Greenfield Online, Inc. Q1 2008 Earnings Call Transcript

Greenfield Online Inc. (SRVY)

Q1 2008 Earnings Call

May 8, 2008 5:00 pm ET

Executives

Cindy Brockhoff - VP of IR

Al Angrisani - President and CEO

Bob Bies - EVP and CFO

Analysts

Kyle Evans - Stephens

Jim Boyle - CL King

Sameet Sinha - JMP Securities

Ron Josey - Lehman Brothers

Barton Crockett - JPMorgan

Todd Van Fleet - First Analysis

Craig Bibb - Jasper Funds

Richard Fetyko - MCF & Company

Presentation

Operator

Greetings, and welcome to the Greenfield Online, Inc first quarter 2008 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Cindy Brockhoff, Investor Relations of Greenfield Online, Inc. Thank you, Ms. Brockhoff, you may begin.

Cindy Brockhoff

Good afternoon everyone, and thank you for joining us. Welcome to Greenfield Online's first quarter 2008 financial results teleconference. On the call with me today are Albert Angrisani, President and Chief Executive Officer, and Bob Bies, Executive Vice President and Chief Financial Officer. The format for today's call will include formal remarks by both Al and Bob on the state of the business, and our first quarter 2008 performance. After the formal remarks, Al and Bob will be available for questions.

We would like to take this opportunity to remind you that certain statements made during this conference call are forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements include predictions and guidance related to the company's future financial performance, other business and operating metrics, and involves a number of risks, known and unknown that could cause actual results, performance, or achievements of the company to be materially different from the expectations discussed on this call. Factors that could cause the company's results to materially differ from the forward-looking statements made today, and which are incorporated by reference herein, are more fully described in today's press release, as well as the company's SEC filings. The forward-looking statements made herein are only made as of the date of this presentation, and the company undertakes no obligation to publicly update them to reflect subsequent events or circumstances.

I would also like to mention at the outset that we will be discussing non-GAAP financial measures, including adjusted EBITDA, operating margins, excluding one-time charges, operating free cash flow, and segment operating income. These items may be referred to as pro forma, and a reconciled to GAAP financial data in our press release issued today.

I will now turn the call over to Greenfield Online's President and CEO, Al Angrisani. Please go ahead now, Al.

Al Angrisani

Thank you Cindy; good afternoon everyone, and thank you for joining us today. The results we reported today reflect the overall strength of our global footprint, and our diversified business model, which enables us to deliver total net revenue growth of approximately 12.6%. At the same time, pro forma adjusted EBITDA, excluding charges related to the Audit Committee investigation, and charges related to the proposed settlement of the securities class action litigation grew approximately 14.5% over the prior year, while we continue to invest in our business, and generated increase cash.

Our first quarter results also reflected mixed segment performance. On a positive note, our comparison shopping business exceeded expectations, delivering over 60% revenue growth, and segment operating margins of 53.6%, including our investment in the US expansion.

On the flip side, the global ISS business got off to a slower than expected start. However, our revenue outlook is improving for Q2 based on the year-over-year growth of our backlog to date in both the US and Europe. Accordingly, we are reaffirming our annual revenue guidance.

Finally, and importantly, on May 7 we entered in to an agreement in principal to settle the pending class action securities litigation. There are more details about the settlement in today's press release, but let me say this; putting this behind us is a positive event for the company and its shareholders. It is beneficial for us to enter in to this proposed settlement agreement in order to avoid costly and time consuming litigation, not to mention further management distraction.

The terms of the proposed settlement, which contains no admission of any liability or wrong doing on the part of any defendant, are subject to the completion of the confirmatory discovery by plaintiff's counsel. The negotiation of definitive documentation and approval by the court, and include a cash payment of $4 million, half of which expect to be funded by insurance proceeds.

We are recording a one-time net charge of $2 million in our interim financial statements for the quarter ended March 31, 2008.

I would like to move on now to discussing our high level financial results, as well as our progress on key 2008 initiatives. After that, I'll turn the call over to Bob to review the financials in more detail.

So let me now take you through the high level financials for the quarter. Total first quarter revenue was $30.9 million, an increase of approximately 12.6% over the same period last year, of which approximately $1.6 million, or 5.7% was due to currency effects.

Gross profit was $24.1 million, or 78% of revenue, which compares with $20.3 million and 74% of revenue in Q1 2007.

Non-GAAP pro forma adjusted EBITDA was $7.8 million, or 25.3% of revenue, excluding charges of $2.9 million related to the Audit Committee investigation and the $2 million charge related to the proposed settlement of the class action securities litigation, but including class action litigation defense costs of $200,000. This compares to non-GAAP adjusted EBITDA of $6.8 million, or 24.9% of revenues in Q1 2007, which include approximately $300,000 of non-recurring expenses related to a bifurcation of the European business and other strategic initiatives.

Let me take a minute now to highlight the results of our two key businesses, as well as discuss progress on our key initiatives.

