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Bidz.com, Inc. (NASDAQ:BIDZ)

Q2 2008 Earnings Call

August 5, 2008 4:30 pm ET

Executives

Andrew Greenebaum - ICR

David Zinberg - Chairman, President, Chief Executive Officer

Lawrence Y. Kong - Chief Financial Officer, Treasurer, Secretary, Director

Leon Kuperman - Chief Technology Officer, Vice President of Business Development

Analysts

Eric Wold - Merriman Curhan Ford & Co.

Elizabeth Pierce - Roth Capital Partners LLC

Mark Argento - Craig-Hallum Capital

[Graham Rane - Barris Capital]

Operator

Welcome to the Bidz.com second quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Andrew Greenebaum of ICR.

Andrew Greenebaum

Thank you for joining us today to discuss Bidz.com’s second quarter 2008 financial results. With us on the call today are David Zinberg, President and Chief Executive Officer, Lawrence Kong, Chief Financial Officer, and Leon Kuperman, Chief Technology Officer and Vice President of Business Development. By now everyone should have access to the press release which went out at 4:00 Eastern Time. If you’ve not received it, it’s available on the Investor Relations portion of Bidz.com’s website.

Before we begin today, we would like to remind everyone of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The following prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. For a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements, we refer you to Bidz.com’s filings with the Securities and Exchange Commission including the most recent annual report filed on Form 10K, quarterly report filed on Form 10Q, as well as current reports filed on Form 8K.

With that I’d like to turn the call over to David Zinberg.

David Zinberg

Welcome to our second quarter conference call. I will provide some highlights from our strong second quarter and give a brief overview of our business and key initiatives. Then Leon Kuperman, our Chief Technology Officer and Vice President of Business Development, will provide an update on the recent developments in that business. Lawrence Kong, our Chief Financial Officer, will provide more detail on financial results and discuss our third quarter outlook and guidance for the balance of the year.

We continue to execute extremely well and exceed our financial guidance in what has been an increasingly difficult domestic environment for mostly [inaudible] and consumer trends. While we believe we have some things coming back on our business, it’s difficult to quantify precisely since our metrics are still improving and we continue to see strong growth. While jewelry is perceived as a discretionary purchase, we feel that we have some potential in the current economic because of the exceptional value our consumers receive in the fun and entertaining prospects of our auctions. They increase awareness of our brand and our relatively small size in very large [inaudible] industry.

During the second quarter we continued to experience strong revenue growth and improved profitability. Our international sales grew by 56% year-over-year and domestic sales increased by 36%. We consider these results to be in line with our expectations. We exceeded our earnings per share guidance for over six quarters in a row which is primarily matched with our focus. We also continue to see improvements in various other metrics such as average selling price per order, average orders per day, average items sold per day, and number of new customers. And I’m pleased to announce that we are raising our 2008 earnings guidance again which Lawrence will discuss shortly.

After only 10 years in operation, Bidz.com ranked second among other jewelry retailers according to Internetretailer.com. However there is a huge tremendous opportunity for us to capture a larger share of the global jewelry market which is expected to reach $213 billion by 2010.

We have many initiatives in place aimed at profitable future growth. We also strengthened our management team including recently adding key personnel in marketing and finance to support our anticipated growth. We believe that this initiative will provide the foundation for even stronger revenue and earnings growth while the economy begins to recover. We remain extremely committed to meeting and protecting our growth profit objectives. We believe we can continue to meet our projections in spite of a weak economic consumer environment because of our strong brand, our value proposition, and the adjustments we continue to make to our business. For example, in the coming gift giving season we will feature a greater variety of lower ticket items which we believe will be well received this holiday season as we adjust the weak domestic economy with continual focus from building a strong foundation to take advantage of economic recovery once appears.

With that I’ll give you Leon Kuperman, our CTO and VP of Business Development.

Leon Kuperman

I’d like to discuss some of our development since our last conference call and update you on some newer initiatives. We are continuing to grow and diversify our vendor base. We currently purchase from over 300 suppliers. During the second quarter of 2008 purchases from our top two vendors accounted for only 9.4% of our total purchases, down from 30.65 of purchases in the second quarter of 2007. We believe this evolution is significant and has resulted in a broader option assortment and has reduced our reliance on any single supplier.

We continue to increase the robustness and customer experience of the site and make visibility improvements on the website on an ongoing basis. During the second quarter we improved certain capabilities of the site, added site to site cross-sell features, and enhanced our checkout process.

