Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Jeffery Goldberger – KCSA Strategic Communications

Anthony Previte – President – COO

Ezra Shashoua – CFO

Analysts

Wayne Teetsel – Stonehill Capital Management

Sam Sakain – ALJ Capital

Steve Lemur – Volt Capital

FriendFinder Networks, Inc. (FFN) Q2 2012 Earnings Call August 14, 2012 4:30 PM ET

Operator

Good day, everyone, and welcome to the FriendFinder Networks Incorporated second quarter 2012 earnings conference call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Jeffrey Goldberger. Please go ahead, sir.

Jeffrey Goldberger

Thank you, Talari, and thank you everyone for joining us today for the FriendFinder Networks second quarter 2012 earnings conference call. Before I turn the call over to the company’s newly appointed chief executive officer, Anthony Previte, I would like to read the following Safe Harbor statement.

Certain statements made on this conference call regarding FriendFinder Networks and statements related to future expectations, beliefs, goals or prospects constitute forward-looking statements made within the meaning of section 21-E of the Securities Exchange Act of 1934 and section 27-A of the Securities Act of 1933. Any statements that are not statements of historical fact, including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates” and similar expressions indicating future performance results or objectives should be considered forward-looking statements. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements. FriendFinder Networks assumes no obligation to update the forward-looking statements in this communication, except as otherwise required by law. Participants are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Today, we will also discuss certain non-GAAP disclosures, and a reconciliation to GAAP information is included in the press release issued earlier today. Investing in the common stock to FriendFinder Networks involves a substantial risk. Please read the risk factor section of form 10-K for the year ended December 31, 2011, filed with the SEC on March 29th, 2012. The company does not undertake to revise any forward-looking statements to reflect future events or circumstances. With that, I will turn the call over to CEO Tony Previte. The call is all yours.

Anthony Previte

Thank you and welcome to the FriendFinder Networks second quarter 2012 earnings conference call, and my first as CEO. Before we get started, I would like to thank Marc Bell for his continued support and guidance, which has ensured a smooth transition into my new role as CEO. During today’s call, I will provide a high-level overview of the second quarter, discuss operational updates and review our strategic plans. I will then turn the call over to Ezra, our Chief Financial Officer, to review our financial results for the second quarter before opening up for questions.

During the first half of 2012, we undertook additional actions to further optimize our business, maximize our brand equity and retain greater control of our cost structure. Simply put, we have redirected our efforts to support the 100 primary brands that contribute approximately 90% of our total subscription-based services revenue. The consequence of the shift was to begin the process of closing nearly 5,000 co-brand sites during the quarter. Even though our affiliate network attracted thousands of new registrants per day to these sites, it became too cumbersome and is cost-prohibitive to continue to support them.

To further develop our primary brand, we continue to focus on improving our three core metrics. The first is member conversion, which is the percentage of our members who subscribe to our services. The second is renewals, which is the percentage of our subscribers who renew their subscription. This is a byproduct of our return metric. And the third is cost per gross addition, which is the customer acquisition cost we have discussed in detail on previous calls, and a direct indicator of our marketing efficiency. Member conversions and renewals are primarily driven by the products, which is why we are focusing our efforts on our core brands and we feel that is so important.

You’ll hear on today’s call some of our recent improvements to our sites, which we believe help support our long-term success. Although we’ve seen a decline in overall traffic from the closure of our co-brands, our member conversions improved 50 basis points to 4.2%. Additionally, the lower traffic and resulting subscriber loss has mainly come from brands that generate minimal revenue, thus making these [inaudible] extremely cost-effective relative to the subscriber loss.

Marketing efficiency is being driven mostly by an increase in analytics and has provided us with the ability to assess our marketing, granular real-time basis. During Q2, for example, we were able to quickly shut down campaigns that didn’t meet with our expectations, which allowed us to greatly, efficiently redirect spending elsewhere. While our overall strategy remains ROI-positive, we continue to refine our advertising spend in an effort to increase retention rates, boost subscriber growth as efficiently as possible. We will be opportunistic in our customer acquisition efforts in the second half of the year, and expect our revenues to benefit accordingly.