With regard to comparison shopping, Daniel Keller and Stephan Musikant and the CSS Team again delivered very strong revenue and profitability for the first quarter of 2008, with 60.3% third-party revenue growth over the prior year, clearly exceeding our expectations.

Revenue growth continues to be propelled by the beneficial impact of page optimization, increased offers, and merchant density, resulting an improved conversion rates and traffic monetization.

As you know, we get lots of questions each quarter regarding traffic trends when the numbers are published. We'd like to remind everyone that growth in revenue is a function of improvement across three things; traffic, CPCs, and conversion rates combined. No one single factor alone drives CSS revenue performance.

With regard to total comparison shopping operating income, it was $5.9 million, or 53.6% of revenues. The positive trend reflects the growing contribution of comparison shopping business to our overall profitability, which we expect to continue. In fact, this quarter, comparison shopping segment operating income totaled 59.2% of the operating income on all segments.

Moving on, with regard to the Ciao USA launch, I am pleased to report that we are on target with the Ciao USA business launch. Ciao USA added more than 150 merchants, since we reported our results on February 7. And we have experienced positive visitor traffic, averaging more than 460,000 unique visitors per month according comScore Media Metrics.

So far, I believe our risk managed investment in Ciao USA is paying off as a smart investment that will help us pursue our long-terms strategic goal of becoming a leading global competitor in the comparison shopping industry.

Now, moving on with regard to our Global Survey or ISS business. As I mentioned briefly, we did not meet our revenue objectives for Global ISS in Q1. Why? As you may recall, our first quarter backlog is stated on the February 7 earnings call was up only nominally versus the prior year, and we did not see a pickup in bookings until March.

Additional factors in my opinion include an apparent slowing of the US economy that to some degree may have impacted the purchasing behavior of end users and marketing research companies. And finally, significant management distraction in the ISS business, as the team focused on assisting the Audit Committee investigation related to the class action lawsuit.

With regard to the global ISS business in Q1, North America ISS third-party revenue was $14.8 million, and was down approximately 4.1% versus prior year. Ciao Surveys delivered third-party net revenues of $5.3 million, which was basically flat versus the prior year. However, based on our current revenue visibility, we remain cautiously optimistic about the second quarter.

As for a brief update on two key ISS initiatives; I am very pleased to report that we are currently processing more than 80% of our European ISS business on our new UPS platform. We are currently on schedule to operate on one unified survey platform by June 30 of this year. And finally, we also continue to view Asia as a growth opportunity, and are very pleased with the continued progress that Andy Ellis and his team are making.

With that said, now let me turn to guidance for the year. For the full fiscal year 2008, our guidance is as follows; as outlined in today's press release, when referring to pro forma guidance, these figures exclude the effects of approximately $2.9 million in expenses related to the Audit Committee investigation incurred during the first quarter, as well as the $2 million charge related to the proposed settlement of the class action securities litigation, but includes approximately $200,000 of class action related to defense costs.

Our guidance for total revenue remains at the range of $143 million to $153 million. We are updating our expected range for gross margins to approximately 75% to 76% from the previous range of 74% to 75%. We are updating our guidance ranges for non-GAAP adjusted EBITDA to the following percentage ranges; pro forma non-GAAP adjusted EBITDA 27% to 28%; as reported non-GAAP adjusted EBITDA 23% to 25%.

The guidance range for depreciation and amortization remains $13.7 million to $14.2 million. The guidance range for charges related to stock-based compensation is updated to a range of $3 million to $3.5 million, from $2.7 million to $3.5 million.

We are updating our guidance ranges for effective tax rate to the following percentage ranges; pro forma 28% to 30%, as reported 25% to 27%.

And with that, I will turn the call over to Bob to provide you with more details on the fourth quarter financials, and the breakout of our business segments; Bob?

Bob Bies

Thanks Al, good afternoon everyone. Today I will take you briefly through the consolidated financials, and we'll try to give some additional color on this busy quarter, and then I will review the numbers on our three segments.

Before we get started, at certain times today, I will be discussing pro forma results. Pro forma results exclude approximately $2.9 million of expenses related to the Audit Committee investigation, as well as $2 million net charge related to the proposed settlement of the class action litigation, but including approximately $200,000 of defense costs associated with the class action litigation.

Before I dive in to the details of the quarter, I'd like to stay at 30,000 feet and reflect upon our performance for the quarter and our business model.

Firstly, regarding the class action securities litigation, we are glad to bring the issue of litigation to closure. While we take the issues deeply seriously, we also from a business model perspective look through the economic impact of the event, and provide financial users with pro forma views of our performance in order to better understand the underlying trends in our business.

Secondly, with respect to the ISS performance, well, the quarter was soft, and many may view the quarter as reflective of sensitivity to economic headwinds. We still believe that there are three fundamental reasons why the business could perform well in this environment.

The first is, we have looked at the empirical data since 1990 on the worldwide domestic market media and public opinion research spending, sourced from inside research in SMR, and the data suggests that this market does not suffer significant negative effects in economic downturns.

