TheStreet Management Discusses Q2 2012 Results - Earnings Call Transcript

Aug. 2.12 | About: TheStreet, Inc. (TST)

TheStreet (NASDAQ:TST)

Q2 2012 Earnings Call

August 02, 2012 4:30 pm ET

Executives

Erica L. Mannion - President

Elisabeth H. Demarse - Chairman, Chief Executive Officer and President

Thomas J. Etergino - Chief Financial Officer and Executive Vice President

Analysts

Douglas A. Kass - Seabreeze Partners Management, Inc.

Michael Mauskopf – MRM Capital

Corey Hajim - Diker Management

Thomas Horan - Acorn Capital

Operator

Welcome to TheStreet Second Quarter 2012 Earnings Conference Call. This call is being webcast live on the Investor Relations section of the TheStreet's website at www.t.st. This call is a property of TheStreet, and any recordings, reproduction or transmission of this call without the express written consent of the TheStreet is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investor Relations section of TheStreet's website.

I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations, Investor Relations for TheStreet.

Erica L. Mannion

Good afternoon. Thank you for joining us to discuss TheStreet's financial and operating results for the second quarter of 2012. With me today are Elisabeth Demarse, Chair, President and Chief Executive Officer; and Tom Etergino, Executive Vice President and Chief Financial Officer. Today, Elisabeth will review the second quarter results and provide color on industry dynamics. Then Tom will review the second quarter financial results.

All statements made on this call, other than statements of historical facts, are deemed to be forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, including those described in the company's filings with the SEC that could cause actual results to differ materially from those reflected in the forward-looking statements.

Although the company believes that the expectations reflected in the forward-looking statements are reasonable, the company cannot guarantee future results or occurrences. The company disclaims any obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise. You may obtain copies of the company's filings with the SEC at the Commission's website at www.sec.gov.

Additional information related to matters discussed in today's call will be set forth in the company's quarterly report on Form 10-Q for the second quarter of 2012, which the company expects to file shortly. Now I will turn the call over to Elisabeth Demarse.

Elisabeth H. Demarse

Thank you, Erica. Good afternoon. As you read in our press release today, revenue for the first quarter was $12.5 million, a decrease of 17% compared to the second quarter of 2011 and flat with Q1. Our second quarter was focused on rightsizing our cost structure, and we were very successful in this effort, as you can see.

Total operating expenses excluding certain one-time items decreased 14% sequentially and 20% year-over-year. We reduced headcount by over 25% and have spent time rationalizing our vendor relationships as well. The meaningful cuts are done, but we still have a bit more to do in this area, and we'll continue to scrutinize our spending to improve our cost structure.

Regarding the team in Q2, we are fortunate to bring on Stefan Chopin, former CTO of EDGAR Online as our CTO. Stefan is a perfect addition to our team, bringing deep domain expertise in financial data and information, which will be critical as we build tools and apps down the road.

For those of you new to the TheStreet, I've been on board for approximately 5 months. What influenced my decision to join TheStreet the most are our 2 established and strong business models. Our Premium Services business, which we now refer to as Subscription Services, and Advertising, which we now refer to as Media. These models are highly scalable, and as we grow our revenue, our cost structure will allow for high operating leverage and margin expansion.

Our Media business was extremely challenged this quarter. Q2 was a slow quarter for finance and overall display advertising, in general, experienced a softer quarter. We began a process of re-architecting our pages to lighten our load time, which is important for our user experience and Google PageRank but slightly disruptive to ad delivery in the short-term. We also shifted from OpenX to DoubleClick for ad serving, which is yet another infrastructure disruption. We are cleaning up the quality of our ad networks to improve the environment for our direct advertisers, yet the severity of the year-over-year decline in ad revenue surprised me. It takes time to build the pipeline, so we're now preparing for the upfronts and planning for Q4 and 2013. I hope to bring in new leadership shortly.

Having said that, I joined TheStreet impressed by the high quality of its audience. TheStreet has a strong market position and great brand equity within the high-interest finance category. We're a top 10 comScore site in the coveted business and finance vertical. One of the first things I did upon arrival is commission Investment Trends, a consumer research company specializing in online investors, to conduct a deep dive into our audience, to confirm who our audience is and why they come to us.

The results were beyond our highest expectations. We knew we skewed heavily towards college-educated males with an HHI of over 100K, no kids in the home, so lots of disposable income; but I was excited to learn that our audience has an average investment portfolio size of $741,000. These are highly valuable demographic characteristics, which can drive substantial growth in both the media and subscription business models.