In keeping with our strategy to contain costs and focus on the parts of our business that have the greatest potential to drive shareholder value, earlier this month we sold JigoCity operations back to one of its original owners. While we have been making these operational changes and refocusing our efforts, there’ve been many successes along the way.

First, our live interactive video segment continues to make strong contributions to the business, notching its 10th consecutive quarter of year-over-year revenue growth. This segment continues to perform well in both total minutes purchased and revenue has grown approximately 12% year-over-year.

Another success we’ve had is with our geographic price testing in Europe. For the first time in six quarters, we saw a slight dollar increase in European revenues over the previous sequential quarter. It is significant to note that this increase was despite having the Euro weakening against the dollar quarter-over-quarter. This improvement indicates that our geographic price testing in different European regions has started to bear fruit and we expect to see additional revenue growth as renewal cycles kick in.

Our Penthouse brand continued to expand across Europe, as the Penthouse Club opened in Paris, France. We widened our broadcast reach in Germany by teaming up with Cable Deutschland, a leading national cable operator in the territory who reaches over 8.5 million German households. We expect the Penthouse channel to be well-received in this region.

In addition to our efforts internationally, we’ve also made a lot of improvements to our core website AdultFriendFinder. Of note, we have focused our efforts on increasing standard member retention by allowing more low-level interaction between members for free. The expectation here is that the increased free interaction leads to longer customer lifetime value and more opportunity to sell premium service to our millions of members. Not only is this our expectation, but we estimate an 18-fold increase in more activity in these types of interactions, and are already starting to see these efforts starting to pay off.

Lastly, as we have discussed since the beginning of the year, we’ve been reducing operational expenses through consolidation of our business units. There are numerous similarities between our regular dating properties and our mobile initiatives, which results in increased synergies and reduced expenses. We have combined these two units, which has allowed for increased product focus on what the growing number of users more easily access content from their mobile devices, as well as reduce our operating expenses. In addition to this, our live interaction business launched a new mobile version of the website in May. Adding mobility to our cams website was a natural step in the evolution of the product, and one that allowed us to capitalize on the synergy between our core businesses and mobile offerings. We expect the addition of mobility to our interactive space to provide a user with more opportunities to use the site, which will ultimately enhance our revenues.

As Ezra will discuss, we were able to obtain an extension of the waiver of our covenants for our second lien bondholders for an additional 90 days, while we try to work with them on the first lien bondholders toward the refinancing of our debt strategy that makes sense to everyone. We appreciate the support of our bondholders in this time of transition. With that, I will hand the call over to Ezra to discuss our final results in more detail. Ezra?

Ezra Shashoua

Thanks, Anthony. As Anthony mentioned earlier, the increase of our customer acquisition activities in the second quarter impacted our financial results. Our acquisition cost per gross addition increased versus the same period last year, most dramatically in affiliate expense. However, sequentially, acquisition costs were down 7.8% from the last quarter. As part of this strategy, expenses are incurred in advance of revenues, but we expect to see associated revenue ramp up in the second half of the year and continue through 2013.

Revenue for the second quarter of 2012 was 81.1 million, a decrease of 3% compared to 83.4 million in the second quarter of 2011. The decrease in revenue was primarily attributable to a decrease in our traffic, as we scaled back on non-profitable co-brands and a resulting short-term reduction in our subscribers. Partially offsetting this was live interactive video, where revenue increased 12% to $23.2 million in the second quarter this year, from $20.7 million in the same period last year. Ending subscribers for the second quarter of 2012 were approximately 830,000, a decrease from the same period last year for reasons previously mentioned.