Second is, we still believe that the secular shift from offline to online is happening in ISS. Domestically, we believe we are in inning seven of a nine inning game, and in the rest of the world, we believe we are in the third inning of a nine inning game. This going to provides us with additional boost to revenue growth that we believe it can help offset the dampening effect of a down economy.

And finally, the cost of online data is still less expensive than offline data, and we believe that the natural response of our clients will be to move to online data even further to offset the impact of lower revenues in their business models during economic headwinds.

While these factors are perhaps more academic than experiential arguments, because our new business model has yet to experience economic headwinds, they seem logical and well founded to us.

Thirdly, as you saw through the data we provide you in this quarter; please have a look at our margins. We believe they are superb in the CSS business, and in the ISS business, we have costs well controlled, and we believed we are position for EBITDA flow through, as revenue growth is restored for the remainder of the year.

Fourth and final is, our comparison shopping business; we continue to be bullish in our prospects in this business. For those who are new to our story, this is a company we purchased in April of 2005 as part of the Ciao acquisition with approximately $6 million in 2004 full year revenues, and $2.7 million of 2004 full year EBITDA. That has generated $10.8 million in revenues and $5.9 million in EBITDA in a single quarter three short years later. This growth has been under the tutelage of Daniel Keller, Stephan Musikant, and the very talented comparison shopping Team.

Now in to the details; regarding the consolidated financials, on the revenue front, as Al previously mentioned total net revenue for the first quarter of '08 was $30.9 million, which represented 12.6% year-over-year revenue growth, of which approximately $1.6 million or 5.7% was due to favorable currency effects.

Turning to gross profit; gross profit was $24.1 million or 78% of revenue, as compared to $20.3 million or 74% of revenue in the first quarter of 2007.

On a year-over-year basis, gross profit dollars increased primarily due to the increase in high margin comparison shopping revenues, and also to lower supply chain costs as a percentage of revenues in the Internet survey solutions segment. The balance of '08, we expect gross profit margins will be in the 75% to 76% range.

Turning over to SG&A, for the first quarter of '08, SG&A expense was $20.9 million or 67.7% of revenue, including approximately $2.9 million in expenses associated with the Audit Committee investigation, and the $2 million charge associated with the proposed settlement of the class action securities litigation, and including the $200,000 in class action litigation defense costs.

Pro forma, however, SG&A expense was $16.1 million or 51.9% of revenue. This compared to $13 million or 47.3% of revenue for the same period a year ago, and 50.8% for the fourth quarter of '07.

When compared to the prior year period, pro forma SG&A expenses increased by approximately $3.1 million, primarily as a result of the following; approximately $900,000 associated with foreign exchange impact; approximately $550,000 in incremental corporate overhead expense, such are rent and utilities primarily related to bifurcation; approximately $500,000 related to increased marketing and advertising expenses, primarily in Comparison Shopping segment; approximately $500,000 related to higher payroll costs in G&A associated with increased headcount and recruiting, primarily in Europe in our comparison shopping business; approximately $350,000 in incremental selling expenses primarily payroll in the Comparison Shopping segment as they build out sales headcount. And again, approximately $200,000 in class action litigation defense costs.

So in terms of targeting SG&A as a percentage of revenues for the balance of '08, we expect on a pro forma basis SG&A to range from 46% to 47% of revenues for the entire year, and that excludes the Audit Committee investigation expense of $2.9 million and the proposed litigation settlement charge of $2 million.

Turning over to panel expense, for the first quarter of '08, panel expenses totaled $812,000. This compares with approximately $1 million in the prior year. The decrease in panel build in 1Q '08, as compares with 1Q '07 was due to a shift of a portion of our production to real-time sampling from the panel.

For '08, we continue to expect that total panel expense will increase to support the transition to UPS in Europe, as well as the geographic expansion of the ISS business in to Asia, and should run in the 3% of revenues range.

Turning over to depreciation and amortization; this expense totaled approximately $2.3 million for the first quarter. There is additional depreciation and amortization in cost of revenues in panel expense related to internal use software, and acquired panel assets. In total, DA amounted to approximately $3.3 million for the quarter, compared to $2.9 million for the same period in the prior year.

Turning over to R&D; R&D expense was approximately $1.1 million, were approximately 3.7% of revenue, and essentially in line with our expectations for the first quarter as we continue to invest in developing our core operating systems in both the ISS and the CSS segments of our business, as well as to support the build out for Ciao USA.

Operating loss; total operating loss for the first quarter of '08 was $1.1 million or 3.4% of revenue, including the impact again of the Audit Committee investigation expenses and the charge related to the proposed settlement of the class action securities litigation, as compared with operating income of $3 million, or 11% of revenue in the prior year. However, again on a pro forma basis, pro forma operating income was $3.8 million or 12.3% of revenue.