Our newly launched Buyz.com retail store performed as expected during the quarter. We now have a marketing team in place for Buyz.com and sales have begun to pick up. Buyz.com works with comparison shopping sites such as BizRate and Shopzilla, Google product search, and Price Grabber. Our purchase price sales on Buyz.com have higher gross margins that on Bidz.com auctions. Additionally, Buyz.com has been driving incremental traffic to Bidz.com and Buyz.com has benefited from a highly targeted jewelry buyer audience from Bidz.com. While we are very pleased with early results for Buyz.com, it’s too early to factor any meaningful revenues from Buyz.com into our 2008 guidance.

Our first foreign language translation into Spanish has proven successful. International sales represented over 25% of our total revenue in the second quarter up from23% last year, and we attribute some of this gain to the Spanish translation. Our Spanish language team is assembled and already traffic from Spain, Mexico, Chile and Colombia are among the top countries in which we conduct sales. During the third quarter we will launch our second foreign language translation, Arabic, and we may have further translations by the end of this fiscal year. We expect the revenue from international markets to continue to increase which helps to then diversify our sales and reduce reliance on the US economy.

Finally, we have begun to prepare for our important fourth quarter from an IT perspective by proactively conducting scalability testing to ensure that our systems and processes are capable of handling the increase in demand that we anticipate. We have contracted with Gomez, Inc. to provide a worldwide performance analysis of our website on an ongoing basis. We are no proactively measuring response times from Europe, Asia Pacific, North and South America.

This upcoming gift giving season is very exciting for Bidz.com. This will be the first year where we are able to offer customers the choice of purchasing items from our website without having to participate in an auction. Many customers appreciate the opportunity to buy our items quickly when time is limited in the busy holiday season. We also have included several key upsells in the checkout process including the option to purchase jewelry boxes and our upcoming comprehensive warranty program.

Additionally, in recent months we have significantly increased our communication with Wall Street. We have been participating in investor conferences frequently and we expect that to continue. In August we expect to attend Canaccord Adams and RBC’s investor conferences and we will attend additional ones in the fall. We have also been traveling to various cities to meet with current and potential institutional investors.

In my new role as VP of Business Development I have taken on some additional investor relations and communications activities and I am enjoying getting to meet with investors to discuss our exciting business in detail and answer their questions. We are pleased to see that our marketing efforts are paying off as ownership of Bidz among institutions is now 40% of our flow and we continue to increase our visibility, awareness and liquidity in the stock.

And now I’d like to hand the call over to Lawrence who will go over specifics of our financial results and guidance.

Lawrence Y. Kong

[Inaudible] in the second quarter of 2008 we saw improved operating performance in every aspect of our business. We continued to experience strong revenue growth, better than expected profitability, and an increase in number of transactions and many other improvements in our key operating and performance metrics. Furthermore, our international sales are growing at a rapid rate and during the second quarter we increased 35.7% to $13.8 million. Additionally, despite the challenging economy we continued to do well and I’m very proud of the many positive achievements we accomplished this quarter which will provide a solid foundation for even stronger growth in the next economic recovery.

I would now like to talk about the financials in detail. Net revenues were $55 million a 40.5% increase over $39.1 million for the same period of 2007 and well above our guidance of $48 million to $50 million. The increase in revenue was mainly due to the growth in demand for our jewelry products, the increasing average sales per day, and the wholesale merchandise B2B sales which accounted for $8.4 million in revenue. Please note that had we not sold $8 million of wholesale merchandise some of this inventory would have been sold online and would have increased revenues from our online side of the business.

Now I’d like to spend some time talking about B2B sales. We had quite successfully experimented with B2B sales in Q1. In the second quarter we were able to strategically acquire a large dollar inventory at a very attractive price. As you’ll recall from the press release we put out in May, the lot we acquired was just below $24 million. During the second quarter we sold some of the inventory to other wholesalers. We had the financial and operational flexibility to quickly respond to these opportunities and will continue to do so at the next time opportunities present themselves. We now believe that some amount of B2B sales will become a regular part of our ongoing business particularly in the current environment where we are likely to be invited to participate in other bankruptcy auctions of [inaudible] closeout opportunities. While we cannot predict the occurrence of bankruptcies and cost-cutting auctions or major closeouts in the future, I can tell you to expect significant wholesale sales during our third quarter which are impacted into our current third quarter guidance which I’ll give to you in a moment.

As you may know, wholesale sales drive much lower gross margins than auction sales. However we are seeing that the net margin contribution is advantageous because wholesale transactions require minimal operating expenses. Additionally, we believe it is important to participate in bankruptcy auctions for intangible reasons such as increased visibility, the ability to forge new relationships, and acquisition of new opportunities.

