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Executives

Karen Greene - VP IR

Walter Buckley - Chairman and CEO

Kirk Morgan - Chief Financial Officer

Analysts

Jeff Van Rhee - Craig-Hallum Capital

Brad Mook with Boenning & Scattergood

Nate Swanson - ThinkEquity

Alan Weinfeld - Henley & Company

Internet Capital Group Inc. (ICGE) Q4 2007 Earnings Call February 14, 2008 10:00 AM ET

Operator

Greetings, ladies and gentlemen, and welcome to the Internet Capital Group Incorporated Fourth Quarter Results for 2007. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Karen Greene, Vice President of Investor Relations for Internet Capital Group. Thank you, Ms. Greene. You may now begin.

Karen Greene

Thank you. Good morning. This is Karen Greene with Investor Relations, and I want to welcome you to Internet Capital Group's fourth quarter conference call. I'd like to remind everyone that we are going to use presentation slides to accompany our prepared remarks today. These slides can be found on our website at internetcapital.com. Go to the Investor Information tab, and you will see an icon for our fourth quarter conference call. The slides can be accessed through that icon. For those of you without immediate access to our website, the conference call and presentation slides will remain on our website and be available for future reference.

On the call this morning, we will be discussing certain non-GAAP financial measures. For additional information on these non-GAAP financial measures, including a reconciliation of these measures to the most comparable GAAP measures, please refer to the press release we put out this morning, including the attachment to this release. The press release is also available on our website which, again, is internetcapital.com. To access the press release on our website, go to the ICT Press Release tab and select the February 14th press release. The attachments to the release can be accessed by clicking on the PDF file contained within the release itself.

Please also note that the non-GAAP measures included in our presentation today are considered pro forma because management has updated its results to include Metastorm's 2007 acquisition and to exclude Marketron as if Metastorm’s 2000 acquisitions and the disposition of Marketron occurred on January 1st 2006. Before we begin, I'd like to briefly review our Safe Harbor language. The statements contained in our press release and those that we make in the conference call, as well as the accompanying slide presentation that are not historical facts are forward-looking statements that involve certain risks and uncertainties including, but not limited to risks associated with the uncertainty of future performance of our partner companies, acquisitions or dispositions of interest in partner companies, the effect of economic conditions generally, capital spending by customers, development of the e-commerce and information technology market, and other uncertainties detailed in the company filings with the Securities and Exchange Commission. These and other factors may cause actual results to differ materially from those projected.

With that, let me turn the call over to Walter Buckley, ICG's Chairman and CEO.

Walter Buckley

Thanks, Karen, and good morning. Welcome and thank you for joining us this morning. I'll begin by providing you with an overview of ICG and its partner companies for 2007, including fourth quarter highlights, and Kirk Morgan, our Chief Financial Officer will follow with ICG's financial results and our review of partner company performance for the fourth quarter and year end.

In short, 2007 was a very good year for ICG. We maintained our focus on building our core partner companies and we are pleased with the results. Our partner companies demonstrated strong execution, launched a number of new exciting product initiatives, and saw excellent customer ROI this year. ICG helped facilitate several important acquisitions and a number of strategic initiatives for this group. We also help build out the management team at several of our companies.

Collectively, these actions yielded excellent annual revenue growth, exceeding our original and revised guidance for the year. Additionally, we entered 2008 with good momentum across the board, including a transformational acquisition pending at GoIndustry, which I will talk more about later in my remarks. Listed on slides four and five footprints of our overall progress. Our core partner companies saw 30% aggregate revenue growth in the fourth quarter of 2007 versus 2006, and achieved annual revenue growth of 31%.

Aggregate EBITDA of our core companies improved 39% in 2007 over 2006. We helped engineer the Metastorm acquisition of Proforma, and this transaction significantly enhanced the Metastorm platform as well as its revenue growth and solidified its position as the leading pure-player in the BPM market.

We had $40 million in monetization for 2007, primarily from the sale of Marketron. We hired Jean Cholka as CEO of Freeborders, and helped build out the management teams at ICG Commerce, StarCite, and WhiteFence.