Our endemic advertiser, the discount broker, underwent a very difficult business cycle beginning in 2009. Trading volume declined and the nominal number of accounts appeared to have declined as well based on ETRADE's publicly reported account numbers. As the discount brokers come back into the Internet channel, our properties are the perfect place for brokerages to acquire a poised-to-transact end-market investors, providing these brokers with high-lifetime-value customers.

We also commissioned Advertiser Perceptions to evaluate our reputation among our advertisers. While that study is still underway, the preliminary analysis shows the TheStreet over-indexes for audience engagement, content and the advertising environment. Our single most frequent competitor for consideration is Forbes, yet our duplicated audience with Forbes is 6%, meaning our audience is a great source of new blood for our endemic advertisers. Overall, media brand satisfaction score was 92, in line with our competitive set. So we have a great environment, and we are a must-buy in the financial services category.

As far as traffic goes, according to comScore, traffic in the finance category has been essentially flat with the traffic to AOL Money & Finance and Yahoo! Finance, 2 of our largest traffic partners, down 12% and 17% respectively year-over-year. Having said that, our investment in Business Desk helped offset declines from AOL and Yahoo!. We have broadened our relationship with AOL in Q2 and are in the final rollout phase for Business Desk. I am a great believer in network effect, and as we introduce ourselves to new audiences through Business Desk and the integration of new traffic partners, I believe page views will follow as consumers get to know us. Americans are hungry for investment advice. Our traffic partnerships with the portals and other sites allow us to introduce ourselves as a trusted advisor, and we work very hard on this channel.

As far as organic traffic goes, less than 10% of our traffic is organic. So we believe we have significant upside in growing our organic traffic. At the end of Q2, we contracted to hire iProspect, a search engine optimization company that I've used previously to help us with our on-page and off-page search engine optimization. The iProspect engagement actually began after July 4. Simply by fixing some initial on-page technical difficulties, Google increased our page rank score from 3 to 7, which is very significant. As far as social channels go, we are still in the early days. Only 2% of our traffic derives from social channels, i.e. Twitter, Facebook and LinkedIn. Again, this is another traffic channel we believe we can grow, as our content is perfect for social.

Finally, mobile. We believe mobile will be an important consumption point for both our subscription products and destination site. We are rebuilding our content management system to enable mobile contribution. With Stefan Chopin's arrival, we began reducing our dependence on our legacy architecture and are focusing on building our product roadmap for 2013. We will optimize our subscription products and the navigation to our content for mobile as well as desktop.

On the subscription side, the TheStreet has developed a well-known leading consumer brand in the investment category. We have subject matter experts and a platform in which to grow new newsletter talent. Our Investment Trends research, which I mentioned earlier, has been very helpful in confirming our product development cycle. For example, it is clear the American investor is getting more sophisticated, and there's growing interest in options. As a result, TD Ameritrade bought thinkorswim and Schwab bought optionsXpress to feed this growing demand for options trading.

While 87% of our audience trade stocks, our Investment Trends research shows 18% of TheStreet's audience want to start trading options. Options volume has taken a breather over the past year, but our demographic is very interested in moving into this asset class. Our webinars and full-day courses held in conjunction with the Chicago Board Options Exchange have extremely high participation rates. Our OptionsProfits product is there to educate consumers to make them more confident investors.

In Q1, upon arrival, I discontinued our ETF Profits product. We are challenging the economics around every product we have, and we will continue to further assess our assets to determine how each can be improved to ensure that all of our products are the most informative and effective for our customers. We have not identified any other products to discontinue today, but that could change as we continue to evaluate.

We are also focused on getting the best return in our investment for our editorial dollars. One example is how we reorganized our editorial staff, which we discussed on our last call. TheStreet's free site previously had primarily a full-time editorial staff. We pivoted towards a contributor freelance model, providing us flexibility without sacrificing high-quality content. The new contributors that we brought in are now in our top 10 list of page views. Having proven the contributor model on the free site, we conducted a similar pivot in our subscription business. As of July 1, we are publishing our subscription products with a leaner staff. We will keep you apprised of how that reduction plays through in terms of customer reaction and perceived in actual quality.