For adult websites, average revenue per subscriber for the second quarter of 2012 was $20.61, an increase of 1% compared to the second quarter of 2011. Cost per gross addition for the second quarter of 2012 was $46.57, an increase of 12% compared to the second quarter of 2011. Average lifetime net revenue per subscriber for the second quarter of 2012 was $68.46, a decrease of 16% compared to the second quarter of 2011.

Gross profit for the second quarter of 2012 was $53 million, a decrease of 9% compared to the second quarter of 2011. The decrease in gross profit was primarily the result of increased affiliate spending, which is in line with our plan to focus on our primary brand.

Income from operations for the second quarter of 2012 was $12.9 million, a decrease of 28% compared to the second quarter of 2011. The decrease is attributable to reduced revenues and increased subscriber acquisition costs. However, it was positively influenced by reduced general and administrative spending stemming from our cost-cutting initiatives.

Net loss from continuing operations for the second quarter of 2012 was $7.4 million, or $.24 a share, a change from $11.9 million, or $.55 per share for the second quarter of 2011. Loss from discontinued operations was $3.1 million or $.10 a share, which resulted from the shutdown of all JigoCity operations. In August, we sold the JigoCity business to one of its original owners for nominal cash consideration. As part of this transaction, certain warrants to purchase company stock previously granted to these original owners were cancelled, and we agreed to reimburse the purchaser for other third-party payables and other business expenses for a one-year period.

Adjusted EBITDA was $16.9 million for the company, an increase of 27% from the previous quarter. The waiver extension under the non-cash pay second lien indenture that Anthony referred to was in respect to the minimum four-quarter EBITDA requirement, and the financial ratios that are driven off those EBITDA numbers. In addition, our minimum liquidity requirement of $10 million was waived until November 14, 2012.

As of June 30, we had cash and cash equivalents of $12.8 million, and we also had principal debt outstanding of 510.7 million. Our leverage ratios remain strong, with 3.2 times first-lien debt-to-EBITDA leverage and cash interest coverage of 2.2 times. On August 4th, the company paid down 6.3 million of new first-lien notes, and cash pay second lien notes. Free cash flow per share was $.26 for the second quarter ended June 30, 2012. And with that, I’ll turn it back over to Anthony for closing remarks.

Anthony Previte

Thanks, Ezra. Before I open up the call for questions, I would like to thank our employees, shareholders for their support. We’re very focused on improving our operational efforts and remain confident in our long-term strategy. I would now like to open the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions).

Operator

(Operator Instructions).

And we’ll move and take our first question from Wayne Teetsel with Stonehill Capital Management.

Wayne Teetsel – Stonehill Capital Management

Hi Tony, how are you?

Anthony Previte

Good Wayne, how are you?

Wayne Teetsel – Stonehill Capital Management

Good, thanks. Related to Geo City, what is the anticipated additional cash burn related to the liability that the company assumes as part of this sale?

Anthony Previte

There is $2.16 million of liabilities that assuming the management of [Inaudible] can back up the claims that we would have to pay out over the next 12 months.

Wayne Teetsel – Stonehill Capital Management

And is it capped at that?

Anthony Previte

It’s capped, and it’s capped at $2.16.

Wayne Teetsel – Stonehill Capital Management

And what was the consideration? Was it nominal like a dollar or something?

Anthony Previte

It was a dollar.

Wayne Teetsel – Stonehill Capital Management

Okay.

Ezra Shashoua

And the insulation of certain warrants that we had previously issued.

Wayne Teetsel – Stonehill Capital Management

Okay, thank you. And can you talk a little bit more about the streamlining of the co-brands that you implemented?

Anthony Previte

Yes, I mean I’d like to spend more effort focusing on our main brands. We’re still operating close to 28,000 websites. But as we go through the list, we find that we’re spending an inordinate amount of internal overhead on brands that don’t really make money or break even. And have other complications to tax them related to credit card transaction processing.