And, finally, we significantly improved our deal flow both in terms of quality and quantity. Slide 6 through 12, reflect partner company highlights from all our core companies. I will hit a few of them starting with ICG Commerce.

ICG Commerce, a leading procurement services provider, had another strong quarter of growth and a terrific year. The company grew revenues by 30% over the prior year, exceeded its EBITDA targets, and established contracts with new and existing customers worth over $90 million in total contract value. The company formally established over a dozen new customer relationships including three multiyear, multimillion dollar contracts with market leaders like Chiquita brands.

In addition, the company extended and expanded relationships with many of its existing customers. For the company's major BPO clients including Goodyear, Cooper Cameron, Greif renewed contracts in 2007, with three of them significantly expanding the size of their contracts.

ICG Commerce also successfully implemented a major global BPO relationship with Kimberly Clark and delivered against the 100% of its savings commitments to all our customers.

On an international scale the company significantly expanded its European delivery platform and established a presence in Xinjiang, China. ICG Commerce entered 2008 with a backlog of approximately $150 million, a 32% increase over where it was a year ago. And we think the company is very well-positioned to produce excellent growth in 2008.

StarCite, provider of on-demand global meeting solutions, continue to experience strong growth in 2007, resulting from 38% increase in major clients across a variety of industries. 2007 bookings grew 53% over 2006, and StarCite’s on-demand global meeting solutions are now used by more than 15,000 corporate and small business meeting planners.

The request for meetings or RFPs spinout to the StarCite online global marketplace and represented a market opportunity of more than $20 million room nights or $7.5 billion in business, an increase of over 30% over 2006.

Among the new corporate logos StarCite secured in 2007 were ConAgra, R.J. Reynolds, Liberty Mutual Group, JM Family Enterprises, and SunTrust Banks among others. They are now more than 150 Fortune 500 clients using StarCite solutions as part of their strategic meeting management efforts.

StarCite also assigned a number of new clients in the mid market sector including Coloplast, Stiefel Laboratories, HealthStar Communications and Jeld-Wen. Earlier in 2007 in a partnership with American Express, the company announced a major program that integrates StarCite’s e-sourcing and planning tools with American Express’s expertise in paying for reconciling and analyzing meeting spend. We expect to see the results of this program in 2008.

Turning to Metastorm, a leading business provider of business process management software, posted record revenues for the year and saw increased profitability. Inclusive of its 2007 acquisitions, Metastorm experienced 42% growth in total revenues year-over-year and added over 165 customers to its portfolio in 2007. Some key additions in the fourth quarter include AEGIS Group, Allergan, CareFirst, BlueCross BlueShield, CSX, Portugal Telecom, and Wells Fargo.

Existing customers expanding their use of the Metastorm software, include Chubb, Generali Insurance, Thomson Elite, and Wyeth. Overall strong adoption rates and large enterprise license deals enabled Metastorm to post a third consecutive year of profitable growth.

Analyst at Gartner and Forester also recognized Metastorm’s progress this year, declaring the company a leader in the BPM space. WhiteFence, a leader in the online service transactions for home services, reported close to 100% growth in the fourth quarter and fourth quarter revenues on a year-over-year comparison and had annual revenue growth of over 90%. During the quarter, the company signed 39 new contracts, consisting of 27 new service providers and 12 new channel partners.

WhiteFence also expanded its product and service offerings, introducing renewable energy credits, identity theft resolution, and Banc of America credit card options in addition to launching the WhiteFence index, the only place on the web to find averages for utility bills in more than 20 US cities.

And, finally, Freeborders, a leading provider of information technology solutions, continue to experience significant growth during the quarter. The company had over 100% year-over-year revenue growth in its IT services business and signed significant new contracts during the period including Takeda, U.S. Bank and Ticketmaster. Earlier in the year, Freeborders announced the major partnership of Expedia to create a technology development center for Expedia in China. Freeborders is also now providing services to five out of the top six global banks. And, finally, the company is entering 2008 with a very strong backlog showing a healthy increase from a year ago and thus positioning the company for continued rapid growth.