Turning over to adjusted EBITDA; for the first quarter of '08, pro forma non-GAAP adjusted EBITDA was $7.8 million, or 25.3% of revenue, and compares with non-GAAP adjusted EBITDA, including approximately $300,000 of non-recurring expenses related to the bifurcation of the European business, and other strategic alternatives of $6.8 million, or 24.9% of revenue in the prior year.

And then finally, net loss for the first quarter of '08 was approximately $100,000, as compared with net income of about $2 million for the prior year, and again, on a pro forma basis, net income for the first quarter of '08 was $2.8 million.

Turning to cash flow, net cash provided by operating activities for the first quarter of '08 was approximately $6 million, and compares to $6.4 million for the same period last year. Net cash provided by operating activities for 1Q '08 was offset by an incremental tax payment of $4.1 million, which is mostly in Germany.

Non-GAAP operating free cash flow was $3.9 million for the first quarter of '08, and compares to $4.7 million for the same period last year. Non-GAAP operating free cash flow was negatively impacted by the incremental cash income tax payments that I just mentioned.

Turning over to the balance sheet; we ended the first quarter with cash and marketable securities of about $65 million, up from approximately $58 million at the end of the fourth quarter '07, and up from approximately $43 million at the same period a year ago.

Looking at our backlog and bid volume, as of today, ISS second quarter backlog defined as signed contracts for online survey projects that we expect to be completed and delivered to clients during the three months ended June 30, '08 is approximately $20.5 million, and excludes comparison shopping services and advertising revenues. This compares with ISS second quarter backlog of approximately $18.2 million as of May 8, 2007, and ISS first quarter backlog of $16 provided at February 7, '08.

As a reminder, this is a revised backlog figure for the prior period, and excludes comparison shopping service and advertising revenues. We advise caution regarding the use of year-over-year backlog as an indicator of second quarter revenue growth rates.

Bid volume for the three months ended March 31, '08 was approximately $136 million, and compares with bid volume of $138 million for the same period one year ago.

And finally, let's turn to segment information. Beginning with Ciao comparison shopping or the CSS segment, first quarter of '08 segment revenue for CSS segment totaled approximately $11 million, including inter-segment revenues for the sale of panelists sourced through the CSS portals. Excluding inter-segment revenues, CSS revenues totaled $10.8 million, representing growth of 50.3% or 43.1% excluding the impact of currency.

First quarter '08 non-GAAP CSS segment operating income was approximately $5.9 million, or 53.6% of revenue.

Looking at the unique visitor trends in the first quarter, Ciao comparison shipping had according to data compiled by comScore Media Metrics unique monthly visitors totaling 21.1 million, 18.1 million, and 18.6 million in the aggregate for the months of January, February, and March in the European countries of Germany, France, Italy, Spain, the UK, Sweden and The Netherlands. For comparative purposes, unique visitor data for the same periods in '07 were 16.2 million, 15.2 million, and 16.9 million respectively. The US also, according to comScore Media Metrics, unique visitors were approximately 470,000, 460,000, and 490,000 for the months of January, February and March of '08.

Regarding Ciao active merchant trends, as of March 31, '08, europeanciao.com had more than 1,900 active merchants, with active merchants being defined as merchants who display offers on comparison shopping portals, and accept click-throughs. This compared to 1,700 on December 31, '07.

As of March 31, '08 Ciao USA had more than 190 merchants, and compares to approximately 40 merchants that we reported on February 7, '08.

Moving to the North America ISS segment, first quarter '08 gross segment for North America ISS was approximately $15 million, including inter-segment revenue representing a decline of approximately 3.7% over the prior year.

First quarter '08 non-GAAP segment operating income for North America ISS was approximately $2.7 million, or 17.7% of revenues compared to $2.8 million, or 18.2% for the first quarter of '07.

Lastly, turning to the European ISS segment, first quarter '08 growth segment revenue for the Ciao Surveys was approximately $6.8 million. Approximately $1.6 million of this segment's revenues were related to European sample supplied to the North American customers through our North American Survey segment.

First quarter '08 non-GAAP segment operating income for Ciao Surveys was approximately $1.4 million, or 20.9% of revenue, compared to $1.9 million, or 27.6% of revenues for the first quarter of '07.

And with that, I'll turn the call back to Al.

Al Angrisani

Okay Bob, very quickly thank you very much, and as mentioned at the outset on the call, our global diversified business model helped deliver 12.6% total company revenue growth over the last year.

It's gratifying, mostly it's very gratifying and exciting to see the comparison shopping business continuing to outperform all of our expectations, and delivering an increasing contribution to our profitability.

It was a very busy quarter with many things happening in it. I think we got it all in front of you, and we're pleased with our results and excited about the next couple of quarter.

Thank you very much, and Cindy I'll give it back to you.

Cindy Brockhoff

Thank you, and with that operator, we're going to open up the floor to questions. As a reminder to participants, please ask your questions one at a time, and try to refrain from long-listed questions all at once. We promise to circle back and get to all your questions.

And with that operator, we are ready to begin; we'll take the questions in order. Thank you.

Question-and-Answer Session

Operator

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

Kyle Evans - Stephens

Hey, good afternoon everybody.

Al Angrisani

Hey, Kyle.

Kyle Evans - Stephens

May be you can give us a little bit more around your comfort with the annual guidance in the ISS business with regard to win rates, and pricing trends, and competition, and customer satisfaction?

Al Angrisani

We reaffirmed our guidance for the year, so we don't say that lightly. I think pricing is stable; the gross margins are healthy and good; expenses are under control, and I don't want to get in to bid activity and volume, but all the indicators at this point in time seem to be pointing to reaffirmation of our guidance for the year.

The underlying issue is, things are little slow out there this quarter. We just saw before the call a piece coming out of one of the market research industry institutes that said across the industry, bidding was pretty flat for the year, for the first quarter. So that's had a little impact on everybody's business. But we're very excited to see the backlog in March start to pickup and the trend lines are moving in the right direction. So we're treating it as business as usual, and expect to be where we said we're going to be at the end of the year.

Kyle Evans - Stephens

And the customer satisfaction levels still where they were for most of last year?

Al Angrisani

Very high, it's not higher, 97%.

Kyle Evans - Stephens

Great; second question, Bob may be some commentary on the gross margin improvement that you see in the business model for the rest of the year?

Bob Bies

Yeah, we're really pleasantly surprised with the first quarter coming in at 78%. The over achieve on Comp Shop is playing in to it; it's virtually 100% gross margin in that business. And also we're seeing some nice trends in the labor lines in the ISS business, probably the early dividends from the UPS worldwide platform, as well as now that supply chain has managed from one office on a worldwide basis, some of the discipline that we had in the US that we established in '06 and '07 is now coming in to the fold in Europe.

And so we're optimistic that we're going to be able to really leverage our scale, and get good supply chain costs, get those down as a percentage of revenues and continue to drive our labor, hold the labor line or reduce the labor costs as a result of the worldwide UPS platform.

Kyle Evans - Stephens

Great, on Asia, are you guys over there building panel, servicing clients via the river and generating revenue there? I mean, it sounds like you're pleased with your progress there; could you give us a little bit more on the tangible side?

Al Angrisani

Yes to all of the questions you asked. We don't break it out, we're not breaking the segment out at this time, but suffice it to say that, it's doing better than we anticipated it would do at this stage of the year, and we have high hopes for the strategy that we've laid out. It appears to be the correct one, and the proof will be in the pudding as we move through the next three quarters of this year.

Kyle Evans - Stephens

Great, last question, and then I'll get back in the queue. I've tried to think of a really crafty way to ask this, but I couldn't, so I'll just come right out with it. How your employment contract is up later this year; am I correct on that front?

Al Angrisani

I don't know Kyle, I haven't checked; this is new. I better go check, right?

Kyle Evans - Stephens

Well, I'm pretty sure that it is. When are we going to hear something on just how long you are going to extend that, or some kind of succession plan on your guys?

Al Angrisani

The Board and I are in dialogue on that right now. I'd prefer not to say anything more than that, but to say that we are talking about it on a regular basis.

Kyle Evans - Stephens

Good, thank you.

Operator

Our next question comes from the line of Jim Boyle with CL King. Please proceed with your question.

Jim Boyle - CL King

Good afternoon; with the stock price so far down, and your ever larger pile of dry powder building up, is there time for an opportunistic buyback on top of the investment in your own business?

Al Angrisani

Hi Jim, it's Al; obviously, the Board looks at this on a regular basis. You are very correct; our cash is building rapidly. In addition to making investments in the businesses, which we've made a lot already and we're continuing to drive more of those investments that are going to be great for the company in to the future. And I think the Board is very seriously looking at what's the correct deployment for that cash of which stock buyback is one option.

To say that we have a firm opinion from the Board on whether we should be deploying it in to the repurchase of shares or buying strategic companies or other things, wouldn't be correct. I think the Board needs a little more time on that, and we will deal with that over the next quarter or so.

Jim Boyle - CL King

Okay, Ciao USA, is the ramp so far on budget on schedule?

Bob Bies

Yeah Jim, I think we're pretty happy with where it's tracking; I have promised in the prior quarter that we'd give you some color on the performance. So actually, we had planned on about a $600,000 EBITDA loss in the quarter, and we came in at $400,000 and we asked Daniel and Stephan very point blank are you coming off, are we coming off where we think revenues will be later in the year, and they said, no, we're holding our cards right, where they are today; we're happy with where things are. So the good news is that we are under plan on budget, and we're happy with the traffic hesitation at this point.

Al Angrisani

Let me mentioned Jim, to add to Bob said; we do monitor very closely on an almost weekly basis with Daniel and Stephan the internal metrics that are driving that business right now, and all those metrics Bob mentioned, traffic, merchants, everything is really moving according to plan. So we feel like we're in exactly the right place that we need to be at the end of Q1.

Jim Boyle - CL King

Any surprises so far?

Bob Bies

I think may be a little bit more traffic than we thought there…

Al Angrisani

Yes really. We do look better than we thought in terms of the internal metrics.

Jim Boyle - CL King

Okay, and Al what do you make of all the M&A dancing and posturing by some of the big five market research companies. If two of them merge, how does that help Greenfield, and how might it hurt you?

Al Angrisani

Well, I mean there are two separate thoughts there; the merger, in my opinion, is being talked about, or some further consolidation is obviously the continuing of a trend, right Jim, that's been going on for a number of years in the full service market research industry, that there's been some consolidation at the top.

So we've learned to live with that over the years, and any areas of further consolidation, we pay attention to it, but we have a very diversified revenue base, and we work very hard at creating new customers, and helping to grow our small and medium size customers in to bigger customers.

So what it really does is it just makes us, as we see that happening, it makes us more eager and aggressive in our pursuit of broadening our revenue base. And at the moment, we're not forecasting any changes in our revenue model because of it.

Jim Boyle - CL King

And finally, you mentioned pricing was relatively stable, even given the economic headwinds. You almost would intuitively think that in tough times, someone would start to just jump off their rate cart and put pricing pressure not heir peers. Why do you think that's not happening yet?

Al Angrisani

Well, I think that we have a business strategy that is the correct one, and if you go back eight quarters or nine quarters from when I took the job, with regard to the survey side of the business and the turnaround that we've done and completed there, it was built upon a couple of premises; one was quality of the work and quality of our sample, and that has, in fact, proven to be exactly the right theme because the entire industry is moving to higher quality standards.

The second piece of it was we just weren't going to chase price declines, or lowering the prices by competitors who were going after business at any cost. We were, as the leader in the space, Greenfield being the largest with the most market share; we're going to be the leader in making sure that fair price was paid for fair value provided. And we do that, we still do that today. We don't chase prices down.

So I think our gross margins are stable, because we basically have standards in terms of the amount of work, and what type of work we take in at what margin. Now, that might result in a few bucks less on the top line periodically. But in the long run, it's good for the business and it's good for the industry.

Jim Boyle - CL King

Understandable; much thanks.

Operator

Our next question comes from the line of Sameet Sinha from JMP Securities. Please proceed with your question.

Sameet Sinha - JMP Securities

Yes thank you; so the first question on the Ciao Internet survey business, margins seem to have comedown significantly. Could you talk about why that happened? I mean was this part of the distraction that you spoke about, or is the cost structure heavily fixed at this point and as revenues were flat, margins were impacted?

Bob Bies

I guess the largest piece of that would be now in the first quarter of '08 is the impact of the dual overheads, as a result of the bifurcation. That's probably the largest piece of the cost increase, and then panel expenditure, as well was higher this quarter than the prior year.

I think overall though, as I mentioned in my narrative, we really do believe that we have costs really locked down and we're essentially for a place only a trip, headcount mode, and we're waiting for the incremental revenues to come in, and I think the flow through is going to be quite good as we proceed through the year as the revenue lifts.

Sameet Sinha - JMP Securities

Okay, and in terms of Ciao USA, can you talk about; you gave us a number of merchants you've signed up with? Can you talk about how your attempt to get more user-generated content more reviews? How that they progressed over the last two or three months; can you quantify that? That would be helpful.

Al Angrisani

I think that's moving to a level of detail that we're uncomfortable sharing in a public domain. That's part of our internal strategy and I'd prefer not to address that in this particular venue.

Sameet Sinha - JMP Securities

Okay. Final question, in terms of the survey business, last earnings call you had given us a range of expectations for the year. I can't recall the exact range, but do you have a similar range for this year at this point, sorry?

Bob Bies

I think we're going to stay with it; we had a 6% to 12% revenue growth range I think for the worldwide business, and obviously, it's going to be tougher to get to the high end of the range given the softness of the first quarter. But we're going to fight hard to do the best we can to grow the business, but the range right now we're sticking with the 6% to 12% growth.

Sameet Sinha - JMP Securities

Okay, thank you very much.

Operator

Our next question comes from the line of Doug Anmuth with Lehman Brothers. Please proceed with your questions.

Ron Josey - Lehman Brothers

Hi, this is actually Ron Josey calling in for Doug, and I have two quick questions. One is regarding the Survey business; are you seeing any particular strength or weakness in specific verticals in healthcare or pharma, or any other verticals? And I'll ask the second one afterwards.

Al Angrisani

Not particularly; I think that there isn't any horizontal or vertical aspect to what we've talked about. I think it's pretty much caution across the board, with the larger market research companies on how they spend their budgets, and I think correspondingly in March, we saw the pickup in backlog across the board as well. So I'd say the answer to that is no.

Ron Josey - Lehman Brothers

Okay great, thank you; and then last question is regarding Ciao. With traffic growth as dictated, I think pretty good for the quarter, one of the three drivers for monetization track, traffic, CPC and conversion rate. Could you just add a little bit more color just on monetization in general, are you seeing an increase in CPC rates, or conversion rates, or is it one or the other, I know we said it was all three, but looking for more color. Thank you.

Bob Bies

Yeah, I think at this point, we're just going to keep that close to our vest in terms of where we're seeing the improvements. But again, this company got its first infusion of real cash about a 1.5 year ago to improve its infrastructure and its various technologies and there are still a lot of places where we can improve, and we like the traffic growth the way it is, but we're going to be implementing technologies to improve the efficiency of the engine as well.

There's still a lot of low-hanging fruit, and I think there's a lot of people out there they are just look at the traffic, bid on the traffic trends and we think that you have to bid on all three to make a good bid on this business.

Ron Josey - Lehman Brothers

Great, thank you very much.

Operator

Our next question comes from the line of Barton Crockett with JP Morgan. Please proceed with your question.

Barton Crockett - JPMorgan

Okay great, thanks for taking the question. First thing just on the FX impact. I just want to make sure I got it straight. Can you tell me what the earlier growth would have been in revenues and pro forma non-GAAP adjusted EBITDA for the entire business and for the affected segments and European Survey Comp Shop?

Bob Bies

We don't have it down to the adjusted EBITDA level, but the Comp Shop business grew at about 43% in Euros in revenues. The obviously, the US we stated a decline of 3.7% and the European Survey Research business actually had a contraction of about 7% in local currency in apples-to-apples, but we haven't, unfortunately Bart, we don't have the calculations down to the EBITDA level.

Barton Crockett - JPMorgan

Okay, but then global revenues for the company, what would be the growth rate to cost of currency?

Bob Bies

Would have been about 7%, 8%, somewhere in there.

Barton Crockett - JPMorgan

Okay and then are the expenses cost of currency? I mean are the expenses in the currency in which the revenues are booked?

Bob Bies

Yes.

Barton Crockett - JPMorgan

Okay, and then switching gears a little bit, I know this question was kind of broach generally, I just want to ask it more specifically, and I think I have an idea of the answer; I just want you to put it out there, in case may be this is part of what's affecting the stock of late, but Taylor Nelson Sofres, and GFK can you give us some sense of how much of your revenues come from those companies, and if they were to merge, why we should not worry about you guys losing a big chunk of business from them as some type of merger synergy?

Al Angrisani

We're not going to give out the exact amounts of revenue that we do for each customer. However, give us some credit for knowing how to run our business, and if they're going to merge, we're going to be working on remedies to deal with any contingencies that might come from a loss of business. However, those things can break a couple of ways. And they can break against you or actually sometimes, in merger environments, which in this case would take years to implement, they can actually create more opportunities for you. So it's way too early to get panicked and it's way to early to be giddy about potential opportunities of two big companies coming together and how they might, in fact, revisit their own internal business strategy.

So the right place to be is to be, right in the middle here to be opportunistic; we have great relationships with both companies at the very, very senior levels of the companies, and they view Greenfield Online as a very, very important of their vendor relationships. So we will be working very closely together to make sure that we help them with creating a value-added proposition, and they'll be working very closely with us to make sure we're an important vendor to them. So don't be pressing any panic buttons.

Barton Crockett - JPMorgan

Okay, all right; I'll leave it there; thanks a lot.

Operator

Our next question comes from the line of Todd Van Fleet with First Analysis. Please proceed with your question.

Todd Van Fleet - First Analysis

Good afternoon guys, nice quarter. First on the revenue side, Al, I just want to get a sense for your level of surprise at how soft Q1 ended up being for ISS on both sides of the Atlantic I guess. You saw the slowness I guess in January; were you surprised at how big the drop was sequentially for ISS?

Al Angrisani

It's a good question and thank you for the compliment on the good quarter. Yes and no, I mean we talked at the end of the last quarter Bob went sort of out of his way to talk about the backlog being flat. I think that was the flip sign that my guess, I'm going to speak with what my opinion here is Todd, just my personal opinion, because there really isn't any empirical data out there.

My guess is that what's happening in late December, some of the market research companies aren't basically spending out their budgets as a result of what they were receiving from their clients. So probably the global Fortune Thousand companies had some indication that they needed to may be just watch their spent. So, instead of being more aggressive at the end of the year, they just sort of stayed flat, and they finished their projects and they didn't take on any accelerated year-end activity.

And I think what's happened a little bit is that carried in to January, and if you just want my personal opinion, I think what went on in the financial markets with the banks and everybody may be sort of create a little more fear in the market, so it caused people to be a little care for they have spent money in January.

And then I stared to think I feel like you start to see some momentum pickup in February, but really it manifested itself in March. But it's just not that simple, right, because we had our own internal situation, as I mentioned in my remarks in February, we were dealing very aggressively with the class action lawsuit, and I think there was probably some element of distraction going on there; not an excuse, just a reality in terms of the environment.

So yes and no on the surprise side; look there's lots of information out there now about where the overall economy is, but we're trying not to run the business that way; we're very hunkered down on a client by client basis trying to drive revenues in to the future, and with the pickup in our backlog, and I can assure you, the sense of urgency that the new Management Team at the Survey Business has that I believe we're in a good spot right now, it's my personal opinion. Time will tell, as we get through the quarter, but everybody knows that we have to get done here and we have to makeup some ground by the end of the year, and that's what our goal is to makeup that ground and it's not mission impossible.

Todd Van Fleet - First Analysis

How was the bid volume in April?

Cindy Brockhoff

We can't really talk about that.

Al Angrisani

Yeah, we don't do the bid volume, not like that.

Todd Van Fleet - First Analysis

Did you see, just to give us something that we can kind of latch on to here that, you guys seem optimistic that you're going to see a recovery. Have you seen an uptick in the level of activity in April over prior year?

Cindy Brockhoff

We can't about that during quarters, Todd, sorry.

Todd Van Fleet - First Analysis

Well, let me turn to gross margin because it was a great performance in the quarter, and we obviously see new, the revised guidance for the full year, but if we think about the different elements of the business here, that is Ciao in comparison to the ISS business, Ciao, as we all know, has a much higher contribution as Bob points out for each incremental dollar, and that is, given that that's the fastest growing part of the business, and given that the gross margin, incremental margins associated with that are much higher than ISS, I'm wondering why you wouldn't be more optimistic than you are perhaps about the gross margin for the balance of the year? And I just want to clarify; I think I heard Bob say that 75% to 76% is the gross margin that you expect for the balance of the year, or is that for the entire year? So I guess a couple different ways I'm questioning that.

Bob Bies

Yes that guidance is for the entire year, and it's really a function of the first quarter, just getting through our first quarter, I think we'll to refine up views we go on through the year, keep some of our powder dry and some of the good stuff that's happening and we'll take a look at it the end of the second quarter, how we've performed and take a look at the guidance and see if it needs to be adjusted at that point.

But yes, you're right; I mean you have a fast growing star in the portfolio that's garnering close to 100% gross margins; logically you would think that the number would be higher than that. I think it's just a function of being only three months in to the year, and we want to see how the year progresses.

Todd Van Fleet - First Analysis

Thanks.

Operator

Our next question comes from Craig Bibb with Jasper Funds. You may proceed with your question.

Craig Bibb - Jasper Funds

HI, I'm fine, thank you.

Operator

Our last question comes from Richard Fetyko with MCF & Company. You may proceed with your questions.

Richard Fetyko - MCF & Company

Hey guys; just a question on the Survey business in Asia, what kind of progress you're making and when should we expect that business to be material enough to make a difference and offset some of the weakness in the US?

Al Angrisani

It's too hard to say, when we think it's going to be material enough to segment it, if we ever do. But it is growing nicely right now, and we are, in fact, putting more resources against that business, and we're anxious to see where it is at the end of the year, if it meets our expectations. At the moment, it's doing that; it's meeting our expectations. And I'm personally very optimistic for that business in 2009 and beyond. And I think it's going to be, it has the potential to be a real contributor to the future growth of the Survey business, and I probably should just leave it there except to say that it's in a very good position right now.

Richard Fetyko - MCF & Company

Would you consider making an acquisition to accelerate that?

Al Angrisani

We always look at the possibility of external growth opportunities. Our business model is focused on organic growth; we feel that is a most efficient growth, and the growth that's in the best interest of the shareholders, and the growth that which we can preserve the company's margin objective. But strategically, we're constantly looking at opportunities to save time and energy and effort and money through the acquisition process, so the answer would be sure, if the right thing showed up.

Richard Fetyko - MCF & Company

Okay, thanks.

Operator

Last question comes from Sameet Sinha with JMP Securities. You may proceed with your question.

Sameet Sinha - JMP Securities

Yes thank you, just a couple of follow-ups. Can you quantify, I mean in the Survey business, how much of the shortfall was due to the distraction versus the macroeconomic condition?

Al Angrisani

You can't quantify it; by General Counsel John is over there shaking his head no, I had a hedges spun around on his shoulders, but you can't quantify it. That wouldn't be the right thing to do, but if you use common sense and you look at all the activity that went on in a very short period of time with the suit, the follow-up work, the Audit Committee investigation, the efforts that the team here at he company put, which I thought was an outstanding effort, Bob and Jonathan and their teams, and then the people who are supported in the organization.

Let me just say, it was substantial. And we're very happy that that's behind us right now, and it's going to help us with the pursuits that we've talked about on this earning call here in Q2, Q3, and Q4.

Sameet Sinha - JMP Securities

Okay and one final one, I just wanted to confirm; you said that the gross margin guidance, 75% to 76% that's for the balance of the year or for the total year?

Bob Bies

Total year.

Sameet Sinha - JMP Securities

Okay, thank you very much.

Operator

Thank you, I'll turn the floor back over to Management for closing comments.

Al Angrisani

No closing comments, Maya; thank you everybody for taking the time. We look forward to chatting with you at the end of Q2.

Cindy Brockhoff

Thank you operator. We'll talk to everyone in three months.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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