A lot of the brands that we shut down had very high chargeback rates, which you can see from effects some merchant fees. We end up paying a fine or you end up paying per transaction when that happens. And a lot of these are co-brands that just get really high chargeback rates. We end up paying large amounts for paper order where we never see the money back. And I’d rather have that traffic go to an old fund finder or another large brand that we own, Passion, or X Match, or something along those lines.

The problem with co-brands is that we don’t own the brand. That is owned by somebody else. So we’re basically putting people in competition with us, and it leads to more expensive costs of marketing for us. And it leads to a lot of tensions with the different merchant banks that process our transactions.

Wayne Teetsel – Stonehill Capital Management

So if we have 28,000 websites right now, where would you like to see that whittled down to?

Anthony Previte

In a perfect world, and it was up to me, and I could maintain revenue, less than 10,000. I just don’t believe that’s realistic. I think we’ll probably end up being somewhere between a 15,000 and 20,000 mark. And a lot of it is in a byproduct of banking rules changing. The credit card associations don’t like what the new [inaudible] industry has down with allowing co-brands where people can operate different websites that may not look like them.

And I’ll give you the best example of this. If someone goes to join, I’m going to make up a name blahblah.com as an adult dating site, when their credit card statement comes, it says FriendFinder on it. So that person will now call up and say, hey, I don’t know who this is. And they’ll have to figure it out at the bank, but that puts a burden on the issuing banks. That puts a burden on Visa. That actually reduces our overall change of getting transactions approved.

So the preference is if it’s going to a FriendFinder brand, that the descriptor and everything matches up. And that’s 50% of the equation here.

Wayne Teetsel – Stonehill Capital Management

Got you.

Anthony Previte

Consumers need to know when it’s my product and my brands, I know the level of support that I'm giving. I know everything about it. When it’s somebody else’s, there’s too many shades of gray. And that gray puts a huge administrative burden on the company.

Wayne Teetsel – Stonehill Capital Management

Okay, and what about mobility? What percentage of your live interactive minutes are now mobile?

Anthony Previte

I can't get that number by minutes, but I’ll follow back with you by revenue. It is roughly 35%.

Wayne Teetsel – Stonehill Capital Management

And you launched it again when?

Anthony Previte

That was launched in May 100% rolled out ready for the public. December of last year is really when we put it through live. It ran for a couple of months while we went to different aberrations. But May is really 100% live out there available. And there’s another version in Q4 that we have coming out.

Wayne Teetsel – Stonehill Capital Management

That’s impressive.

Anthony Previte

Yes, I think it’s one of the things I talked about before. Mobile phones, people feel that mobile phones are private devices and they’re anonymous. Well, I think to a certain degree when people want to engage in activities that they’re worried people may frown upon that they still feel the same privacy around their mobile device that they don’t feel around a PC. I mean most mobile devices don’t really track history well. You don’t have to worry about your spouse or significant other finding out what’s going on. And I mean even in the casual dating, it is a substantial part. It’s becoming a very substantial part.

Wayne Teetsel – Stonehill Capital Management

Okay, thank you. Roughly what percentage of the causal dating is now on mobile?

Anthony Previte

New orders, I'm looking at today, it is about 25% of new orders.

Wayne Teetsel – Stonehill Capital Management

Great.

Anthony Previte

I was looking at today’s dashboard. That number probably tracks about right. My assumption is that within a year, it will probably be 50% of our revenue will be mobile.

Wayne Teetsel – Stonehill Capital Management

And when did you launch mobile on the casual dating platforms?

Antony Previte

We’ve always had mobile on casual dating. But the ability to offer features has been a bit of a challenge. There’s no way we’re ever getting an app approved for dating products with Apple for example. But we’re forced to do everything via web on mobile web. Whereas Android, we don’t have that same restriction, but my suspicion is that interactive video will profit greatly from mobile ahead of casual dating until – phones are getting better and better. You can now use like location services can now work on mobile web and not an app.

So there’s more and more appealing features becoming available on the mobile web, which is why I think over the next six months, you’ll start to see that really move towards mobile.