One company, I would like to highlight that we don't usually get to on our calls, is GoIndustry, a leader in the auction of industrial equipment and listed on the AIM exchange. As I mentioned at the beginning of the call, Go recently announced its pending acquisition of DoveBid, its largest competitor. I'd like step back and walk you through what Go does for its customers and then update you on why this announcement is so important.

Turning to slide 13, this is a quick summary of GoIndustry's business today. The company is a leading international player in the sale and valuation of used industrial machinery and equipment. Go's unique platform runs industrial equipment auctions that are conducted either online, onsite, or at local event venues, and are staged to create a competitive bidding environment.

In live auctions, webcast transform the auction process into a worldwide event by introducing live, interactive bidding via the Internet. The webcast also provides for real-time bid pricing, asset descriptions, photos, and messaging. Bidders can participate from their desks making pricing decisions based on the dynamics of the auction.

In online auctions, all bids are placed online. This is GoIndustry's most popular method of sale, and in 2007 the company conducted over 500 online auctions. The online exchange offers multiple clients with small parcels of assets an opportunity to sell in a dedicated fashion. These auctions are run monthly for specific asset classes.

And, finally, Go has a data base of over 300,000 qualified global buyers, which are segmented by industry and product type. This large network allows Go to create a global marketplace for an industry that’s primarily being constrained by geography. GoIndustry reported approximately $36 million in direct profit in 2007.

Turning to slide 14, this reflects a combined company, GoIndustry and DoveBid. DoveBid, a privately held company based in the U.S., arguably the only other global player in the market and is the number one player in the U.S., bringing these companies together will increase Go’s reported direct profit by 50%, broaden its global footprint, bring significant synergies on strategic and operating levels, and ultimately create the clear market leader.

Current economic trends are in GoIndustry’s favor given that many options are conducted as a result of insolvency and bankruptcies, and given the businesses are hungry to realize value of their old and surplus assets. As a result of all these factors, the combined company should be very well-positioned for growth in 2008.

Similar to the M&A activity ICG had driven for some of the other partner companies. This acquisition will consolidate the market and transform Go into a clear leader in a growing global marketplace.

We view this acquisition as an important opportunity to build value in a company that we believe holds significant potential and will ultimately translate into increase shareholder value. As such, we expect to fund $10.5 million towards this acquisition resulting in an ownership interest of 28%.

Now let’s look at our core companies as a whole. For those of you who are unfamiliar with ICG’s lifecycle, slide 15 provides a quick illustration of how we view the stages of what we do. A year ago, we mapped out our current core companies in terms of maturity where they were positioned within the ICG lifecycle of acquiring, building, and capturing value.

Slide 16 illustrates this framework from a year ago and today. One prominent change is that WhiteFence is maturing significantly over the past year and has moved into the middle section of the build phase. As I described earlier, WhiteFence has made tremendous progress since we acquired our initial stake.

Under the helm of CEO, Eric Danziger, who we recruited about 18 months ago, the company has refined its strategy from revenues almost 100% in 2007 to $18 million and continued to build out its platform. Another important change in this diagram is that Marketron was removed from the build phase when we monetized the company in the second quarter of 2007 for $37 million.

We believe that some of our more matured companies are positioned for capturing value over the next 12 months. They are proven leaders in their respective markets with healthy revenues and strong margins. ICG Commerce, StarCite, Creditex, Metastorm and slightly further out Freeborders and WhiteFence are companies you should pay close attention to.

Our younger companies, which are putting their capital at work to build their businesses and grow their market share, are still early in the build phase and will take time to grow. But we believe there is great potential to create value in this group as we are actively working with these companies at the ground level to accelerate their growth.

As we continue to build out our core companies, we have been aggressively identifying and considering additional acquisitions. Our deal flow increased by 70% in 2007, and we entered 2008 with a strong pipeline of opportunities for both new and bolt-on acquisitions. That said, we are determined to remain disciplined buyers. We looked at a number of very interesting companies in 2007 and entered into negotiations with several of them. Some of whom, we are still in discussions with and others with whom we have parted ways over valuation and pricing.

