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TheStreet.com Q4 2005 Earnings Conference Call Transcript (TSCM)

February 9, 2006

Executives

Thomas J. Clark Jr., Chairman and Chief Executive Officer

James Lonergan, President and Chief Operating Officer

Lisa A. Morgensen, Chief Financial Officer

Analysts

Michael Monskoff, MRM Capital

Frank Grathena, Adminel Partners

Corey Johnson, Kanal Capital.

Pyran Robai, Roth Capital Partners

Andrew Sol, E-stoppers Creek

Susan Meller, Independent Investor

Zane Weinheim,Kettle Hill.

Michael Moskow, MRM Capitol.

James Lonergan, President and Chief Operating Officer

Some of the statements made on this earnings call not related to historical facts may be deemed to be forward looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements may concern TheStreeet.com financial performance as well as its strategic and operational plans are subject not risks and uncertainty that could cause actual results to differ. The company undertakes no duty to update any such statements. The risks and uncertainty are described in the company’s SEC filing on file with the SEC and available at its website www.SEC.gov. Additional information will also be set forth in TheStreet.com annual report on Form 10K for fiscal year ending December 31, 2005 which will be filed with SEC in the future.

I will now turn the call over to Tom Clark, TheStreet.com’s Chairman and Chief Executive Officer. Tom.

Thomas J. Clark Jr., Chairman and Chief Executive Officer

We are extremely pleased to report full year profitability for the first time in our history. It is especially satisfying knowing that our employees have always handled any bumps in the road with the highest level of professionalism and it is a testament to their efforts and commitment that we have achieved this significant milestone. I thank them for all they have done.

On this call last year I talked about a strong foundation and the strength of our electronic publishing segment in particular. As I mentioned in our press release earlier today, with the closing of our securities, research and brokerage business in June, our electronic publishing segment shows such strength with $5.8 million earnings for the fiscal year. It is never easy to close a business unit, but it was the right decision for the company and for our shareholders.

The results we report today for the full year 2005 reflect that decision and also position us for a very solid future. In achieving profitability it is important to note that this was achieved even as we accelerated the expense of stock options one quarter before the mandated date which resulted in an additional $0.3 million non-cash compensation expense in the quarter.

Let’s take a look at the top line results. Net revenue for the year was $33.7 million a 10% increase over 2004. Net income for the year was $0.2 million or 1¢ per share, an improvement of $2.4 million from the previous year. Net income from continuing operations was $5.8 million or 23¢ per share, an improvement of $2.1 million or 59% from the previous year. Our cash, restricted cash investments stood at $34.0 million as of December 31, 2005, an improvement of 6% over the same period last year.

The business itself had a tremendous fourth quarter as both our advertising and subscription revenue streams posted strong results, a direct benefit from the increased traffic growth we saw during the year. Fourth quarter advertising revenue increased 56% over the same period a year ago fueled by a surge in both unique visitors up 30% and paid views up 43% over the same period last year. This traffic increase also enabled us to expand our advertising base and focus more on technology, auto, retail and travel advertisers, allowing us to increase our non-broker advertising revenue 58% from the third quarter to the fourth quarter.

The subscription side of the business also benefited from the increased traffic as we added 7,900 net new subscribers for premium services in the core. Subscription revenue for the quarter totaled $6.5 million, an increase of 12% from the previous quarter. Our deferred revenue totaled $9.9 million, a 6% sequential increase and the highest deferred revenue balance in the company’s history; the majority of which will be recognized in 2006.

At the end of last quarter we talked about increasing our number of subscribers which we accomplished with 10% growth in the quarter. In addition, another metric we wanted to improve was our revenue per subscriber, which we increased to $313 from the $308 reported last quarter. We are pleased with our full year result and with the strong trends both sides of our business exhibited during the quarter.

I will now turn the call over to Lisa to explain our numbers in more detail.

Lisa A. Morgensen, Chief Financial Officer

Thank you Tom. We entered the fourth quarter with net revenue of $10 million, and increase of 25% over the fourth quarter of 2004 and an increase of 22% from last quarter. We ended the year with revenue of $33.7 million, and increase of $3 million or 10% over last year. In the first quarter we elected to begin the expensing of stock options one quarter before the mandated date which resulted in incremental non-cash expense of $332,000. Our fourth quarter operating expenses of $8.5 million were up 33% from last year’s $6.4 million, which excludes the effect of the $500,000 gain we received in 2004 from the sale of our interest in BusinessNet On line Information, Ltd., which had been written off as an impaired asset in 2001 and up 21% or $1.5 million from last quarter’s $7 million level. The increased spend has been primarily driven by the valuation of strategic alternatives, in addition to the evaluation of an early adoption of stock option expensing in the fourth quarter of this year. I will detail the variance in each cost category later in the call.