Wayne Teetsel – Stonehill Capital Management

Okay, great, last question. Congratulations on turning around the adult subscriber trends. Have you seen a continuation of that trend since the end of the second quarter?

Anthony Previte

If it makes economic sense, I will continue keeping that trend going up. But right now, I am really maximizing cash flow into the company. And being very aggressive about what my profit margins are going to be and if that means sacrificing some subscribers to optimize EBITDA, then I will do that.

But I believe the trends for subscribers will stabilize a bit. And in the coming quarters, I may choose to redefine that metric just so everyone understands that trials and certain types of order types never actually make it into the subscriber count, which is a matter of Syntax and the way it’s written.

And the other thing is, there’s more features that we are rolling out on our casual dating sites that are equivalent to a premium model where people can put a wallet and buy small things on the site. And I wouldn’t track that person as a subscriber anymore. That is someone who is buying a consumption based service, so there will have to be some new categories. So over the next quarter or on the next quarter’s call, we’ll probably start to talk about redefining some of those metrics.

Wayne Teetsel – Stonehill Capital Management

Okay, it makes sense. All right, I’ll let somebody else ask questions.

Anthony Previte

Thanks, Wayne.

Operator

The next is Sam Sakain with ALJ Capital.

Sam Sakain – ALJ Capital

Hey, guys, congratulations on a good quarter. Just a couple questions for you. When you guys talked about maybe slimming down to 15,000 to 20,000 websites, what do you guys expect to save in terms of SG&A when you get down there?

Alex Previte

I think the saving, I wouldn’t look at it as just SG&A. I would look at it merchant fees and a lot of things that are included in there. But I suspect we might be able to off the top of my head at least pull another million dollars out easily.

Sam Sakain – ALJ Capital

And from the $5,000 quote, how much did you guys pull out from there?

Alex Previte

I would want to run those exact numbers to give them to you, but you can kind of look at the filing and get a pretty good idea of this. There’s a substantial amount. And I don’t think the rewards of the first 5,000 were all seen in Q2. There are things related to like merchant fee transactions that I don’t think will really manifest themselves until Q3.

Sam Sakain – ALJ Capital

Q3 and Q4, I know you guys that the spending was heavy in Q2, and you’ll the results in Q4. Are you guys going to still keep the same spending patterns for Q3 and 4? Or do you guys see that coming down I guess on the CGPA?

Alex Previte

I think there’s going to be a shift in spending. I think the overall number will remain about the same. There is some small seasonality to our business when you get close to winter. Some months it just doesn’t pay to spend a lot because you’re saving everything basically for the low burst which is January through March. I would suggest that most of the spend will shift around between affiliates and then traditional marketing spends as we spend more and more on traditional marketing spend.

Sam Sakain – ALJ Capital

And also if you can talk a little bit about lifetime per customer, the average lifetime. Just from the math I just did quickly, I'm having about three, a little over three months. Is that about right? And then can you just talk about trends that you’re seeing there?

Ezra Shashoua

I think you might be a little low on the …

Sam Sakain – ALJ Capital

Three is what I think I had on the general. I'm sorry, the adult.

Ezra Shashoua

The retention rate’s around six months. But you’re probably looking at – hang on one second.

Alex Previte

The challenge of the question that you’re asking is if you’re looking at lifetime, the number if very long because so many people come and go from the site over time. If you’re trying to do it on a pure financial calculation, I'm going to let Ezra give you that number.

Ezra Shashoua

It’s about five and a half months if you take the reciprocal of our churn rate. It’s about five and a half months.

Sam Sakain – ALJ Capital

So I'm dealing the average lifetime net revenue per subscriber and just about the average revenue per user. Is that not a way to look at it?

Ezra Shashoua

You attention is one divided by your churn rate. But if you’re asking about the average lifetime revenue per subscriber, what we do is if you take your ARPU and you multiple it by your average lifetime revenue, that gives you the gross. Then you subtract the cost per gross acquisition and that gets you to average lifetime net revenue per subscriber.