With 12 years of experience in this market, we have lived through frothy markets and learned from our mistakes. We believe that as the market becomes more rational, there will be ample opportunities to acquire and build great businesses. And we are confident that by being patient and disciplined, it will pay off in the long run.

In summary, 2007 was an excellent year for the company. We think that ICG and our partner companies are well positioned to capitalize on the opportunities in the on-demand software market, and that ICG represents an attractive and diversified vehicle to participate in this rapidly growing sector.

Looking ahead to 2008, we will prudently and selectively deploy capital in those companies that meet our criteria. Furthermore, we expect to capture value at some of our more mature companies. And, finally, we expect to see continued healthy revenue growth at our companies as they continue to deliver valuable solutions to their customers.

With that, I will turn it over to Kirk Morgan.

Kirk Morgan

Thanks, Buck. Good morning, everyone. I will begin on slide 18 with our fourth quarter 2007 consolidated income statement. ICG's financial statements reflect the consolidated results of two partner companies, ICG Commerce and Investor Force, during the fourth quarter 2007 versus three partner companies in the 2006 period, ICG Commerce, Investor Force, and StarCite.

Consolidated revenues in the fourth quarter of 2007 totaled $14.1 million, compared with $17 million for last year's fourth quarter. Again, we saw solid revenue growth at ICG Commerce in line with the 30% for the year we had forecasted. This increase in revenue at IC Commerce during the quarter, however, was more than offset by StarCite moving from the consolidated category in 2006 to the equity category following its merger with OnVantage late in 2006.

Moving to the bottom line, ICG reported a consolidated net loss of $3 million or $0.08 per diluted share for the fourth quarter 2007 as compared with net income of $14.9 million or $0.37 per diluted share for the fourth quarter of 2006. Results for the quarter include 6.8 million in net gains primarily related to the non-cash mark-to-market accounting gains on our blackboard hedges compared with $19.4 million in net gains in the prior year primarily related to gains from dispositions.

Additionally, results for the 2007 quarter include $1.7 million of stock-based compensation compared to $1.8 million in the prior year. For the year, ICG reported a consolidated net loss of $30.6 million or $0.81 per diluted share as compared with net income of $15.6 million or $0.41 per diluted share for 2006.

Results for 2007 include $4.4 million in net gains compared with $41.3 million in net gains in the prior year related to gains from dispositions. Additionally results for 2007 include $7.3 million in stock-based compensation compared to $ 7.7 million in the prior year.

Let me next review our core company results on slide 19. The information I’m about to share with you relates to ICG’s eight core companies in which we had an average interest of 45% as of December 31st 2007. All the following aggregate pro forma information is on an apples-to-apples comparative basis.

Aggregate revenue of our eight core companies increased 30% to $62.1 million during the fourth quarter of 2007 from $47.7 million in last year’s fourth quarter. Significant contributors to the fourth quarter growth were ICG Commerce, Metastorm, and WhiteFence.

Again, it’s worthwhile to mention that in our aggregate revenue information, we present the revenue growth related to the acquisitions completed by StarCite and Metastorm on an apples-to-apples basis, that is, we add the effect of the acquisitions to all the periods presented. If we reported growth on a non-apples-to-apples basis, as many companies do, the growth rate would be much higher.

For the year, our eight core companies reported revenue growth of 31%. This record annual revenue growth demonstrates the excellent progress these companies are making in their respective markets. Our eight core companies reported an aggregate $7.7 million EBITDA loss during the 2007 fourth quarter versus an aggregate EBITDA loss of $8.6 million in last year's comparable quarter.

Let me provide a little more color on the EBITDA improvement in the quarter. If you exclude StarCite from these aggregate EBITDA figures for Q4, due to a number of non-recurring items, StarCite had primarily related to the ongoing merger with OnVantage, aggregate EBITDA for the quarter would have improved more in line with what we saw for the year for our core companies, again demonstrating a solid progress these companies are making.

ICG Commerce and Metastorm continued to lead the way with solid positive EBITDA for the quarter and for the year. Our remaining core companies, including our three most recent acquisitions, continue expanding their sales and marketing efforts and developing their platforms. Again, the spending was in the plan and we believe will lead to long-term stockholder value creation.

For the year, these core companies reported an aggregate $19 million EBITDA loss versus an EBITDA loss of $30.9 million in 2006, representing improvement of over 39%. Importantly for the year, we saw leverage at the EBITDA line of over 20% as well. This means we saw annual aggregate EBITDA loss improvement of $2 million for each $10 million of additional aggregate revenue. This is, of course, across all of our core companies in the aggregate, some are doing better and some are still maturing and growing. Based on our experience with Blackboard, LinkShare and others, we believe that long term cash operating leverage should be well more than 30% for these types of models. And we continue to work in that direction.

Going to the bottom line, the aggregate net loss for our core companies for the quarter was $13 million, that's up from $10.9 million in last year's quarter primarily due to the non-recurring StarCite charges I referred to earlier and increased amortization expense associated with Metastorm's and StarCite's M&A activity.

Now again, as a reminder, the core company information we present excludes Creditex, which is reflected as another holding as we earn less than 20% of the equity of Creditex. Creditex continues to benefit from the market volatility that continued in the fourth quarter and into 2008 related to sup-prime issues, generally increasing the credit derivative activity in the market. We believe as Creditex continues to execute and the market for credit derivatives continues to grow, Creditex is creating significant value for ICG.

Again as a reminder, our current GAAP historical cost carrying value of our 15% primary ownership in Creditex is approximately $25 million, which has been our carrying value since the deal closed in the fourth quarter 2006.

Now let's move to slide 20. Slide 20 presents the movement of cash at the parent company level during the fourth quarter and our total liquidity at December 31st. We funded $5.3 million to partner companies during the quarter, the majority going to Vcommerce and Investor Force; we received $2.1 million in proceeds from monetizations from our other holdings category and had net cash operating costs of $1.3.

We ended the quarter with $69.1 million of cash at the parent company. Additionally, at December 31st, the gross value of our Blackboard holdings was $88 million offset by the current value of our Blackboard hedges of a negative 3.7.

Additionally, the value of our GoIndustry holdings was $18.2 million at year end.

Now, in closing, I want to provide an update to ICG's path to value creation, how we acquire, build, and capture value. Now I’d summarize this path on slide 21. The summary includes a look back at our performance in 2005 and 2006 and update to our progress for 2007 and a look forward to 2008.

First, we acquire. Over the last three years, we deployed almost a $120 million of capital including $23 million in 2007 to acquire ownership interest in White Fence, Vcommerce, Channel Intelligence and Creditex and to participate in follow-on financings at Metastorm, Freeborders, WhiteFence and others.

We expect to complete two new acquisitions in 2008 and, equally as important, participate in follow-n financings at our existing companies.

Now we have a number of potential new deals in the pipeline, like Buck talked about, but it’s very difficult to predict the timing of these acquisitions.

Next, we build. Significant progress continues to be made in this stage. Our core companies achieved record annual revenue growth of 31% in 2007 which was above our original objective of 25%. We also saw a solid, full year aggregate EBITDA improvement of 39% for our eight core companies.

Important, non-operating progress was also made in 2007 with Metastorm’s strategic acquisitions, management team augmentations, acquisition and merger integrations, and technology platform initiatives. We believe all the progress we’ve seen in the build phase in 2007 and importantly, over the last three years, will continue to lead to long-term stockholder value.

Now looking forward to 2008, we expect our core companies will grow aggregate revenues at least 25% for the year and we expect to see continuing EBITDA improvement.

Wrapping with the value capture stage, in 2007, we captured approximately $39 million in gross proceeds, primarily, for ownership interest in Marketron, where we realized $36.7 million in gross proceeds of which $4.2 million is still being held in escrow. We believe we will have two value capturing events in 2008.

With all that said, 2007 was a great year for ICG on many fronts. We ended the year debt free in the best financial position we have seen in a number of years and have a group of companies that grew revenue by 31% with improving EBITDA. Given all this, we look forward to reporting to you on our progress in 2008.

With that I will turn it back over to Buck.

Buck Walter

Thanks, Kirk and now we like to open it up to questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question is coming from Jeff Van Rhee with Craig-Hallum Capital.