For the year our expenses were $28.8 million, $1.3 million or 5% greater than last year. Excluding 2004’s one-time lease termination charge and the asset impairment gain, expenses were $1.2 million or 5% greater than last year. The increased spend has been driven primarily by costs associated with our long-term strategic initiative, such as increased variables compensation in revenue share costs that result from higher revenue, personnel build up, the evaluation of strategic alternatives in addition to the adoption of stock option expensing in the fourth quarter of this year.

Our fourth quarter net income from continuing operations was $1.7 million or 7¢ per share. This is a $.4 million or 20% reduction to the $2.2 million or 8¢ per share on a fully diluted basis for the same period of 2004 and a $.4 million improvement from last quarter’s net income from continuing operations of $1.4 million or 5¢ per share on a fully diluted basis. Our full year net income from continuing operations was $5.8 million, a $2.1 million or 59% improvement for the full year 2004. Total fourth quarter net income was $1.8 million, a $1 million or 142% improvement to the same period last year and a $.2 million or 10% improvement the last quarter. Our cash restricted cash in short term investment positions stood at $34 million at the end of the fourth quarter. This represents a 6% improvement over the same period last year and an 8% sequential improvement. Our total cash flow for the quarter was $2.5 million, a $1.5 million improvement over last year’s fourth quarter cash flow of $1.1 million and a $.6 million improvement over last quarter’s cash flow of $1.9 million. Our cash flow for the year was $1.9 million, $1.7 million less than our $3.6 million cash flow for last year.

At this point I would like to review the results in more detail. Subscription revenue for the fourth quarter of 2005 was $6.5 million, a 17% increase for the same period last year of $5.6 million and a 12% improvement from $5.8 million last quarter. For the year, our subscription revenue was $23.1 million, $.7 million or 3% better than last year.

We had booked subscription orders of $7.1 during the quarter, an increase of 43% over the same period last year of $4.9 million and an increase of 15% from last quarter’s $6.1 million. For the year we had booked subscription orders of $25.7 million, 12% greater than the 2004 level of $22.9 million. Our total number of subscribers with approximately $86,900, up 20% over last year’s $70,300 and up 10% over last quarter’s $79,000. The average annual revenue per subscriber was $313 in the fourth quarter. This is a reduction of less than 1% from the $315 we reported in the fourth quarter of 2004 and an increase of 2% from last quarter’s $308 per subscriber.

As a third revenue, primarily subscription sales that will be recognized as revenue of $9.9 million was up 36% for the same period last year and up 6% from last quarter’s $9.4 million.

Advertising revenue for the fourth quarter 2005 totaled $3.2 million, a 56% increase over the same period last year and a 51% increase from last quarter. For the year, advertising revenue was $9.5 million, $2.5 million from 35% greater than last year. This was, once again, the highest quarterly advertising revenue since the fourth quarter of 2000.

During 2005, percentage of revenue we generated from our top five advertisers decreased to 32% in the fourth quarter, from 38% in the first quarter. For the year the revenue from our top five advertisers accounted for 33% of total advertising revenue. Furthermore, our brokerage advertising has continued to decrease as percentage of total advertising revenue as we expand our advertiser base to focus more on technology, auto, retail and other advertisers. For the fourth quarter, we experienced a 58% sequential increase in non-broker advertising revenue. We also continue to attract new advertisers. During 2005 the percentage of advertising revenue we generated from new advertisers increased to 24% of total advertising revenue in the fourth quarter up from 5% total advertising revenue in the first quarter.

Total expenses from continuing operations was $8.5 million, up $2.6 million or 44% over the same period last year and up $1.5 million or 21% over the third quarter level. If you exclude the prior year’s asset gain of $.5 million our expenses were up 33% from the same period last year. For the year, expenses from continuing operations were $28.8 million, up $1.3 million, 5% from last year. Cost of services was $3.8 million and increase of $1.3 million or 49% over the same period last year, and $.6 million or 18% higher than the third quarter level. The sequential increase was driven by the addition of non cash compensation expense related to stock option expensing, higher compensation, and higher revenue share payments directly related to higher revenue. The year over year increase was driven by the absorption of costs previously allocated to our discontinued brokerage business. Higher compensation, in part driven by the early adoption of stock option expensing, higher outside contributor payments, higher hosting costs and higher revenue share payments related to higher revenue. For the year, cost of services was $12.7 million, $.9 million or 7% over last year. In year over year increase was driven in large part by $.6 million in higher revenue share expense related to higher revenue and $.2 million in option expense related to the early adoption of stock expensing. Sales and marketing expense was $1.7 million, a reduction of $.2 million or 11% over the same period last year and up $22,000 or 1% over the third quarter level. The sequential increase was negligible. The year over year decrease was driven by lower on-line marketing spend somewhat offset by higher variable compensation related to higher revenue and higher credit card processing fees related to higher revenue. For the year sales and marketing expense was $7.3 million, down $.8 million or 9% from last year. The year over year reduction was driven in large part by lower on-line marketing expend.

General and administrative expense for fourth quarter 2005 totaled $2.8 million, up $1 million or 60% over the same period last year and up $.9 million or 45% over last quarter’s level. The sequential increase was directly related to higher consulting, legal and board meeting expenses due both to transaction evaluation and the evaluation of and implementation of the early adoption of stock option expensing. The increase is a one-time item and is not expected to continue into the future. The year over year increase was driven by the absorption cost previously allocated to our discontinued brokerage business, higher compensation, partially from the early adoption of stock option expensing, higher consulting, legal and board meeting expenses due both to transaction evaluation and the evaluation of and early adoption of stock option expensing. For the year, general and administrative expense is $8.2 million, up $1.1 million or 15% over the same period last year. The year over year increase was driven by higher consulting, legal and board meeting expense due to both transaction evaluation expenses during the year and expenses related to the evaluation of the early adoption of stock option expensing.

Net income from continuing operations was $1.7 million, $.4 million or 20% worse than our income of $2.2 million during the same period last year, and $.4 million or 27% better than last quarter. The new year net income from continuing operations was $5.8 million, a $2.1 million, or 59% improvement over last year’s $3.6 million. Loss from discontinued operations was $3.1 million, $2.7 million or 47% better than the $5.8 million in 2004 due to the fact that we shut down the operation prior to research in June 2005. The fact that the additional $2.4 million charge we took in the second quarter has had minimal activity demonstrated that we correctly estimated it.

As you can see from our fully result, we continue to invest in some of our key growth initiatives during the quarter and it paid off. We remain committed to our long term objective of positioning the company for continued growth this year and beyond. Jim.

James Lonergan , President and Chief Operating Officer

Thanks, Lisa. As we highlighted on our previous call, we are focused on continuing to deliver our growth across our business line. As Lisa outlined earlier, many of the initiatives we implemented throughout ’05 have allowed us to deliver double digit returns each of the past few quarters. Those numbers include net revenue up 25% year over year and 22% quarter to quarter. Ad revenue up 56% year over year, 51% quarter over quarter. Sub revenue up 17% year over year and 12% quarter over quarter. Booked subscription orders up 43% year over year and 15% quarter over quarter. Total number of subs up 24% year over year and 10% quarter over quarter. The full year net income from continuing operations up 59%. All the core metrics that led to these results continue to point in a positive direction. As we enter ’06, we will continue to pursue initiatives that not only allow us to continue to grow the top line, but also improve the bottom business margin. As we’ve outlined each quarter, critical to the growth of both our advertising and subscription revenue streams is the continued expansion of our overall sales . We intend to continue to grow our funnel by expanding programs with our current distribution relationships, finding new distribution partners and creating new ways to drive more readers by investors who actually can read our content.

As the quarterly and annual numbers indicate, our core metrics continue to grow substantially. Pages grew by 43% year over year and 12% quarter over quarter. Unique users grew 30% year over year and 8% quarter over quarter and revenue per thousand page use grew 9% year over year and 35% quarter over quarter.

One of the many areas that is helping grow our traffic is that we’ve been successful integrating viewers from Jim Cramer’s Mad Money CNBC Television show and listeners from Jim Cramer’s Real Money radio show onto the TSE platform. This integration has allowed us not only to acquire readers of TSE complementary, also buyers of TSE premium subscription products with little or no acquisition costs. There’s also (inaudible) to expand the Street.com brand to a wider and diverse audience. During the quarter, we integrated components of the Mad Money show such as the Mad Money Recap, the ever popular lightening round and Mad Money performs into the Street.com website. With this wider audience, Mad Money currently has 416,000 combined daily viewers and has a much more diverse investor background. It is provided us with the opportunity to expand investor content leading to additional traffic to our site. (Inaudible) content initiative coming from the expanded audience is the launch of the Street University, a free section of www.Street.com, targeting the less experienced investor, coming from all three channels. With the upcoming move of Jim Cramer’s Money radio show from Buckley Broadcasting to CBS Radio, we expect to fully integrate an even larger audience on to the TSE platform.

In addition, we continue to expand our content offerings to meet the growing needs of investor’s consumption habits. Both those coming directly to our site and those coming through our channel partners. During the quarter we expanded our video and audio offering and launched MP3 and Pod Cast downloads, which enable users to access our content across multiple platforms. In fact, while we only recently have been on ICM’s we have been ranked as high as number 1 in the business section, as high as number 23 overall. We are planning to initially increase our video offer in ’06, a demand from channel partners, readers and advertisers continue to increase and this means (inaudible) and content..

To meet a growing demand from our premium product (inaudible) subscriber base to interact with our distributors, we have recently launched contributor specific blogs that will give our subscribers the opportunity to post relevant and valued content into the contributors blog. What this does for the business is to provide amore valued service for subscribers as well as create user generated content that results in added traffic and added advertising revenue. As our traffic (inaudible) advertising (inaudible) did as well. With strong (inaudible) and unique users our sales force was able to increase our advertising revenue by 51% quarter over quarter and 56% year over year, rates that we have not seen since the pre-internet bubble days. Our advertising business continues to expand to non financial advertisers coming from the technology, auto, retail, and travel advertisers. During the quarter we realized a 58% increase in non broker ad revenue from Q305. This supports the high demographic and growing sizeable readership that advertisers continue to value. To meet the growing demand of our content we are in the midst of expanding our advertising sales force. Our subscription business continues to perform strongly. Similar to our advertising business as the sales funnel continues to grow, so to did the opportunities to expand our subscription business. Today we stand at almost 87,000 subscriptions a 24% year over year and 10% quarter to quarter increase. As we have reported the last three quarters a deferred revenue line primarily attributed to new subscriptions continues to show healthy and consistent growth. As Tom highlighted earlier we added almost 7,900 net new subscriptions over the quarter. These strong numbers can be attributed to a number of variables. First, the (inaudible) mark in our subscription services to our free members, current and past subscribers, readers of our free website, www.TheStreet.com and Channel Partners. Second, very strong ROI on our external marketing spent across a number of websites. Third, leverage of the Mad Money television and RealMoney radio show audience coming to TheStreet.com website, and fourth quality services. The fact that (inaudible) statement that TheStreet.com was nominated by the media industry newsletter better known as MIN for the best email newsletter for options to (inaudible) service. We are the only independent financial website to be cited in this year’s competition and we’ve been nominated six times over the past four years for this distinction. Over the past four months we have added two new subscription products to our portfolio premium subscription services. In October we launched TheStreet.com Internet Review written by investor, James Alpinger. Recently we added TheStreet.com Breakout Stock a focus on under filed stocks with above average growth prospects not yet reflected in current valuation. Written by our team of internal small and mid-cap specialists, Bill Gabrielosky and Michael Cuomo. Our ’06 business strategy is for a subscription business will be focused more on developing wider marking channels for smaller number of current services and less about launching new products. Unless of course, unique barking opportunities present itself. During ’06 we anticipate expanding our search engine optimization and email marketing to drive more traffic and subscriptions into the business. To date, we have barely participated in these two key areas yet they create large opportunities to further grow our business. We are pleased with the ’05 results and we look forward to a strong 2006. Tom.

Thomas J. Clark Jr.

Thanks, Jim. As both Lisa and Jim have expressed, we have accomplished a lot in the past year. We are proud of those accomplishments. We are also grateful for the contributions all of our employees have made in contributing to this success. So what is on the horizon for 2006? As the proverb goes, if it ain’t broke, don’t fix it. In some ways I believe that is exactly where we are. Please do not interpret this to mean we will stop innovating growing this business. That will never be our mantra. What it does mean that we will continue to expand upon the many initiatives we instituted in 2005 and further develop the opportunities we have in front of us. So what will we focus on? Driving traffic. As we have witnessed in 2005, our strategy of driving people to our free site, www.TheStreet.com, will continue to be a driving force as we are confident that we can monetize them with advertising dollars in market subscription services to them. The new and improved navigation on our sites will continue to allow us to further engage people with our concept. On the hiring front, the two areas we would look to expand is our advertising sales force and our editorial staff. Both are revenue producing areas for the company. Not only can we track the page use of our editorial department to ensure its ROI remains extremely positive, the staff can create articles to satisfy our advertising needs in the sections where we need them most. This has enabled us to create more inventory to increase page use and to manage that inventory more efficiently. On the subscription side, we will look to grow and fine tune our existing subscription services, while continuing to look at niche opportunities. It is not our intention to launch another five subscription services, but rather to pick the area where we can have that service make a significant contribution to our subscription revenue stream. We also would like to capture more and more of those people that want to increase their financial intelligence. Whether it is the burden of managing their 401k plans or the need to prepared for whatever changes there maybe in the Social Security System, we must focus on our ability to educate and expand our content in those areas. We also look for margin improvement. It is very important to us that as we drive additional revenue streams, we do so in a manner that increases the bottom line and increases shareholder value.

In summary, our diversified revenue model is working on both fronts as both our subscription and advertising businesses are growing very strongly. As I mentioned last quarter, I firmly believe we are in a period where advertising will be strong for the foreseeable future and that our advertising stream will become a larger part of our overall revenue. On the subscription front, our proprietary services continue to gather momentum as people look for products and services that provide direction and accountability two hallmarks of everything we produce. As you have heard, we are entering the year with a strong business and remain encouraged by the trends we are seeing as we continue to believe momentum is moving strongly in our favor. Now we will take any questions you may have. Are there any questions?

Questions-and-Answer Session

Operator

At this time I would like to remind everyone if you would like to ask a question, press star and number 1 on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster.

My first question is coming from Michael Monskoff with MRM Capital.

Michael Monskoff

Congratulations everyone. It seems like the stock option cost you a little over a penny, am I correct?

Thomas J. Clark Jr.

Correct.

Michael Monskoff

And Sarbanes Oxley there was talk that there’s going to be less repercussions for companies, you guys spent over $2 million I think over the last year or the last couple of years, you see foresee expensing expenses going down for this particular scenario?

Thomas J. Clark, Jr.

I think you know Mike, when you look at Sarbanes Oxley cost, you know the $2 million I think you’re quoting is what it really cost us to be public, it’s not really just a Sarbanes Oxley cost. Do I see the cost going down, frankly, no. I mean you know when you hear about all this legislation people have come along and they said they overreacted but frankly I don’t see anything on the accounting side or with the auditors that are going to allow us to recoup any of that for the foreseeable future.

Michael Monskoff

Okay, thanks.

Operator

Thank you. Our next question is coming from Frank Grathena with Adminel Partners.

Frank Grathena

Thanks guys, congratulations on a real strong quarter.

Thomas J. Clark Jr.

Thanks, Frank.

Frank Grathena

A couple of questions, I’ll just do fundamental questions and then I’ll hop back int the queue if there’s time I’ll come back with some housekeeping I guess. You got some really strong unique user growth and page view growth, is there anything in particular that’s driving this traffic. I mean is it a majority Cramer, or some of the distribution deals you worked to set up in ’05 starting to push people directly to your site and then I think you mentioned that you really haven’t done any direct consumer marketing and can you give us an idea of what you had in mind for ’06 to ramp that up?

Thomas J. Clark Jr.

Well you know Frank, I think, first of all thank you for your comment. You know I think the strong demand we’re seeing for our traffic is really a combination of a lot of things. You know, all kind of coming together, the synergy really working together. Obviously, you know Jim Cramer being the promotional vehile for TheStreet.com is a very positive development for us and we said you know it drives more people to the site. As we’ve said all along, we think we have the perfect world with Jim where he is a contributed to us and yet can be a promotional vehicle for us that’s very positive. I think the second thing is all of the initiatives we had worked on in late ’04 and certainly in ’05 with our Channel Partners and our distribution deal are all working in you know, coming together at a time. Frankly, we have to give a lot of credit to our editorial staff, I mean we’re writing materials and we’re producing work that people want to read. We are very directional in nature. We are a lot different than everybody else that’s out there and I think people really are looking for that. They’re looking for accountability and that’s the one thing that we always pride ourselves on. We may not always get it right, but at least we’ll tell you where we are with it. I think the last thing is that we also have improved our efficiency in delivering our content to some of these people. If you recently look at our site we launched a new navigation system that makes it easier for people to find content. We introduced Street University. All of these things are continuing to drive traffic. So I think going forward that will be pretty positive for us.

Frank Grathena

If I could follow up on that question? How do people just so we understand, the radio show is very, you’re very well branded on that show, but how do people make the connection between Mad Money and TheStreet.com?

Thomas J. Clark Jr.

It is actually quite simple, Frank. If you watch the show if you hear anybody call in on the stock that Jim owns in his charitable trust, he talks about it being in ActionAlertsPlus.com, there’s only one place where ActionAlertsPlus.com exists and that’s with TheStreet.com. In addition there’s chiron that runs under the beginning of the show where it says that Jim works for TheStreet.com, so you know we think the branding is there and you know frankly most people who know Jim, know that he’s associated with us.

Frank Grathena

Excellent. I did notice that you’re revenue per thousand page user you know however you want to measure kind of your monetization was only up 9% per year but your traffic is up much more. Are you guys, first of all does that sound correct, but are you guys putting something in place to better monetize that? Is it an issue of you having more inventory than you can sell right now, are you not pushing prices up, is there opportunity to do that? What can you guys do I guess you know six to bring sort of growth in line with you know traffic growth more in line with revenue growth.

Thomas J. Clark Jr.

I think, Frank, there’s a couple of things you have to keep in mind. Number one, the growth in traffic typically has a little bit of a lifetime for where the monetization occurs because of the fact you just don’t wake up one quarter and be able to sell what we have. You know our problem as we’ve identified in previous calls is the fact that we were constrained by inventory. We would sell everything out we had. We did see a tremendous traffic increase in the fourth quarter. If you think about where I said we would be hiring, we would be hiring in the editorial side of the business to create more content. You know I think that’s areas where we will be able to monetize the traffic in a much more effective manner. So I think when we go into ’06, you know we’re real positive about the fact that you know that we will create more inventory and have more advertising to sell and we’re becoming more of a destination for some of the advertisers like technology and auto that we weren’t before as we just become much larger as a site. You know you talk about the you know revenue per 1,000 page views, you know we went from 1,635 in the first quarter to 2,207 in the fourth quarter. So I think that’s a pretty positive trend for us and we think that’s going to be positive going forward with that.

Frank Grathena

Great. And did you practice any price empower? Are you to the point now where the sales reps are going to start to up your rate card?

Thomas J. Clark Jr.

I think we are in a position where you know we’re certainly looking at pricing and we can increase it, I think we want to be sensitive to the fact that we want to make sure to continue to have these advertisers with multiple quarters and it’s not our intention to just goose it for one quarter and then not have them with us going forward.

Frank Grathena

Great. I’ll hop back in the queue and come back if I can.

Thomas J. Clark Jr.

Okay, great.

Operator

Thank you. Our next question is coming from Corey Johnson with Kanal Capital.

Corey Johnson

Hey guys, congratulations on the quarter. What’s your target for marketing costs going forward. Obviously you’ve got a great success with Mad Money and it’s lowered marketing costs and percentage of sales but do you think going forward to discuss search marketing. Is that going to kind of, do you plan to bring that number up. Do you have a target in mind?

Thomas J. Clark, Jr.

No we really don’t have a target in mind to be honest with you. We really want to look at the opportunities and what we have. You know, you’re right, and you are correct in saying that we do get the benefit of Jim Cramer’s RealMoney radio program and Mad Money TV show with little or now acquisition cost. I can tell you that our external spend where we start marketing our services on other sites we’ve had a very positive ROI and we don’t see anything that’s really going to change that. You know getting into the search optimization and stuff like that, you know obviously we will evaluate that, it’s our intention to make sure that we do have a positive ROI.

Corey Johnson

And having contributed in my own little way to the NOL, how big are the NOL’s going forward?

Thomas J. Clark Jr.

I’m sorry, say that again?

Corey Johnson

Your net operating losses, what are, how far do you expect those to go on for, or how big is it now?

Thomas J. Clark Jr.

Right now it’s about approximately $154 million.

Corey Johnson

Great, thank you.

Operator

Thank you. Our next question comes from Pyran Robai with Roth Capital Partners

Pyran Robai

Morning guys. Just wanted to touch base on the search engine optimization and email marketing you guys talked about driving more traffic. Can you kind of expand on that? How do you plan on optimizing the website? Are you hiring somebody? How are you going to go about doing that?

Thomas J. Clark, Jr.

We are, number one in the process of hiring a head of marketing. One of the things that we’ve – we market email market to our own members, people that are within our site. What we have not touched on yet is really going outside and pulling people in, list rentals and things like that. We have not touched that, so we expect to expand this year. That’s a big and search engine optimization, we really, one of the keys to that is actually having a website that allows you to the crawlers to come in and effectively look at and pull. I’m not really talking so much about page search, but really natural search. So we’re revamping the website and doing a number of things with our publishing and technology system to really increase the when people do searches they come up with our content more often than they are today.

Pyran Robai

Okay. Then in terms of expanding the inventory, what really are your options there? Is it you know, the content really putting advertising in there or can you expand the sections beyond what you have today?

Thomas J. Clark Jr.

I think we can expand the sections. I mean you know with the new navigation of the site we’ve added a variety of different sections. I think if you were on the call last quarter, you remember that for the first time had non financial content sponsored by a advertiser, Merv Price Financial, so I think there’s a lot of different things that we can do. The introduction of Street University will certainly give us opportunities there. I think if you, you know we’re doing a lot of work in the audio and video areas right now. Our Channel Partners have a tremendous demand for that. You know we’ll be serving ads with that, you know we’re looking at the RSSB and how we can monetize them better by possibly putting ads in them. So we think that there’s a lot of content that we have that we currently are monetizing on the advertising side that we could, but I think over all, the one real metric that’s very important for us is people say why is the editorial hires a very positive or revenue producing group and the reason why it is, is because unlike in the past, or unlike some of the media entities, we know that when we hire a journalist or someone to write for us, we can make money from that person almost immediately. We have the metrics that can tell us how much they have to produce in order for it to make to be very positive so you know if you’re seeing in the marketplace that magazine publishers and financial sites are letting off people, for anybody who hears this, we’re interested because we know we have model that makes it work.

Pyran Robai

Okay, thank you.

Operator

Thank you. Our next question is coming from Joe Crisconi with Estoppers Creek Advisors

Andrew Sol

Yeah Hi, Tom it’s actually Andrew Sol, thanks for taking my question. I was hoping you could maybe talk a little bit about the differences between the CBS deal that you announced this radio deal versus the prior deal you had with I guess Buckley. Do you see this as a clearly better deal? And if so, what would make it better?

Thomas J. Clark Jr.

Okay. Andrew thanks for the question. I think you know what we did when we first went to Buckley Broadcasting was we wanted to get the show out there in a number of markets. Why it’s materially better is because if you look at, radio is really driven by what you would call big market stations. If you look at what we have with Buckley Broadcasting, we weren’t on line in New York. Jim’s show unfortunately was on at 9:00 in New York, which actually ran against his Mad Money TV show. It was a situation we weren’t particularly happy with. If you looked at Los Angeles another tremendous market, we were not on there during the week, we were only on there on the weekends. You know, our CBS Radio deal with them, with CBS Radio which is really Infinity, which also owns part of Westwood I, but the real benefit for us is number one it’s going to be a large show in those major markets, so if you looked at New York, we’ll be on at live, if you look at Los Angeles, we’ll be a one-hour delay but we’ll be on Monday – Friday. We think that if you look at those eight stations and the listenership of those eight stations, they would equate with everything we had with Buckley Broadcasting and all the stations we had there. What it does for us, it gives us a new legion of listeners that could become aware of what Jim’s trying to educate them on with the RealMoney radio program, usually drives traffic back to us. We monetize it on the free size and hopefully as they get more sophisticated, we can sell them a subscription product that fits their investing needs. So we actually think about it as really a quantum leap in the way that we could drive traffic to our site.

Andrew Sol

Okay, thanks. And I asked my second question and I have some others but I’ll jump back in the queue to let others ask some questions. With the $34 million or so I guess in cash, and the termination of your agreement with Alan & Co., is it safe to assume that the company is pretty much looking to use this cash to invest in its own business to build a brand? Or for stock repurchases or the like?

Thomas J. Clark Jr.

Yes. As you know, with the $34 million that it’s a company that also has no debt, so you know we’re in a very strong position right now as we said when we went into the Alan strategically alternative discussion we would not press to do anything because we thought the business was in very good shape. The areas that you identified to it for investing in our own business, those are things that we’re going to look very strongly at because we are in a very good position.

Andrew Sol

Well, thanks so much, good luck going forward.

Thomas J. Clark Jr.

Thank you very much Andrew.

Operator

Thank you. Our next question is coming from Susan Meller, she’s a private Investor.

Susan Meller

Hi there everyone and I just want to congratulate you all for doing a great job on this quarter and for your year end bringing in the boat the way you did. I just want to know if there is any thought going forward in doing live seminars to one, really get out there let people have a face with the people that are writing columns, two, it would also draw in some more interest I think in terms of when you go to the website who you’re talking to, and I think it would be educational. It would dovetail real nicely with your Street University.

Thomas J. Clark Jr.

Susan, first of all thank you for your nice comments. Yes, the introduction of Street University the first phase of what you describe is an area we want to get more heavily involved into. We know that our writers and our contributors have developed a very tight relationship with the people who follow them again, because I think it’s directional in nature and they find someone on the site they like and one of the areas we are looking to do a little more work in is with seminars but also with on-line educational video so people could, no matter where they are in the country, could participate and get to know the contributor a little bit more. So, we think those are both areas that tie directly to what Street University will become.

Susan Meller

And I think that’s terrific and congratulations again, and thanks for taking my call.

Thomas J. Clark Jr.

Thank you.

Operator

Thank you. Our next question is coming from Zane Weinheim with Kettle Hill.

Zane Weinheim

Hi, thanks for taking my question. How much did you guys spend on lawyer fees, banker fees, etc., as you went through the strategic process, strategic alternative process and maybe you can give us an idea how much you spent in the fourth quarter as well, thank you.

Thomas J. Clark Jr.

On a yearly basis it was about $1.2 million, give or take a little bit. I don’t have the number in front of me for the fourth quarter specifically, but you know a lot of that was one-time events that we won’t be seeing going forward.

Zane Weinheim.

Okay, thank you.

Thomas J. Clark Jr.

You’re welcome.

Operator

Thank you. Our next question is a follow-up question coming from Frank Grathena, Avendale Partners.

Frank Grathena

Thanks. Getting back to the top line, in terms of subscription growth, that was definitely a surprise I guess as you focus on free content we didn’t expect that to grow as much. What’s happening here in terms of sort of conversion from the free side. How are you nudging them over to the subscription service? That would be the first question.

Thomas J. Clark Jr.

Okay, you know I think that you know it was a change in our philosophy Frank that really occurred probably about twelve months ago. And what that is, if you ever looked at us in the past, we typically wanted to send somebody to a subscription product directly. Okay. We didn’t actually try to put them in the free site, we actually tried to put them right to a landing page for a subscription product. And what we found with focus groups and just listening to the people who write to us in the feedback was that a lot of people want to get comfortable with someone before they actually pay money for a service. So what we did was we, now we want everybody to do to the free site. We’re very confident that our saleability and the fact that we bring content to the free site where someone who doesn’t know who Jim Cramer is or doesn’t know who Helene Meisler is or any of our other contributors, you know they can get a feeling for that over time and what that does it’ allows us to create the upsell. But the difference being if we never get them to buy a subscription, Frank, we’re still going to monetize them with pages, but the fact is the other thing that I think you know a lot of people will have to look at is the fact that our content is actually very good. You know I’ve been on the bandwagon saying this for a long time, but I’ll take our content and match it up with anybody who produces financial content on the web and I will guarantee you we will come out across the top. We just have a tremendous amount of very talented writers, journalists, contributors and I think the reality is people are just finding that you know we’re a place where you know we can be your research department. You know and that’s our goal. Our goal is that if you have investments in the market, whether they’re small cap, mid cap or large cap, we want to be a place where you can find and get an opinion on that content.

Hey Frank, also if you watch the search engines for ’06, they’re more focused on bringing in premium content into the mix, so if you watch google and a number of them out there now, that will allow our free premium content to also go to a much wider audience, so we look forward to that in ’06 and ’07 as well.

Frank Grathena

Why is that? Because it’s a higher cost per click?

Thomas J. Clark Jr.

Now it just comes down to a search engine, usually they link to the index of free content. They really haven’t gone out to pull into for their user base for search

engine paid content. They’re actually now beginning to do that.

Frank Grathena

Okay. And you mentioned obviously the content is powerful enough to do the sell of the subscription service. Is that the driver behind the cost of service increase year after year? I mean it was pretty steep, that was one of the follow up questions, going from 32% of sales to 38%, year over year, is that part of the investment in a stronger editorial pool?

Thomas J. Clark Jr.

I think that although I think it has something to do with the rev shares that we have for our contributors for those products.

Frank Grathena

Any thoughts on what happens to the gross margin or the cost of revenue here on out?

Thomas J. Clark Jr.

I think, Frank, what we’re seeing is a lot of the you know one of the things that’s happened we’re seeing growth across many different types of subscription products. Some of those products have revenue share agreements with them some of them do not. Like for example, a subscription to Real Money doesn’t have a revenue share, whether we’re seeing nice growth in that product, so I don’t think you’re going to see tremendous growth in that number going forward. I think it’ll kind of balance itself out. You know our intention is to drive more subscriptions because again an incremental subscription to the company has a tremendous margin for us. So I think in your recent notes you also pointed out that as advertising revenue grows that’s a nice, that’s a better margin for business, that’s true. So I think when we look at it, we’re looking at you know us being able to really take more money to the bottom line as we go forward.

Frank Grathena

Great. Two more housekeeping, in terms of your, you have an NOL but at some point do you have to start accruing for taxes, is that something that may occur in ’07 or any thoughts on when we’d have to adjust the GAAP BPS for taxes.

Lisa Morgensen

Frank, if you’ll notice, there’s a provision for income taxes on our P&L this quarter and basically, we have to the NOL can shield 90% of the income, because you have to pay alternative minimum tax which is 10%, so basically we have, we’ll have that going forward.

Frank Grathena

Okay, great. And then, you mentioned this in the past, you had a very strong advertiser growth second quarter to third quarter, did you add a number of new advertisers third quarter to fourth quarter?

Lisa Morgensen

We added 22 new advertisers in the fourth quarter.

Frank Grathena

Great. Thanks a lot guys.

Operator

Thank you. Our next question is coming from Michael Moskow with MRM Capitol.

Michael Moskow

What would you say the top three subscription newsletter, can you tell us who they are?

Thomas J. Clark Jr.

Sure, as you know we won’t give specific numbers, but I think that you know if you look at Real Money, the website itself is a large number. Action Alerts Plus, is a large number, and Stocks Under 10.

Michael Moskow

And I know that Helene is going to be starting a new …

Thomas J. Clark, Jr.

That is correct.

Michael Moskow

And what is the cost, what are you guys charging for that?

James Lonergan

$9.99

Michael Moskow

Okay. Thanks guys.

Operator

Thank you. Our next question is a follow up question coming from Zane Weinheim with Kettle Hill

Zane Weinheim

What’s a good number to think about as far as GNA going forward? We obviously had some one time you know stock comp and legal expenses and so forth in this quarter, just wondering?

Thomas J. Clark Jr.

It’s more like the third quarter, somewhere you know 1.9 to 2 somewher around there that would be a good number going forward.

Zane Weinheim

Great, thank you.

Operator

Thank you Mr. Clark, there are going to be no further questions, I’d like to turn the floor back over to yo.

Thomas J. Clark Jr.

Thank you. Two things I would like to say is that you know as we look on forward, when Jim Cramer and Marty Peretz had the idea of starting this business years ago, I think everybody envisioned the situation where we would be able to produce content and get paid for it and monetize it in a very quick way. I think the concept was right, but I think the timing was early. I think we are now seeing the development of that actually taking place. So if you thought this was the ballgame and you said what inning are we in, we’re in the first one or two innings as well look at developing this model going out. So I think it’s one development that everybody should keep in mind as we continue to grow and drive this company. The other thing I’d like to say is that Lisa’s been with us for six years and I just want to thank her for her contributions that she’s made to the company and I wish her well going forward. So thank you very much.

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Source: TheStreet.com Q4 2005 Earnings Conference Call Transcript (TSCM)
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