Sam Sakain – ALJ Capital

Okay, and can you just talk about, I mean you guys have this debt coming due in about a year from now and what are you plans there? What are you thinking?

Ezra Shashoua

Obviously, we’re looking to get our EBITDA run rate. I think we’re on plan for increasing that run rate to a point where we have a nice run rate and we can go with it and refinance. We’re in discussions with bond holders from time to time. But we don’t have anything concrete to report right now.

Sam Sakain – ALJ Capital

And when does the waiver expire with the [inaudible] guys?

Ezra Shashoua

November 14th.

Sam Sakain – ALJ Capital

So do you expect to get something done this year in terms of refinancing?

Ezra Shashoua

We’re certainly looking at refinancing, but I can't give you an exact time or date for it to happen. But we will keep you guys posted.

Sam Sakain – ALJ Capital

That’s it for me. Thanks.

Operator

Next we’ll move to [Inaudible]

Unidentified Analyst

Hi. It looked there [inaudible] this quarter and continues to be flat. I’m just trying to understand why do, I mean, shutting down some of the cobranded websites is a good ideas but how quickly you can ramp it up and approximately how much [inaudible] do you think you can [inaudible] if you go down to [inaudible] 15 and 20,000 websites? Any approximately idea how much [inaudible]?

Anthony Previte

I think one of the things is 100 of our websites is 90% of our revenue. So I mean, just think about that to start. Just to start, just so everyone can understand, most of these website that are operated by affiliates and none of them represent 1% of our revenue. Actually, probably none of them outside of the first group of 100 represent a tenth of a percent of our revenue.

Unidentified Analyst

Right, but [inaudible] a part of your business. Are they still revving them up to quick cut them down and be cash flow positive and you know, maybe on a [inaudible] level, but you know, a high EBITDA level. Is that possible?

Anthony Previte

I mean, there’s actually a two levers being worked at the same time. One is if I’m paying someone and we’ll just use – I’m going to make up numbers. If I’m paying someone $1,000 to get $1,000 in revenue, there’s no point in my doing that. There’s no point in me doing that. That is a website that should just be shut down because it’s not really 1,000 for 1,000, you know, there’s administration, there’s chargebacks, there’s people in call centers on top of it. It’s a [inaudible]. We set the minimum amount that we expect to see from a website and the websites that can’t meet that number either how we pay the marketing part or not, we’re just going to shut down. And while revenue drops, the increase to EBITDA is always greater than the revenue drop.

Unidentified Analyst

Right, right. And what it does is, it gives us more currency to work with to buy key words, to develop our own [inaudible] to promote our own brands. So that is my theory. Why should I pay someone on a dollar-for-dollar transaction or close to it. I’m using hypothetical numbers here when I could spend the $1 myself.

Unidentified Analyst

That’s exactly – that’s the way to go in your business.

Anthony Previte

That is a large part of the goal. I have many affiliates who I have fantastic deals with, they make incredible amounts of money, I make incredible amounts of money but I have lots of people that that is now the case and the people who are not the case, I find that my staff spends excessive amounts of time spend cycles trying to figure out why some guy who sent us $3,600 in business, you know, has 14% chargebacks and it’s not an effective use of our time. So it’s better, we take that $3,600 and I give it to Google and by AdWords.

Unidentified Analyst

Right, exactly. The question I have about cash, so you said you bought back [inaudible] is it out of the cash balance and you generated cash? What kind of cash balance do you have right now?

Ezra Shashoua

Our cash balance fluctuates day to day. I think as of yesterday – well, let me just give you the year end, sorry, quarter end cash was about 12.8 million and restricted cash was about 10.7 million.

Unidentified Analyst

Right, but [inaudible] the cash in hand right now is like low single digits?

Ezra Shashoua

No, it’s roughly – it’s roughly in the $10 million range.

Unidentified Analyst

Right. And you are comfortable with this? You have [inaudible] $10 million liquidated, right?