Jeff Van Rhee - Craig-Hallum Capital

Good morning. Looks like some good numbers. A couple of questions for you. Maybe, Kirk, just if you could start with me on the growth of the core companies. It looks like the past quarters as I compare what you show this quarter compared to what you show last quarter that they have been restated. You touched on a number of things that affect restatments, but specifically what affected those core revenue numbers in particular I am talking about?

Kirk Morgan

Yeah. There was one of the companies is in the process, Jeff of selling a non-core part of their business. And therefore we removed that business from the line items.

Jeff Van Rhee - Craig-Hallum Capital

Okay. If you had included that what would we've been looking at?

Kirk Morgan

It would have been in the same direction as where we were.

Jeff Van Rhee - Craig-Hallum Capital

So without on an apples-to-apples, it looks like you didn't get to the 30%, so you're saying with that in there we would have maybe added another $1 million in revenues and we would have made the 30% compared to where the numbers were?

Kirk Morgan

Well, we made 31% for the year.

Jeff Van Rhee - Craig-Hallum Capital

Yeah. On the restated numbers, but I am saying compared to the historical time series that we had coming into this quarter, and then we add the numbers that you give this quarter 62.1, it falls short of the 30%. So I am just trying to be clear the 30%, you would have made it, had you not done this restatement?

Kirk Morgan

Yes.

Jeff Van Rhee - Craig-Hallum Capital

Okay. The consolidated companies went from 46 to 41 mostly with ICG Commerce in there. What seasonality-wise or sequential-wise leads to a down quarter with them?

Walter Buckley

There was nothing significant in there Jeff. It really had to do with some consulting engagements that we saw in Q2 and Q3 that fell off a little bit in Q4.

Jeff Van Rhee - Craig-Hallum Capital

Okay. So it's just really non-recurring consulting?

Walter Buckley

Yeah, yes.

Jeff Van Rhee - Craig-Hallum Capital

Okay. And then in terms of the gross margins, you talked about their expansion to Xinjiang and some other markets. We've seen gross margins coming in. Have we bottomed that gross margins for the consolidated P& L?

Walter Buckley

I would think so.

Jeff Van Rhee - Craig-Hallum Capital

Okay. And then lastly, maybe you could just touch on the carry plan. I know there is a new comp plan and just can you give us clarification on further nuts and bolts of the comp plan, and the logic going into that? It seems like a material change from what you've done before.

Walter Buckley

Sure Jeff. It's a long-term incentive plan that we’ve put into place really beginning in 2008. And really our goal was to create a plan that allows us to retain and attract key employees and do it in a way that minimizes dilution to shareholders, alliance, our success, ICG’s success with payment. And so what we’ve tried to do is mirror as best we can a private equity or ventured capital carried interest plans.

We’re not taking 20% carry. We are taking a 15% carry. And with a 6-year vest, which is significantly more than what we traditionally see in the option plan. And the payouts would only occur on new investments after those investments have made a threshold return to ICG and our shareholders. And so it’s really a performance based plan that we probably don’t expect to see payouts for two, three, four, five years, frankly.

Jeff Van Rhee - Craig-Hallum Capital

And what in the threshold in terms of the return on the investments on an annual basis? Or how do you calculate that?

Kirk Morgan

It’s the investment plus a preferred return.

Jeff Van Rhee - Craig-Hallum Capital

Is that a fixed preferred return? Is that a number? I mean, what is the number?

Kirk Morgan

8%

Jeff Van Rhee - Craig-Hallum Capital

Okay. So beyond 8% it is a 15% carry of the profits?

Kirk Morgan

Yes.

Jeff Van Rhee - Craig-Hallum Capital

Okay.

Kirk Morgan

And actually it’s more complicated than that, but it’s not just based on one investment. It’s based on the years’ investments. So that whole group has to return capital plus 8% before distributions are made.

Jeff Van Rhee - Craig-Hallum Capital

Okay. And that makes sense. And then lastly, just on the EBITDA loss for the core companies we went from 3.8 to 7.7. Sequentially, year-over-year it’s a better compare, but sequentially it’s a big jump. You mentioned StarCite, OnVantage. Does that explain that entirely or is there anything else going on in there?

Walter Buckley

Yeah. That is the primary factor, yes.

Jeff Van Rhee - Craig-Hallum Capital

Okay. Great. Thank you.

Operator

Our next question is coming from Brad Mook with Boenning & Scattergood.

Brad Mook - Boenning & Scattergood

Hi, guys.

Walter Buckley

Hi, Brad.

Brad Mook - Boenning & Scattergood

Jeff hit on a number of my questions. So really, the one thing I want to key on is your comment at the end of the formal comments about two monetization events or value capturing events in '08. What kind of changes the recent market conditions make to that schedule and/or anticipated plans on that front?

Walter Buckley

Well, just stepping back for a second. As we talked about in early 2007, we forecasted three to four monetization events over 24 months. We saw the sale of Marketron last year. And the group of companies we have today, Metastorm, ICG Commerce, StarCite, Creditex and further out Freeborders and WhiteFence just a really good group of companies who continue to execute both on the top and bottom line.

We would expect to see two events this year based on sort of where we are currently today. I think these companies, especially Creditex is benefiting significantly from this environment. But all those companies are doing well. If things deteriorate from here, we certainly have to reevaluate, but we would expect as we see things today to see those two.

Brad Mook - Boenning & Scattergood

Okay. Alright. So as far as changes over the last couple of months, there is no real incremental change to the plan?

Walter Buckley

No. There isn’t. But again, I’d tell you, obviously we are in uncertain times and we want to make sure we are thoughtful and cautious. But as we see things today, we should see two monetization events.

Brad Mook - Boenning & Scattergood

Okay.

Walter Buckley

A lot on capturing value, maybe it is a better way to say it.

Brad Mook - Boenning & Scattergood

Yes. Okay. Fair enough. Thanks.

Operator

Our next question is coming from Nate Swanson with ThinkEquity.

Nate Swanson - ThinkEquity

Hi. And good morning and congrats on nice year.

Kirk Morgan

Hey, Nate.

Walter Buckley

Thank you.

Nate Swanson - ThinkEquity

Just a follow-on to last question. Buck you and your team sit in a pretty interesting and unique position of not only having a window into your partner companies, but also a window into all the deal flow that you see. I am wondering just from a high level what kind of change in growth rates or change in market demand are you seeing around the SAS model, assuming that we are heading into a recession?

Walter Buckley

Nate, it's a very good question. It’s something we ask ourselves and our CEOs and fairly consistently. And again, I precedent saying that if things deteriorate that we certainly want to reevaluate, as of now we are not seeing a slowdown. Stepping back for a second, just thinking about these types of businesses, the majority of our businesses drive significant cross savings for their customers, whether it is ICG Commerce, who saves on average 11% on their actual spend or StarCite or Metastorm.

And so they are the real savings, and our customers are benefiting directly from that. And usually it's a multiple of what they have to pay for the service. So anywhere from two to eight times of return on an annual investment. So we view that that’s a key driver and why we are not yet seeing a slowdown.

Obviously, things could change, but anecdotally, Cisco is one of StarCite's largest customers and Cisco looks at cutting costs, the CFO walked into the VP of meeting planning several weeks ago, and said, you need to cut cost and manage your cost more effectively. And he looked up and he said, yeah, we're doing that, and we are using the StarCite tool and platform as a means to not only to extract savings, but manage our overall spend in this area. So that’s anecdotal, but that's what we are seeing. And I don't think it's just ICG and our companies, but I think even across the board.

Nate Swanson - ThinkEquity

Okay. That's really helpful. And then I guess a follow-on to that is, as we think about that in your fiscal '08 guidance of roughly 25% growth, you guys had a real nice year of 31% growth in '07, yet, I can’t help but feel that a lot of the heavy lifting was done kind of behind the scenes. And that several of your portfolio companies haven’t really hit the inflection point yet. Do you think that's accurate? And I guess, how does that play into the assumptions that you use for a 25% growth rate?

Kirk Morgan

Yeah. Again, Nate, we had a great 2007 with 31% revenue growth. And we’ve said before though, these companies are still maturing. And with that, you add on a bit of the uncertain macroeconomic outlook, we just think a good starting point for 2008 is 25% for these companies.

Nate Swanson - ThinkEquity

Okay. And last question, just in terms of the volatility that we are seeing in the capital market today, I am wondering does that change or have you seen any change in terms of deal flow and pricing and potential opportunistic M&A opportunities for your existing portfolio?

Walter Buckley

It’s still early. But as we mentioned earlier, that we walked away from some several transactions last year because of valuation and structure and pricing. And we’ve begun to see what we think are sort of somewhat more rational pricing, especially on the private side. I think it’s still a little early to say we see a strong trend, but it usually take six months for folks to readjust their thinking and around evaluation. But I think in the current environment we’d expect to see some change there. And I think it presents a good opportunity for us.

Nate Swanson - ThinkEquity

Okay. Perfect. Thank you.

Walter Buckley

You bet.

Operator

Our next question is coming from Alan Weinfeld with Henley & Company.

Alan Weinfeld - Henley & Company

Great quarter on the core company side. I had a question, when you talk about capture in 2007, you talk about effectively repurchased 2.9 million shares of your common stock through repurchase of convertible debt. Obviously, with where your stock is and where you think the opportunities are, I think that's a wise idea. Do you have any other stock repurchase program authorized by the Board? And do you have any other convertible debt outstanding or as you said you were debt free? That's it.

Walter Buckley

Yeah. We are debt free. We have no more convertible notes outstanding. And just our focus day in and day out is continuing to build long-term stockholder value. To that end we believe our core companies, many are pretty early in the markets that are participating in, and therefore present some very attractive places to deploy our capital.

I think you have seen us do that over the last three years, putting $80 million into our existing companies, new acquisitions of about $40 million. And what we saw for that is, these companies grew 31% in 2007. And we believe that represents a very compelling value proposition. But of course, we always will and continue to do monitor where the best uses of our capital are.

Alan Weinfeld - Henley & Company

Right. So when you put out there two value capturing events in 2008, those are the kind of the two events that we had kind of heard about in mid 2007, that kind of got pushed out. Are there any other things you are thinking about besides the two obvious that you have already discussed?

Walter Buckley

I think that from our perspective, it's hard to pinpoint exact timing on giving sort of monetization or capture value events, but that's why we try to bracket it into 24-month timeframe. But we are always looking at ways to unlock value. And we think the transaction with Go and DoveBid which's been announced but not closed really does represent a very interesting opportunity for ICG and for Go to really sort of separate itself from the rest of the marketplace.

And we continue to evaluate all of our companies and all the options in front of us to see what's the best way to drive value. And so I think everything is on the table, and this type of environment, we think that valuations will become more rational on the private side and allow us to do things we may couldn’t have done in 2007.

Alan Weinfeld - Henley & Company

And Go, DoveBid what's going to be their eventual revenues with international versus domestic?

Walter Buckley

We don't have all those numbers in front of us today. But Go is primarily international based today, primarily European based, and DoveBid is primarily U.S. based. And DoveBid is a little over half of what Go is.

So I think that gives you a rough perspective of the combined company. And one of the issues we’ve had with Go, we hadn't had really great penetration in the U.S. and the U.S. corporate market and DoveBid brings that to us. It's got dozens of relationships with major corporations from a dispositions standpoint and that really, I think, accelerates this company's opportunity.

That said, having a global market price with the global buyers really creates a competitive dynamic that we haven't seen in this industry before and something you have seen in a company like Ritchie Brothers, which is in sort of a sister of marketplace. And that’s a type of opportunity we think we have in front of us with Go.

Alan Weinfeld - Henley & Company

Great. Thanks guys.

Walter Buckley

Thanks Alan.

Operator

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

Walter Buckley

I would like to thank all of you for joining us this morning. And I look forward to reporting on new progress in 2008 and first quarter in May. Thank you.

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Source: Internet Capital Group Inc. Q4 2007 Earnings Call Transcript
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