Another effort towards improving marketing efficiencies, which we began in Q2 was moving our New York-based telesales operation to Wisconsin. While disruptive to bookings in the short term, the cost efficiencies made available by this change will make telesales a more scalable channel and positively affect our bottom line. Beginning in Q2, we started to increase our investment in paid search. Previously, the company had been inconsistent in its participation in the paid search channel, but today, we're committed to it. And again, we now see paid search as a channel that we can scale.

One area of subscription acquisition that has languished is our fee-to-free capabilities. The company had failed leveraging the free site to bring users in to become subscribers. We are focused on getting that number up, and we've made some progress so far. For example, in December, 8% of our subscriptions came from our free site. By using techniques such as showcasing parts of our subscription editorial on the free site, that number nearly doubled to 15% in June. And we are once again proving the efficacy and asymmetrical competitive advantage of having our free-to-fee model.

Bill Inman, our new Editor-in-Chief; and Stephanie Link, our Chief Investment Officer who runs our subscription business, have been collaborating closely to leverage our destination site audience towards our subscription products. The good news is that the trend's improving with the implementation of our new strategy of getting new subscribers into the right products, then incubating them into loyal subscribers who renew.

Moving on from our current businesses, we are interested in evaluating opportunities to grow our franchise via acquisition. I've established an active, methodical acquisition program.

Finally, as we stated in the press release we sent out today, we're suspending the Q3 2012 quarterly dividend, as the payment of the dividend is not supported by the current operating cash flows of the company. We want our investors to know a lot of thought went into this decision and that we are managing the company's assets judiciously to maximize shareholder value. This company has many valuable assets, providing a great foundation to work with and we are becoming more nimble and efficient as a company. We can act in a more of an entrepreneurial spirit. We are more flexible, so we can identify and act on opportunities more quickly, which will unlock the true value of this company.

With that, I'll hand the call over to Tom, who will review our financial results, and then we'll take any questions that you have.

Thomas J. Etergino

Thank you, Elisabeth, and welcome, everyone.

The company recorded revenue of $12.5 million for the second quarter, which when compared to the second quarter of 2011, declined 17%. Revenue contribution from the advertising-supported Media business was $3.6 million, and revenue contribution from Subscription Services, previously referred to as the Premium Services business, was $8.8 million. The company's revenue related to its Media business declined 27% from the second quarter of 2011. We attribute the decline primarily to the difficult macroeconomic environment and our own internal challenges with monetization.

Evidence of these macroeconomic trends included double-digit decline year-over-year for the Google Investing Index, reflecting lower volumes of investment-related search queries in the U.S. Another data point that supports this thesis was the NASDAQ trading volumes that also showed double-digit declines year-over-year. Despite these conditions, we are very pleased that we continue to show significant audience growth.

Our internal measurements show the average number of monthly unique visitors to our portfolio of sites grew by approximately 25% compared to the second quarter of 2011. comScore showed single-digit growth. Despite the incremental growth of our audience, retail investors seeking to purchase services and start investing, and the advertisers that seek to reach those investors, both remained largely on the sidelines and as of the end of the quarter had not yet returned. As a consequence, advertising revenue per unique visitor and overall revenue declined.

Moving on to our Subscription Services business. Subscription bookings were $8.6 million for the second quarter, a decrease of 15% compared to the prior year. As I just mentioned, we believe that many of the macroeconomic factors that contributed to the advertising decline year-over-year, also contributed to the bookings decline for our Subscription Services business.

Within Subscription Services, our existing base of subscribers performed as expected. Subscriber churn remained in our normal range, and the average revenue per user grew compared to the same period last year. However, new acquisition lagged putting downward pressure on our total subscription counts and on our bookings.

Revenue from our Subscription Services business decreased 12% compared to the same period last year. The decrease was primarily attributable to a 70% decline in the average number of subscriptions as compared to the prior-year period, partially offset by a 7% increase in the average revenue per subscription. The decrease in the average number of subscriptions in Q2 2012 versus prior year was primarily driven by the continued challenges we have faced in recent quarters, bringing in new subscribers in this tough economic environment. That being said, we were happy to see our churn rates trend back down to more normal levels in Q2, indicating people that sign up for our products are satisfied with the product and tend to be sticky.

On average, monthly churn in the quarter was 3.9% compared to 3.6% in the second quarter of 2011, and 5.1% in the first quarter of 2012. The increase in the average revenue per subscription was driven by both favorable product mix, as a result of upselling efforts, as well as an increase in the percentage of total subscriptions that are in their non-introductory cycle, which generally has higher pricing than introductory cycle subscriptions.

Moving to the expense side of the business, the second quarter focused on rightsizing our cost structure. Total operating expenses were $13.4 million for the quarter, excluding the $1.3 million restructuring charge, and the $200,000 gain on disposition of assets, which is a decrease of 20% compared to the same period last year and declined 14% sequentially, showing the improvements made since Elisabeth's joined TheStreet.

The cost reductions are primarily the result of lower headcount-related costs, lower professional fees and lower depreciation and amortization. We made great progress on this front and are moving towards a cost structure that, as we grow revenue, will provide high operating leverage. We will continue to diligently manage our cost structure, while also keenly focusing on bookings and revenue in an effort to achieve this vision.

As you'll see from our press release, in Q2, we incurred a restructuring and other charge of $1.3 million and a gain on disposition of assets of $220,000. The restructuring charge is primarily due to the efforts we made to rightsize the organization and the write-off of certain software assets. Additionally, we sold certain non-strategic assets during the quarter, whereby we realized a small gain on the sale. The company reported a net loss of $1.9 million for the second quarter of 2012 as compared to a net loss of $1.7 million for the same period last year. Excluding the restructuring charge and gain on disposition of assets, net loss declined 51% year-over-year.

Adjusted EBITDA was $800,000 for the second quarter of 2012 as compared to $700,000 for the prior year. The company ended the quarter with cash, cash equivalents, restricted cash and marketable securities of $69 million, a decrease of $2 million compared to March 31, 2012. The company used $1 million in cash flow from operations in the second quarter and $3.5 million year-to-date.

As I mentioned, we've come a long way in a short period in reducing our operating expenses to be more in line with the current revenue levels, setting us up for better operating leverage moving forward. That said, we still have a lot of work to do, both in growing our revenue and lowering our overall cost structure. But we are excited by the progress that we have made to date and look forward to the time when we report to you on our profitable growth.

Now I would like to ask the operator to open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Douglas Kass from Seabreeze Partners.

Douglas A. Kass - Seabreeze Partners Management, Inc.

My question is the following: You say in the press release that you're suspending the third quarter dividend. It's going to result in cash savings of about $900,000, and it's obviously going to improve cash flow; but it's going to be used to support the company's growth initiatives. If we look at that savings and think in terms of 3 areas: content, marketing and technology as feeders to those growth initiatives, can you explain how you plan to distribute the savings within those 3 areas? And sort of how you -- what's the rational behind how much you put in each?

Elisabeth H. Demarse

So just in terms of full disclosure, Doug, in addition to being part of Seabreeze and running the fabulous Seabreeze, he's a very, very popular, well-followed, extremely popular writer for us. And he's been associated for a long time with us. So I mean, I can tell from just seeing the stock price that there's probably a lot of discontent and misunderstanding, a lot of questions around the suspension of the dividend. So let me just sort of cut to that. It was a very, very much -- very considerate decision.

I think I've said personally to a number of you that I'm a big believer in dividends. I like the idea of a dividend. I like being, dare I say, a value growth stock. So I am a fan of the dividend, but it just doesn't make sense to be returning cash when you're burning cash the way we are. And I do believe we have a number of opportunities in front of us where it would make sense for us to try and keep our powder dry.

And one thing that you didn't mention is the use -- with our stock price so low, Doug, the use of cash for acquisitions. So when we think about the uses of cash -- and this is something I want to make sure that our board does at every point in time during our quarterly meetings, each time we have a quarterly meeting, there are 5 uses of cash: Acquisition, just keep the cash on the books, reinvest the cash, which is what you were describing. Would we use it to support content? Would we use it to support out-of-cycle investment in technology or marketing, so that you can reinvest it back into the company. You can pay a dividend, as we have for the past 6 years. Or we could do -- we could try and do a stock buyback. And that pretty much covers the uses of cash from the capital and the board perspective.

So we did suspend the dividend this quarter. We're taking the company down to the studs. Rome wasn't built in a day. We have a miss on the Media side. I think that if anybody wants to look at the traffic and the -- nothing's changed. The traffic, the quality of the traffic, all of that is there. The leadership's not there. But we're building a profitable company that will throw off cash, and we'll be able to fund these things ourselves, particularly when it comes to reinvesting in the organic side of the company for content or marketing or technology.

But to continue returning cash when you're burning cash -- and then this idea of acquisitions, that is something that -- keeping dry powder around when our stock price is low, makes a lot of sense to me. And I don't know if that -- if I've answered your question or totally confused you, Doug, I'm not sure what -- it wasn't my intention to totally confuse you, but I hope that I...