Ezra Shashoua

Although it is – look back in the filings and it’s changed a little bit in the supplemental. It’s an average, I think now we have to maintain an average of $10 million of 15 days or $5 million at any one time and there’s a grace period that has to do with the consent fee that we paid, but the details are all in our filing. And if you want to call me offline I can go through them with you.

Unidentified Analyst

Okay. My last question is about, you know, right now you’re going to grow your business, you simply don’t have the time to look at – you have maturities coming up and you are buying back your [inaudible] part of the cash structure, so one part of the business – one part of the plan I understand. You are trying to make your business streamlined and [inaudible] as much as possible. But would you try to refinance the [inaudible] part of the cash structure and then you take a second lien or how [inaudible]?

Ezra Shashoua

Realistically, the only viable way of doing it is refinancing the whole thing.

Unidentified Analyst

Okay. And do you talk to your first lien bond holders?

Ezra Shashoua

As we said, we’re in communication with both our first lien and second lien holders and when we have something concrete to report, we’ll let you know.

Unidentified Analyst

Okay, thank you.

Ezra Shashoua

Sure.

Operator

And our last question comes from Steve Lemur with Volt Capital.

Steve Lemur – Volt Capital

Hi there. Kind of a follow up to the previous two questions on the liquidity. It looks like in the first six months, that’s your actual cash interest around 6.5 million and you know, you mentioned restricted of total cash I guess of 22 million. Essentially in the first six months, your free cash flow was about breakeven. So on that back of the envelope, it seems like you only have about six more months, nine more months of just being able to pay the cash interest unless we turn around pretty quickly, like the investments that you made in the first two quarters from cash flow generation, free cash will be significantly higher in the second half or how are we going to pay the interest?

Ezra Shashoua

Well, we expect to pay the interest, we believe we have the cash to pay the interest and we are looking for improvement, but even maintaining where we are now, we should have – we should be able to pay the interest.

Steve Lemur – Volt Capital

So from that it sounds like you’re saying free cash flow will be significantly higher in the next six months?

Ezra Shashoua

Free cash flow should be hire in the next six months, yes.

Steve Lemur – Volt Capital

And so the restricted cash will, remind me again why that’s restricted?

Ezra Shashoua

Merchant banks that process our credit card transactions hold back a percentage of the transactions they process.

Steve Lemur – Volt Capital

So it’s fair to assume that that 10 million will continue to be restricted?

Anthony Previte

No, this is how it works. Basically roughly every time you switch a bank or every time you move to a merchant bank, you find yourself in a six-month rolling reserve. So as orders come on and off, that reserve is rolled in and out. Every time there is uncertainty of the banking world is where we suffer. Last year, First Bank of Delaware went to the FDIC hands holding a ton of our money and that is being bleed out over time, but when we’re forced to move to the next merchant bank, that merchant bank is now holding a reserve again. So the restricted cash, it doesn’t always stay at those numbers, it does drift around a bit depending on how much we have to move our banking around and what the state of the merchant banking world is.

Steve Lemur – Volt Capital

Okay. So is it realistic to think that by the end of the year we will have closer to 20 million to pay interest with or – I mean, of this cash right here that I’m talking about, what’s currently on your balance sheet or will – is it likely that we’ll get a – say around 10 million restricted in the next six month, next 12 months?

Ezra Shashoua

Interest expense the second half of the year will be about 15 million or so and you know, that’s in our cash flow forecast, to pay it, it’s a predictable number and it’s in our forecast.

Steve Lemur – Volt Capital

Okay. Thank you.

Operator

That does conclude our question-and-answer session at this time. I’ll turn the call back over to our speakers for any final or additional comments.

Ezra Shashoua

This is Ezra Shashoua. We certainly thank you all for your support and look forward to reporting some more good news in the future. Thank you.

Operator

Everyone, that does conclude our conference for today. You may disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: FriendFinder Networks' CEO Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts