marketing and all the functions so the Salesgenie can grow like any other, you know, SAS services.

Kyle Evans - Stephens Inc.

Okay. And you mentioned that we're approaching $40 million in subscription-based Salesgenie revenue. How much more subscription revenue do you have in the revenue base? What's the overall total?

Vinod Gupta - Chairman, CEO, President of Small Business Division

But that's for the Salesgenie.

Kyle Evans - Stephens Inc.

Yeah. That's why I want the balance of it.

Vinod Gupta - Chairman, CEO, President of Small Business Division

We don't want to break down all the other services, but just about everything else that we have is going under subscription model which is a lot higher than $40.

Kyle Evans - Stephens Inc.

Which -

Vinod Gupta - Chairman, CEO, President of Small Business Division

Like all city directories, city directories, state directories - the plan is that everything else we sell under a vertical model or a horizontal model, that [inaudible] should be able to get one-off services or also subscribe to it.

Stormy L. Dean - Chief Financial Officer

So Kyle, you know, we talk about the $330 million of revenue that is the Database group. That Database group, you know, consists of - I would say probably altogether about 50% to 60% at this point is subscription based.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Oh, higher than that.

Stormy L. Dean - Chief Financial Officer

It might even be higher than that. We've got one source, you know, that we buy.

Vinod Gupta - Chairman, CEO, President of Small Business Division

All subscription based.

Stormy L. Dean - Chief Financial Officer

All subscription based. Salesgenie is all subscription based. National Accounts is all either subscription based or contractual. The same thing with the License division. And then, you know, we just continue to try and migrate more and more of our customers away from the, you know, traditional offline, you know, old world way of doing direct marketing to these subscription-based products.

Kyle Evans - Stephens Inc.

Okay. Which, I mean, then you talked about the economy and the turmoil. Which segments should we be most concerned with? Which businesses within whichever respective segments they're in shall we be kind of watching as the canary in the coal mine.

Vinod Gupta - Chairman, CEO, President of Small Business Division

If I look at our other competitors who are heavily dependent on like financial industry or real estate industry or mortgage industry and they were heavy users of direct mail or the catalog industry, they have all retrenched. In our case, we never did have those $100 million customers. I mean, our biggest customer may be like, you know, $3 or $4 million a year. So we are not as dependent on those, you know, up and down cycles.

And as a matter of fact, in the 35 years since I founded the company we have rarely seen those types of impacts on our company because we don't play in that marketplace.

Going forward - unless, you know, something like 9/11 happens again - I believe we should have a pretty stable business now.

Kyle Evans - Stephens Inc.

Okay. Last question, then I'll get back in queue. Any significant changes on the competitive landscape front?

Vinod Gupta - Chairman, CEO, President of Small Business Division

Not really. I mean, what's happening is that competition is not coming from traditional companies. It's coming from the new technologies, such as like, you know, YouTube and Facebook and MySpace and Google and ZoomInfo and all that. So we are watching as to what's happening in that space. You know, we are always worried about some 18-year-old kid working out of a garage and what they can develop and how it impacts our business.

So we, as you know, we have operations in San Mateo, San Carlos, and we are heavily connected with the new technology people to see what's out there on the horizon. How can we work with them? How can we embrace it?

And that's why we embrace navigation technology so just about every car uses our database, you know, for navigation. Just about every search engine uses our database. So we are one of those companies who always embraces new technology, the new trends, and that's the opportunity there now.

Stormy L. Dean - Chief Financial Officer

And I'd like to add on to that a little bit in that, you know, over the past couple of years as we've been making the acquisitions and getting into the research and market research space, one of the things that we're finding is that the research space, especially the public sector, has provided almost a natural hedge against economic downturn.

You know, one of the things that we saw that was very encouraging to us was that Macro International had exceeded their expectations with regard to new awards. They've seen their backlog increase to, you know, at the end of the year it was about - almost $290 million worth of backlog, and then they were able to double practically the new award rate. And, you know, the way that works is you don't really know exactly when that revenue stream's going to start, but it'll start sometime in the next fiscal year.

So we're seeing that piece of business be real strong, real consistent, and that kind of gives us a natural hedge about some of the uncertainties that might be happening in the direct marketing industry or, you know, in the broader economy.

Kyle Evans - Stephens Inc.

Is there anybody left in the list management space for you guys to consolidate?

Vinod Gupta - Chairman, CEO, President of Small Business Division

Oh, quite a few. I mean, it's a big industry, and we are looking for list management, list brokerage companies who have a good brand, good service, good client base, and a good sales force, and at the same time pay the right price. And I tell you, I think in all the acquisitions we have done we have paid a fair price and they have been all profitable for the company.

So there's more to go. We're not done yet.

Kyle Evans - Stephens Inc.

What do you think your share is in that market now?

Stormy L. Dean - Chief Financial Officer

I think that's really difficult to say because there are a handful of large list brokerage, list management type of companies out there, but there are, I think, dozens if not hundreds of small list brokers and list management, you know, type of companies with all sorts of boutique lists that compete with us, you know?

So the industry's still very fragmented in that respect.

Vinod Gupta - Chairman, CEO, President of Small Business Division

But we are the biggest now.

Stormy L. Dean - Chief Financial Officer

We are totally the biggest.

Vinod Gupta - Chairman, CEO, President of Small Business Division

And not only that, by offering our proprietary database through their sales force, it gives them more tricks in their bag to sell and also we are offering - we can offer [inaudible] marketing, so it helps them sell Internet-based solutions to their customers.

So that helped in a very, you know, what I call a win-win situation for us.

Kyle Evans - Stephens Inc.

Is there any way you could help us size your email marketing business now?

Vinod Gupta - Chairman, CEO, President of Small Business Division

It's - I tell you, it's entrenched in everything now, you know? It's like saying how much telephone do you use? So email like telephone today. And it's just creeping in every part of our business, and we'll be offering more and more email marketing services to smaller customers. They'll be able to, you know, use our technology to deploy email.

So it's just hard to kind of put a number on that.

Kyle Evans - Stephens Inc.

Okay. I'll get back in queue. Thanks.

Stormy L. Dean - Chief Financial Officer

Thank you, Kyle.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Thanks, Kyle.

Operator

And your next question comes from the line of Kevin Wink from Polynouth Capital Management. Please proceed.

Kevin Wink - Polynouth Capital Management

The first question is expenses were kind of interesting. SG&A looked like it was really tightly controlled and dropped about 1.5% from Q3, and the cost of goods sold went up about 1% from Q3. So if you could give us a little bit more color as to what was going with both of those.

Stormy L. Dean - Chief Financial Officer

Well, that's a change in the mix of our business. You know, it's hard often - which is, you know, one of the reasons we decline to give guidance - but what ends up happening is as Market Research makes up more of the revenue and more of the mix in a particular quarter, what ends up happening is that their very cost of goods sold intensive versus SG&A.

The traditional Services group direct marketing applications are also then - they are more SG&A driven, you know, more sales, more marketing goes into that.

And that's really it. It's just a little bit of a change in the mix of the business between the different segments.

Kevin Wink - Polynouth Capital Management

Okay. Talking about the turmoil in financial services, I mean, how much is financial services as a percentage of total revenues?

Vinod Gupta - Chairman, CEO, President of Small Business Division

Pretty small for us. Financial, that'd be like - probably like Citicorp or Bank of America, Wachovia and all that - where our competitors have huge relationships with them in generating sales leads for them, doing their direct mail and email and all that. And that's a very small part of our overall business.

Kevin Wink - Polynouth Capital Management

Your comment, unfortunately, sounds sort of ominous. You know, because of the turmoil, we're not going to give guidance? I mean, maybe you'd give us some examples of, you know, things that you see out there that, I mean, other than, you know, every talking head on CNBC, you know, using the R word every day, that we're about to plunge into a recession.

But, I mean, maybe you could give us some of your own points of view as to why the environment seems so uncertain to you that you decline to give guidance.

Stormy L. Dean - Chief Financial Officer

Well, let me just - this is Stormy, and I'll just take kind of a quick stab at this - and it's really about - while it's the, you know, financial services affects some aspects of our business, you know, services and things that we provide for them, and it's more actually the broader economy that gives us more pause for concern.

The direct marketing industry has been slowing down, it hasn't been growing it used to, and so the uncertainty to us is how quickly - you know, Kyle kind of hit upon this - is how quickly as, you know, a big piece of our business is sort of legacy tied into a postal catalog, that type of direct marketing, how quickly we can transition them into the email interactive space.

And there's a different business model there; there's a different cost model and how it's done. And, you know, we're just not certain on how quickly and easily we'll be able to do that in 2008.

So while, you know, we can make some guesses, I think we're better off just not making any projections for 2008.

Kevin Wink - Polynouth Capital Management

Well, what percent of your revenues do you feel like you need to transition to a subscription model, you know, where you have some revenue risk for that percentage of the revenues?

Vinod Gupta - Chairman, CEO, President of Small Business Division

Well - this is Vin - our objective is to increase our subscription-based business to, you know, maybe one day it exceeds 80% or 90%, you know, except for the Marketing Research part.

And the problem with that guidance is they become kind of self-serving. And my aim is to grow this company as much as possible - and as you know, my family is 42% owner - is to do the best for the shareholders, grow this company as [inaudible] is possible and at the same time keep our profitability high.

And by giving a guidance, then we always have to kind of explain why we went over it or under it, it's just not a good exercise.

Kevin Wink - Polynouth Capital Management

Okay. A couple of other hopefully short questions for me. What sort of renewal metrics did you see in Q4? New subscribers look pretty good, but what sort of churn rate did you see in Q4 and total subscribers at the end of the quarter.

Vinod Gupta - Chairman, CEO, President of Small Business Division

We [inaudible] - everything.

Stormy L. Dean - Chief Financial Officer

Yeah, I mean, we've got well in advance of - I can't remember the exact number, but it's like 80 or 90,000 subscribers that we have all across all the divisions.

Our, you know, contract value rate has continued to rise. You know, I think we've reported in the past that our contract value was - let me see, I've got to add the -

you know, like fourth quarter last year, our contract value was about $99 million and now it's up to about $145 million as we made the conversion.

But as Vin talked about, you know, we've seen that our churn rate is starting to rise. We've got to the point where we've got kind of a mature business and we'll not be able to grow it as quickly as we used to, and so what we're trying to do with the hiring of Mark Israelsen is to approach the marketplace in a little bit of a different way, to find ways to provide solutions and make our product, you know, more sticky.

But we also have, not just Salesgenie, but we have, you know, our Reference USA products, our Polk City Directories, all these directory products that, you know, continue to be very sticky and very strong.

Vinod Gupta - Chairman, CEO, President of Small Business Division

See, we have so many products now or so many divisions which are offering subscription products now, and each division has its own churn rate. Some of them have very low churn rate, maybe no more than 2% or 3% a year. Some of them may have 10% a year, and some of them may have 20%.

So the ones where they have a high churn rate, we look at why do we have a high churn rate and what can we do to reduce the churn rate either by improving the quality of the product, quality of the service, make it more sticky, anything to do with the pricing, should we be what I call screen the customers upfront because some of the customers who are going to go away might as well just, you know, screen them out, or do you have a setup chart to make sure that they are locked in? So we look at every division and its churn rate separately, and then focus on their problems and find solutions for that.

Kevin Wink - Polynouth Capital Management

Okay. And then two more quick questions. For the U.K., what are start-up expenses budgeted for that in '08, and how long will it take you to complete the database?

Vinod Gupta - Chairman, CEO, President of Small Business Division

It should take about a year to complete it. What was the start-up cost about?

Stormy L. Dean - Chief Financial Officer

About $4 million.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Pounds - £4 million.

Stormy L. Dean - Chief Financial Officer

£4 million pounds, I mean, to get started.

Vinod Gupta - Chairman, CEO, President of Small Business Division

About $8 million.

Stormy L. Dean - Chief Financial Officer

We look to be, you know, start marketing - start-up costs include the marketing of the product. We're in production right now building the database. We've got people on the ground in Manchester doing the work so, you know, we're hopeful by the second part of the year we'll be able to get started, you know, building a revenue stream.

Kevin Wink - Polynouth Capital Management

Okay. And then Direct Media's revenues?

Stormy L. Dean - Chief Financial Officer

We're not going to disclose that.

Kevin Wink - Polynouth Capital Management

Okay. All right. Thanks for you help.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Thank you.

Operator

And from Boyar Asset Management, your next question comes from the line of Patrick Brennan. Please proceed.

Patrick Brennan - Mark Boyar & Co.

Yeah, hi. First, what was cash flow from operations for 2007?

Stormy L. Dean - Chief Financial Officer

Oh, it was about $72 million - no, $73 million.

Patrick Brennan - Mark Boyar & Co.

$73 million?

Stormy L. Dean - Chief Financial Officer

Yeah.

Patrick Brennan - Mark Boyar & Co.

Okay. And then what - you talked a little bit about, you know, strong results at Opinion Research group. Can you tell us what the EBITDA was at that group, or at least how it was relative to the initial, you know, projections when you acquired it for 2007?

Stormy L. Dean - Chief Financial Officer

Well, I think when we talk about it, you know, initially, we talked about going in to Opinion Research and that was roughly, you know, $190 million worth of business. And we thought that we could probably - their trailing had been $14.5 million in EBITDA.

We were able to go in there and very quickly take out about $4 million of public company expenses, corporate headquarters. We did that right away. It took us about three months to do that, and so that puts you up in the range of - with some, you know, expansion in revenue, a little higher profitability from the U.S. side. The U.K. side has done very well.

So, you know, all in, for that particular segment, I think, you know, by the time we get to the, you know, presenting that information in our 10-K, you know, we're going to see roughly $21 million, maybe $22 in EBITDA for that group.

Vinod Gupta - Chairman, CEO, President of Small Business Division

[inaudible]

Stormy L. Dean - Chief Financial Officer

Yeah. And that actually sort of exceeds our expectations.

Patrick Brennan - Mark Boyar & Co.

Okay. And then what would sort of - you know, it sounded like the backlog was pretty strong, but again, sort of, you know, if you think about it, over two or three years, what would be a realistic, you know, kind of top line growth rate and then what other opportunities for margin enhancement would there be?

Stormy L. Dean - Chief Financial Officer

Well, I'm not sure that it -

Vinod Gupta - Chairman, CEO, President of Small Business Division

You know, the market research industry's pretty stable, and the growth revenue of - the revenue growth, I would like to see at least 5% revenue growth.

And, you know, the traditional margins in the market research industry are running about 10% of revenue.

Stormy L. Dean - Chief Financial Officer

10%, 12%.

Vinod Gupta - Chairman, CEO, President of Small Business Division

10%, 12%. And I think we can do a little better as we become what I call as more efficient.

But overall, it has been a very good sector for us because we are approaching the same buyer in a business, the VP of sales or VP of marketing. And they are the same people who are buying market research services and they're also buying sales leads or they're buying the database services.

So it has been a great natural extension, and overall, we've been very happy with this acquisition, and therefore we have done more other deals in Australia and Guideline in New York, NWC Research or Northwest Research in Seattle or Portland.

So, so far we've been very happy with this sector.

Patrick Brennan - Mark Boyar & Co.

Okay. That's helpful. And then I guess my final question's just going back to the Super Bowl spending, can you be more specific? Maybe you've disclosed it in the past, but what exactly was the total spend in 2007 on the Super Bowl ads? And then I know you said you had an initial surge in subscribers in the, you know, second and third quarter, but then you sort of said that the churn rate, you know, went up a little bit.

Is there anyway you can just specify a little bit better about, you know, what the  you know, most people or a lot of people would like to, you know, curious how you think about it from an IRR perspective or at the very least, is there any way you can - the total number of subscribers - that you can attribute to the Super Bowl ad, you know, what that is? And just any more comfort as to, you know, that the money spent again on the Super Bowl ads, you know, for this year, that, you know, are going to drop down and give an attractive return on the investment.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Well, last year we went to Super Bowl, it was more like a gamble, and I think our total spend was, you know, what - $3 million plus, in that range?

Stormy L. Dean - Chief Financial Officer

I think with some promotions and stuff that were attached to it, it came up to more like $4.

Vinod Gupta - Chairman, CEO, President of Small Business Division

$4 million. And what it did was it brought us, you know, a huge amount of people who came in and they registered, and we built our huge trial file of people who came in and registered. As a result, a number of subscribers who eventually subscribed was very high. I mean, it paid for itself many times over.

We also found that a lot of the people who came in, maybe they were not the right types of customers. And then, of course, they got hit by the mortgage problems and the real estate problems. A lot of people who came in were mortgage brokers and real estate people, and then they got hit.

But overall, it was a highly successful campaign. It gave us a tremendous brand name. I mean, just about everybody I know, they all know Salesgenie. They don't infoUSA, but they know Salesgenie. And we had revenue growth and that's one reason we decided to do it again this year, you know, with the two spots and one in the pre-game.

We keep our expenses low. We don't use ad agencies, spend millions of dollars for script writing and production. It was done on a very low level, plus we have an in-house ad agency, so we get that discount.

And I have no reason - I would say I have a reason to believe it's going to be successful again this year. [inaudible] is the future for our company is have a product or service, millions of salespeople, millions of small business owners, so they can use the service for sales leads, for all of their marketing, one-stop marketing, right online, you know?

Patrick Brennan - Mark Boyar & Co.

Okay. And so you said it was roughly $4 million last year, and then did you say how much was it this year? Sorry if you have to repeat that.

Vinod Gupta - Chairman, CEO, President of Small Business Division

This year, all together would be about $6 million plus.

Patrick Brennan - Mark Boyar & Co.

Okay. And then just my final question is - what was the total ad spending in 2007, you know, and can you give any, you know, where do you think that number would be in 2008? And, you know, how - what type of variance would we see in 2008 based upon, you know, sort of overall economic concerns?

Vinod Gupta - Chairman, CEO, President of Small Business Division

Well, you know, we've got a brand company and we spend a lot of money in advertising, especially in our Database side and the Services side. Marketing Research side, they are not as heavy in advertising spending.

So I don't have a total number because they are budgeted to each division, but we are, you know, we have spent a lot of money over the years - from day one, actually - in direct mail, search word advertising now, Yellow Page advertising, telemarketing, television, radio, print media - and we have no reason to back down on that because to create a brand and to create awareness, we plan to keep that spending, you know, in the same percentage moving forward.

So on the Database side, sometimes our ad spending can be as much as 20%, 25% of our revenue.

Patrick Brennan - Mark Boyar & Co.

Okay. And so if I heard that right, then, for '08, currently there's no reason to think that - ad spending is going to be as great or greater in '08 as it was in '07?

Stormy L. Dean - Chief Financial Officer

I think that's correct.

Vinod Gupta - Chairman, CEO, President of Small Business Division

It should be the same, yeah.

Stormy L. Dean - Chief Financial Officer

The same relative, you know.

Vinod Gupta - Chairman, CEO, President of Small Business Division

And we watch every spending to see whether it's effective or not. So if it's not effective, we cut it out. If it's effective, we don't. We keep it.

Patrick Brennan - Mark Boyar & Co.

Okay.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Thank you.

Operator

(Operator Instructions) Your next question comes as a follow-up question from the line of Kyle Evans from Stephens. Please proceed.

Kyle Evans - Stephens Inc.

Hey, guys. Thanks for taking my follow up.

Stormy L. Dean - Chief Financial Officer

Sure.

Kyle Evans - Stephens Inc.

Without going into any detail, can you give us some sense for how your new Salesgenie GM is going to become - going forward, what kind of metrics you'll be holding them to?

Stormy L. Dean - Chief Financial Officer

Vin, you want to speak to that?

Vinod Gupta - Chairman, CEO, President of Small Business Division

What?

Stormy L. Dean - Chief Financial Officer

The question was, with Mark Israelsen, what kind of metrics will he be held to for his compensation?

Vinod Gupta - Chairman, CEO, President of Small Business Division

Well, he'll - compensation will be based on the revenue growth, and, of course, the profitability, and, you know, the overall provisioning of Salesgenie, how well it does, you know?

Kyle Evans - Stephens Inc.

Okay. I just wanted to make sure that profitability was one of the key measures that he was being held to.

Stormy L. Dean - Chief Financial Officer

It is.

Vinod Gupta - Chairman, CEO, President of Small Business Division

But, you know, what happens is when you're building a new service, sometimes they don't show a profit for a long time, if you've seen NetSuite or Constant Contact, RightNow Technology, SalesForce.com. So once he kind of sees the landscape, sees the services, sees what's the opportunity, how he has to change it, it would be an evolving process to see what he thinks is the future and how he's going to accomplish it.

And so we'll just have to take it by year, you know, take it by year.

Kyle Evans - Stephens Inc.

Okay. Thanks, guys.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Thank you.

Operator

And your next question comes from the line of Kevin Wink from Polynouth Capital Management. Please proceed.

Kevin Wink - Polynouth Capital Management

Oh, for the First Data Resources, deferred revenue finally ran out in the quarter. How much is recognized from that? And then the other part of the announcement that they're not renewing their database license agreement. What were the annual revenues from that?

Stormy L. Dean - Chief Financial Officer

It's all part of the same thing.

Kevin Wink - Polynouth Capital Management

Oh, okay.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Let me just kind of brief you on that, where that comes from.

When we bought Donnelley Marketing - what, seven years ago?

Stormy L. Dean - Chief Financial Officer

1999.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Yeah, nine years ago. And Donnelley Marketing was owned by FDR, and we paid the price of $200 million. And the database license was part of that purchase price.

And so they were paying about $14 million a year?

Stormy L. Dean - Chief Financial Officer

Right.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Yeah. And that was part of the purchase price, and that ran out this year and, as you know, they prepaid, what, two years, for the -

Stormy L. Dean - Chief Financial Officer

Two years ago for the consumer side.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Consumer side.

Stormy L. Dean - Chief Financial Officer

And the business side ran out as well this year.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Yeah. And they have decided not to renew it because of so much of the information is available for free, you know, in Google and everywhere.

So that revenue will go away starting in 2008.

Stormy L. Dean - Chief Financial Officer

And that's what, you know, when we talked about that, that stuff's $14 million of revenue that we take a step back on to grow, before we start growing again. And that revenue was, you know, highly profitable License Division revenue so, you know, that also adds to our - part of our reasons not to give guidance. We don't really know how we're going to - how that's all going to shake out for us.

Kevin Wink - Polynouth Capital Management

Okay. On the dividend policy, we appreciate the dividend but overall cash flows are pretty strong, as you know yourself, and what are your thoughts on a regular quarterly dividend? I would think that would be a much stronger signal to the investment community that the cash flows are stable and they're here to stay.

Vinod Gupta - Chairman, CEO, President of Small Business Division

It's just the cost of giving that dividend. That becomes quite high. That's why, you know, when you pay out annually, you have one cost, and if you pay out quarterly, then you increase that cost by, you know, three times, you know?

Stormy L. Dean - Chief Financial Officer

And we're constrained by the total amount of dividends that we can give in any annual year by our credit agreement. And so, you know, for us to give, you know, a $0.35 annual dividend versus giving three or four $0.09 dividends, you know, we would just have four times the cost.

Kevin Wink - Polynouth Capital Management

Okay. Still, it's a much stronger signal to investors that the dividend and stable and here to stay. Which takes me on to the next question. On an enterprise value to EBITDA, you're about five times, which is on the low side, especially for a business that at some point in the future will probably have a pretty high degree of recurring revenues. I mean, what are your thoughts about the valuation that the company has, and what steps are you thinking about attempting to take, you know, in the next - or in 2008 to market the company to the investment community and to try to raise the valuation?

Vinod Gupta - Chairman, CEO, President of Small Business Division

Well, you know, in our industry the valuations are all over, some on the high side, some on the low side. And I'm a firm believer in growing the company, showing the results, and not get wrapped up in marketing because if you get wrapped up in marketing, we lose sight of the company performance, you know?

So what our plan would be is to show the performance, do the right thing for the company, and tell the truth, you know? So after that, let the investors make up their own mind, you know?

Kevin Wink - Polynouth Capital Management

Okay.

Stormy L. Dean - Chief Financial Officer

The results speak for themselves.

Kevin Wink - Polynouth Capital Management

All right. Thanks.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Thank you very much.

Operator

There are no further questions in queue. I will turn the call back over to management for closing remarks.

Vinod Gupta - Chairman, CEO, President of Small Business Division

Well, thank you very much. We'll talk to you next quarter.

Stormy L. Dean - Chief Financial Officer

Thank you, everyone.

Operator

Thank you for your participation in today's conference.

Vinod Gupta - Chairman, CEO, President of Small Business Division

And watch the Super Bowl commercial.

Stormy L. Dean - Chief Financial Officer

Yeah.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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