Douglas A. Kass - Seabreeze Partners Management, Inc.

I guess what I'm saying is, if you look -- if we look beyond acquisitions, if we look at just internalizing the company and you look at those 3 core areas -- marketing, value-added content and technology -- do you have any sense yet or is it -- I can understand why it's premature. Is it too premature to think in terms of how you're going to distribute the savings and where the emphasis is going to be tactically for the company?

Elisabeth H. Demarse

So the tactical and strategic, both of these models are fabulous models, the Media model and the Subscription model, and they should be able to throw off cash themselves. And we're taking the company down to the studs to be able to do that. And I believe that if you build this company properly, you'll be able to fund content, technology and marketing out of an income statement that also throws off EPS. And so, I'm not -- I don't have a spend-to-win program, Doug, where we're just going to invest and hope that some new product ideas payoff or a big TV Super Bowl campaign to gain subscribers, I don't have anything like that. I really have Graham-and-Dodd approach of, "Let's build a good company. Let's get EPS as fast as we can." And I feel like we're getting down to the studs as I said. So in terms of suspending the dividend, we're not suspending the dividend, so that we can reinvest and double our technology staff, in fact, it's the opposite.

Operator

And our next question comes from Mike Mauskopf from MRM Capital.

Michael Mauskopf – MRM Capital

Going back to dividend for a second, you were pretty emphatic about keeping it, saying you're enthusiastic about the dividend and the value-on-growth comments that you made last quarter -- you just made when you were discussing it with Doug. What did you see change in such a dramatic fashion in the last just few months that made you do a 180? And number two, regarding acquisitions, you have said previously that until you right the ship, you're going to be husbanding the cash, which you did a great job with the operating expenses, et cetera, et cetera. And then I'll ask you one more.

Elisabeth H. Demarse

No, I think that's an extremely logical -- what changed? The change is that we continue to burn cash. And that's just became more evident to me as I stay -- as I work through the numbers over the past 5 months. And I believe the revenue is there, we just have to sell it, particularly on the Media side. So we did agree at the board level to suspend the dividend for this quarter, and we will re-examine that the next quarter. And I think the re-examination will take place in the context of what I always think of as the 5 uses of cash.

Michael Mauskopf – MRM Capital

Is TCW not -- they're not going to be getting their dividend either?

Elisabeth H. Demarse

No, Sir.

Thomas J. Etergino

TCB.

Elisabeth H. Demarse

TCB, yes. No, sir. And as you know -- so we have 2 very large shareholders on our board, who were very much drivers of this decision.

Michael Mauskopf – MRM Capital

The second being Cramer?

Elisabeth H. Demarse

Yes, sir.

Michael Mauskopf – MRM Capital

Okay. So suspending, obviously, doesn't mean terminating, it just means -- so if things picked up, would you view that coming back or you're not -- the focus is now righting the ship. Again, the second part of the question was the cash use for acquisitions versus righting the ship first, which needs to be righted. So are you going to go look to do something before year-end kind of thing before the bookings, sub-growth, advertising or what have you, start picking up?

Elisabeth H. Demarse

Yes. So I mean, I know that we have more work to do here on our organic business, but I also came in saying, "Look, we need to have an acquisition program." And we can be very choosy about what we choose to do, but we want to have the dry powder to act if something comes our way. So I do believe that these are a little bit linked. They're not technically linked, whatsoever, but I believe that strategically we're saying we want maximum flexibility in terms of our uses of cash.

Michael Mauskopf – MRM Capital

Last question for now is assuming conditions remain the same in the financial markets, and now you have the Knight securities thing on top of everything that's transpired, and I'm not going to even talk about it cause you guys know what I'm talking about. Have you guys thought of -- what are your thoughts about -- if conditions remain the same, you've got to still -- you need to have either better content, more writers, like Doug, keeping certain major people, getting rid of others, whatever. The point is that conditions may remain the same, but demographics are obviously not in -- well I'm not even going to get into that, the demographics of this country. So the bottom line is what are your thoughts about that?

Elisabeth H. Demarse

Yes, so, that's exactly right, and so I think that the Media business is still a good business, can have great margins. We have taken our gross margin up 9%, so it's running close to 54%, and we hope to do even better going forward. I think we increased adjusted EBITDA 14%, when revenues declined 17%. So again taking the company down to the studs, Rome wasn't built in a day. So was there -- were we surprised when Media didn't perform? Absolutely. It was a big surprise. Subscriptions were stabilizing, so I'm happy with how that's working out, but I do think that it would be good to consider other alternative business models.

And so for example, given my background at Bloomberg, something that has to do with the, sort of, institutional B2B business model, so that's something we all talk about here, both as a team and at the board level. So these are good businesses, the retail Subscription business and the Media business. But there are other good businesses out there too that are very high margin, very great operating leverage, low CapEx, just have a lot of attractive financial characteristics; but also fit very nicely into the financial space.

Michael Mauskopf – MRM Capital

And last comment is just that I would love to see Cramer discontinue his selling of stocks, so he shows confidence in what you and what the rest of the team was hopefully going to provide down the road.

Elisabeth H. Demarse

I'll pass that on. No, seriously, I'll pass that on.

Operator

And our next question comes from Corey Hajim from Diker Management.

Corey Hajim - Diker Management

I would second what the gentleman said about Cramer. I mean, I think that somebody's got to -- you bought some stock when you first came on, and someone's kind of show enthusiasm and support for the story right now, because there's still kind of a long road ahead and now there isn't the dividend to sort of keep people company while they wait. With $70 million in cash and a market cap of $50 million, kind of -- we're wondering what's going to happen. I guess, I'd love to hear a little bit more about how you're thinking about acquisitions and how you're kind of going on looking for things. And then also, whether you think it's possible to be net income positive without top line growth?

Elisabeth H. Demarse

Yes. So I mean, as I said before, we've cast a wide net. We're very methodical. And we think about lots of different business models that would be accretive and helpful and fit in with what we're doing now where we could leverage our operating foundation. So when it comes to -- we could buy audience, we could buy more subscription products. If we buy subscription products, is it more newsletters? Is it something that is more appealing to the institutional marketplace? So we're just being very methodical and also, need I say, very choosy. So that is a -- it's just an exercise that we go through and that we work closely with the board on.

Corey Hajim - Diker Management

And do you think -- are you seeing opportunities out there? I mean, are there things in the market that you think are available and have potential for you right now?

Elisabeth H. Demarse

I think that the -- it's a very interesting time in our space. It's a tough time for a lot of people in our space, so it's a challenging time for people, both who are trying to build audience media -- audience-based media sales businesses, people who are trying to pivot to subscription models, whether it's Seeking Alpha or Business Insider. I mean, part of the reasons they're trying to go to subscription is they're having a tough -- they don't have the scale to make media work. And then, what's probably more durable is the institutional space. But having said that, it's pretty common that people get to a certain scale and then just can't get any further, unless the -- it's a very frothy economy, and we certainly don't have that. So you have some great, great franchises out there that maybe kind of hit a wall and there aren't very many natural buyers for those franchises at this point. And I'm sorry, Corey, what was your other -- oh, in terms of growth, we have to grow. We absolutely have to grow revenue.

Corey Hajim - Diker Management

Get to net income positive.

Elisabeth H. Demarse

Yes, but we're so close. I mean, we're just so close in terms of get -- righting our cost structure. It's -- I really suggest people look it up at OpEx to try and gauge our progress.

Operator

[Operator Instructions] Our next question comes from [Mohamed Amal from Beam](ph).

Unknown Analyst

My question relates to the decline in both the Premium and the Media revenues. They're both down more than double-digits each. The question is, qualitatively, how much of those revenue declines can you attribute to operational issues? You had mentioned the transition to Wisconsin of your sales team. And how much of that do you think was due to the macroeconomic picture?

Elisabeth H. Demarse

Yes, Q2 was a little bit softer for financial media and our endemic advertiser cohort, which is the brokerages. Then -- and I think that was felt across the board with our competitors. And I think that, back to the operational side of things, when you have a crack -- ad sales chain, you can rise above that. You can muffle through that better. And we were just way too much in transition to hang on to any momentum that we had after Q1. So part of it -- it's a combination of, it wasn't a particularly hot environment and then execution issues on the Media side.

In terms of the Subscription business, I think we're doing something more strategic there. We're changing our strategy from upselling people and cross-selling people to casting a wider net and trying to bring in people and incubate them in the right product. And that's just been a dislocation in terms of translating that strategy into marketing. So I'm confident we have a better strategy, we'll have a stickier customer. They're going to like us better. They're going to be easier to upsell when the time comes, as opposed to this kind of churn and force-feeding that we were -- that we had been doing for the past year or so.

So that's more of a strategy dislocation than anything, I think, is in the marketplace. It also doesn't help that it's a very -- it's not a very frothy market for investment advice period either. And if you look at some of our competitors like InvestorPlace Media, they've had really tough time. So our beta is much, much lower than for some -- than some of our competitor's is. So I actually think we get, kind of, credit for operating pretty well in the business condition, given that we're undergoing a strategy change.

Unknown Analyst

Well having said that, given your strategy, do you think you have the right sales team in place? Or I should say the complete sales team in place?

Elisabeth H. Demarse

For now, I think we do. We need to -- this is all about, pretty much, e-mail marketing and we have some good people managing that. We have shown a lot of success moving from free -- moving the free-to-fee model along, where we are able to showcase the premium products to our free audience and get them interested and coming on board for -- on a subscription basis. So that's an exciting green shoot for us. So I think that the team's doing a very good job, given that we're changing things up so much. So that's my take away for now.

Unknown Analyst

I got you. There was a small gain on disposition of assets, could you tell us what type of assets did you dispose of during the quarter?

Elisabeth H. Demarse

I'll give that to Tom.

Thomas J. Etergino

Sure, so that was just a small -- it was basically some e-mails lists from a old company that was non-strategic that came with another purchase that we made. It was called InstantCast. It was about casting calls, nothing to do with anything we do. And the opportunity came up to get some money for that list, and that's what we did. We sold it.

Operator

And our next question comes from Thomas Horan from Acorn Capital.

Thomas Horan - Acorn Capital

You just mentioned Seeking Alpha. And I believe you had mentioned in a previous call trying to attract more freelance-type writers. I was just wondering if -- would a Seeking Alpha-type model work for you? Like, is that type of freelance, non-subscription-based model a consideration in your strategy going forward? Or are you more focused on growing the premium side, where most of your revenues have come from traditionally? Is the non-subscription-based model just not profitable enough? Or is it you -- could there be a mix there? Or have you thought about something like that?

Elisabeth H. Demarse

Yes, yes, yes. No -- I mean, I like the Media model which is selling advertising on a free site. And I'm sorry, I don't have Seeking Alpha's audience numbers on my -- the top of my head, but we have a very valuable audience. We have this highly coveted male HHI over 100K, no kids in the house, a lot of disposable income, huge portfolio, which is massively important to our endemic brokerage partners. So I love that business, and I believe that we can get that business hopefully back to where it was. But the difference is going to be that it's going to have some margin attached to it this time around, so I love that business.

Now part of the reason we'll be able to realize that margin is we did do exactly what you suggested. And we did -- it was one of the first things we did coming in, in March, which is we pivoted from a full time newsroom -- an FTE newsroom to a contributor model just like Seeking Alpha. And actually, we have some of their contributors working for us now. So it's a great model. We're just so fortunate compared to, I believe, Seeking Alpha or Businesses Insider, because we have this really asymmetrical advantage, as it’s called in the consulting firms, of free-to-fee where we can meet people on the free site, who come to us through the Google algorithm, for example. And if they want more, we have a very valuable set of subscription products that we can sell to them.

So we have a big advantage, not only on the free site because we can monetize our free audience, but we have a big advantage compared to our newsletter competitors because, generally speaking, they do not have such a low-cost acquisition funnel. And so that's why it was so important that we were able to buy -- reengineering some of our editorial and throwing some of our subscription editorial and ideas over the wall to the free site, that we were able to double the acquisition of subscribers from the free site from 8% in December to around 15% today. So I don't know if people caught that when I said it on the call, so it's quite important.

Thomas Horan - Acorn Capital

Okay, and then are there additional cost cuts in that transition going forward or have you...

Elisabeth H. Demarse

I think we're done with the -- I think we have right-sized the employee base. I think that what we're still working through are the vendors. In fact, I know that we're still working through the vendors. There's a ton in our cost structure that's vendor-related, having to do with a lot of product, a lot of products that have been abandoned in the past that just -- people thought they might use, either the software or the data or whatever in the past and so it's been kept here, kept in our cost structure for a while. And we're just being -- working through that as fast as we possibly can. So we're streamlining our vendor relationships as fast as we can. And so we'll see -- we still have benefit to see from that.

Thomas Horan - Acorn Capital

Do you -- did the move to Wisconsin, did that -- what type of like percentage effect did you think that was accountable for in the dip in sales? And do you expect that to -- how did that contribute to a decline in sales? Were there, I mean, layoffs or did...

Elisabeth H. Demarse

Yes, I mean, we actually know the answer to this, but I'm going to give it to Tom to answer it.

Thomas J. Etergino

We're not going to give a specific percentage, but what I would say is that we already had some people already out in Wisconsin, as well as some here in New York. The people in Wisconsin, therefore, were -- kind of were already up to speed. But we lost some good people here. And it takes some time to hire a couple of extra people out there and get them up to speed. So there was an impact, but the impact was mitigated to some degree in that we already have some folks out there.

Thomas Horan - Acorn Capital

Okay well, I mean, I follow a couple of online companies and app development companies, and it seems that the most profitable model is the -- even for like apps on the iPhone, where if you charge $0.99 for your app, not a lot of people download it. But if you make it free, and then you charge for things inside the app, you sort of have that same type of -- and that seems to be the model that works for everybody. So I definitely agree with the strategy that you're employing and I'm excited about what you're going to do going forward.

Operator

Now our next question comes from Mike Mauskopf from MRM capital.

Michael Mauskopf – MRM Capital

How many sales people do you have in Wisconsin, or in the total sales base, and are they all located in Wisconsin?

Thomas J. Etergino

Telesales, which is really related to the subscription side of the business is now all located in Wisconsin. Obviously, our ad sales people related to the Media business are throughout the country.

Michael Mauskopf – MRM Capital

And what's the number of sales people for the sub side as well as the ad side?

Thomas J. Etergino

On the ad sales side, it ranges between 10 and 13 typically, somewhere around there. And on telesales, it's still to be determined where we're going to shakeout.

Elisabeth H. Demarse

Yes, so part of this that has to do with making it scalable, Mike. When it was based in New York, the cost structure of telesales was such that we really couldn't scale it much between 3 and 5. And we're hoping -- so that's what we moved out to Wisconsin. And so the idea is that we have to get them up and running, but the cost structure is different enough that we can scale it beyond, say, 5.

Michael Mauskopf – MRM Capital

And what's the total amount of employees currently at the company?

Thomas J. Etergino

It's approximately 200.

Michael Mauskopf – MRM Capital

Okay. Let me just go back one more time. I don't want to beat a dead horse, but if I look at -- you guys did a phenomenal job on the cost-cutting side. So you lost -- ex-ing out the $1.3 million and the 0.2 gain, you lost $800,000, which means that ex-ing out the dividend you basically -- I mean, if a dividend's not around, right, you're almost making -- you're making money even, whatever. And historically, you guys have been able to do $14 million, $15 million in top line. What I'm getting at, is with the amount of cash that you have exceeding the market cap by over 50% and still needing to right the ship, what's the big deal? And what's the real big deal if you would have kept the dividend to reward shareholders for the length of time that people have been in it? It's not like your balance sheet is bad. It's pretty nice for a penny stock.

Elisabeth H. Demarse

So, I'm going to take the -- what I heard you say in the beginning part is we are very much poised for operating leverage. So just imagine -- and the way media works is, it's all about Q4 and 2013 in terms of building that revenue momentum. But this is -- we really are poised for operating leverage and beginning to throw off some cash and begin to rebuild our cash ourselves. So I think it's just the -- we were burning cash and the pivot and the -- taking the company down to the studs and then having the revenue fall, even though it didn't fall fast as we cut expenses, it just ended up putting us in a situation where we were burning cash. So I'm a fan of the dividend, I'm not going to change that. But we just were in a situation where it just didn't make sense for this quarter to pay the dividend.

Michael Mauskopf – MRM Capital

For the third quarter, you mean?

Elisabeth H. Demarse

Yes, sir.

Michael Mauskopf – MRM Capital

Okay, even with the amount of cash. Okay.

Elisabeth H. Demarse

So thank you, guys. It was great to talk to all of you. First, I want to make -- take a moment to thank our team here at the TheStreet for their incredibly hard work over the past 5 months. Our most important assets wear shoes, and I feel fortunate to work with such smart, experienced and accomplished people.

Second, we will continue to work on execution in the Media business, and we will monetize our fabulous audience. In any event, our long-term prospects are exciting and I'm even more excited now than when I spoke at a Q1 call back in May, because now I've spent time at TheStreet and I have an even greater understanding of the assets that we have to work with to make this company a success and to provide great value to our shareholders. So I very much look forward to speaking to all of you next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.

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