Returning to our second quarter performance, our average selling price per order in the second quarter increased 7% to $183 from $171 a year ago. Sequentially our average selling price per order increased from $182 in the first quarter to $183 this quarter. We believe that this is an indication that our business is holding up in the current economy and I would attribute it to the fun auction environment as well as our ability to provide excellent value in glowing diamonds which have been in demand for thousands of years and will continue to be in demand.

Additionally, we had nearly 65,000 new buyers versus 354,000 new buyers a year ago. Our average items sold per day increased by 16% from 8,678 in Q207 to 10,082 in Q208. The average number of orders per day increased 7% to 3,023 and our average selling price per order increased by 7% from $171 last year. The increase in average order value is due to a combination of the increasing average number of items per order and an increase in the average selling price per item.

Gross profit in the second quarter of 2008 increased 40.9% to $15.3 million compared to $10.9 million in the prior year. Our gross margin percentage remains quite flat at 37.9% compared to 37.8% a year ago as lower margins on the $8 million in wholesale sales were slightly offset by slow margins in our core Internet business. Going forward we believe a target gross margin of 27% to 28% is optimal for managing our core business and maximizing growth and profitability.

Gross margin per transaction also increased 7.4% to $51 from $48 in the prior year period. This is calculated to then compare with the average customer acquisition cost. In the second quarter the average customer acquisition cost was $48 and our average order size was $183 at a 27.9% gross margin. This translates into $51 gross margin from each order and in our first transaction with a new customer is profitable. Since the new customer purchases on average approximately three to four times a year, average gross margin dollars after the second order is pure profit contribution.

Total operating expenses in the second quarter of 2008 was $9 million compared with $7.1 million reported in the same period 2007. Operating expenses as a percentage of sales decreased to 16.3% from 18.2%. The absolute dollar increase was mainly due to increased marketing to attract new buyers, increasing size, and other initiatives costs associated with our growth.

General and administrative expenses increased 13.9% to $5.7 million in the second quarter of 2008 from $5 million in the same period of 2007. The increase was mainly due to necessary expenditures to support our overall growth, increases in payroll related expenses, and other key initiative expenses.

General and miscellaneous expenses as a percentage of net revenue decreased to 10.3% in the second quarter of 2008 compared to 12.7% in the same period of 2007.

Sales and marketing expenses were $3.1 million in the second quarter of 2008 compared to $2 million in the same period last year. The increase was due to more marketing campaigns and cost of online advertising to attract new customers. Sales and marketing expenses as a percentage of net revenue increased to 5.7% in the second quarter of 2008 from 5.2% in the same period of 2007.

For the second quarter income tax expense was $2.7 million with an effective tax rate of 42.3% compared to $756,000 with an effective tax rate of 20.7% in the year ago period. We became fully taxed in 2008 since our operating loss carry forwards were utilized in 2007.

Pre-tax income in the second quarter increased 70.3% to $6.3 million compared to $3.7 million a year ago and was significantly above our guidance of $4.5 million to $5 million. The increase in pre-tax income was due to a combination of increased revenues from continued growth in demand on jewelry products as well as a significant increase in average order value, number of transactions, and sales price per item.

Net income for the second quarter of 2008 increased to $3.6 million or $0.14 per fully diluted share and 5.7 million weighted average shares outstanding compared to $2.9 million or $0.12 per diluted share and 24.1 million weighted average shares outstanding in the same period of 2007. We would have still have exceeded our earnings guidance of $0.09 to $0.11 even if we had not done any B2B wholesale business in the quarter.

As of June 30, 2008 we had $618,000 in cash, no long-term debt, and a working capital budget at $31.9 million. The significant components of working capital are inventory and liquid assets such as cash and accounts receivable reduced by accounts payable, accrued expenses, and deferred revenue. Our business model contains beneficial working capital [inaudible]. While we collect cash from sales to customers within several business days of the end of the sale, we previously had extended payment terms with our suppliers. On June 30 the company had $6 million outstanding on its $25 million line of credit after taking in to account the purchase of $34 million in jewelry in a bankruptcy auction of LID Ltd. Our positive cash flow and revolving line of credit provide us with strong liquidity to continue to successfully grow the business.

As of July 31, 2008 we had repurchased a total of approximately 1,024,000 shares in the open market for a total of $8.8 million at an average price of $8.58 per share. We continue to repurchase in the open market under the stock repurchase program and still have approximately $11.2 million for additional share repurchases under our current program. The stock repurchase program reflects our continued confidence in the market opportunity and strategy and what [inaudible] appears to be at the undervaluation of our stock at current levels. We believe our stock to be a strong investment opportunity and a good use of our cash resources.

Now turning to guidance. We are introducing guidance for the third quarter of 2008 and expect revenue to be in the range of $55 million to $58 million. This represents a significant increase for revenue at $40.1 million reported in the third quarter of 2007. The expected increase in revenue will be driven to exceed by more B2B sales which drives revenue growth and will reduce overall gross margins. We also included guidance for pre-tax income of approximately $4.8 million to $5.2 million and we expect fully [inaudible] EPS of $0.10 to $0.11 per share.

For the full year 2008 we are raising our guidance primarily due to reflect our stronger than expected performance in Q2 and additional B2B revenue in Q3. We now expect a revenue range of $240 million to $245 million an increase of $13 million up from $225 million to $230 million previously. We are increasing pre-tax income guidance to $26 million to $27 million from $25 million to $26 million previously and fully tax GAAP EPS balance to $0.56 to $0.59 a $0.04 increase from the previous guidance range of $0.52 to $0.55. We expect to end the year with approximately 27.5 million fully diluted shares outstanding. We continue to expect gross margins of approximately 27% to 28% and our effective tax rate for the full year 2008 is expected to be approximately 41%.

While we performed better than expected in the second quarter, there is still significant uncertainty in the economy and we are taking a cautious approach. We are extremely focused on continuing to meet and exceed both investor expectations as well as our own revenue and profitability.

In summary, we are exceptionally pleased with our overall performance for the first half of 2008. The last several months have been exciting for Bidz. We launched our Spanish language website, we plan to launch Arabic in the third quarter, we were added to the Russell 2000, 3000, Microcap and Global indices, we participated in numerous investor conferences, and are increasingly becoming a recognizable brand and a leading online jewelry auction site. We are excited to continue growing and most importantly increase profits in a very difficult economic environment. We remain confident in our strong financial outlook for the balance of the year.

With that I’d like to hand the call back to the Operator so we can take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Eric Wold - Merriman Curhan Ford & Co.

Eric Wold - Merriman Curhan Ford & Co.

A couple of questions on the B2B side of the business. Walk me through kind of how your decisions flow with B2B sales. Is there a certain line of products you choose to do B2B versus flowing them through the site? When you participate in an auction like the one in May, did you see certain items that you actually won in the process in the $24 million that you had already predetermined you’d probably do B2B that wouldn’t fit through your site or could they be interchangeable between B2B and through the site?

Leon Kuperman

When we investigate the lots before we place our bid, a lot of the product is capable of flowing between the site and wholesale transactions. There are some that do better on the site and there are some that we feel are better suited for wholesale. So we know fairly quickly once we have a glance at the inventory what will do well through the auction site.

Eric Wold - Merriman Curhan Ford & Co.

So the $8.4 million that you sold in Q2, was that all acquired through the auction?

Leon Kuperman

There were parts of it that were acquired through the auction. Others came from other segments of our inventory.

Eric Wold - Merriman Curhan Ford & Co.

Is that going to be some of the source of what’s going to be sold in Q3?

Leon Kuperman

What’ll be sold in Q3, some of it will come from sections of our inventory and some of it will come from the lot that we acquired in May.

Eric Wold - Merriman Curhan Ford & Co.

What are you finding in this economy that is either selling on the site better or worse than you maybe had a year ago in a better economy?

Leon Kuperman

That’s a good question. There are some interesting surprises and some things that are fairly common sense. One of the things that we noticed was an uptick in some of the more expensive brand-named items but that may be a bit of an anomaly just because of our natural growth rates that the company is going through. But we’re also seeing some stronger growth in lower priced items - colored stones and typical pieces that you would see that a customer may be willing to spend a little bit less on. Certainly the large solitaires and other large high ticket items aren’t probably moving as well.

Eric Wold - Merriman Curhan Ford & Co.

I apologize if Lawrence hit on this in the discussion of Q3 guidance, but if I’m calculating correctly, Q3 operating margin guidance is somewhere around the high 8% to 9% range versus what you’ve done the past few quarters. It looks a fair amount lower. Anything particularly driving that lower?

Lawrence Y. Kong

Basically because if you look backwards you’ll recall that since we expect quite a bit of B2B in the Q3 that it will work backwards to lowering the gross margins for that quarter.

Eric Wold - Merriman Curhan Ford & Co.

Not the gross margin Lawrence; the operating margin.

Lawrence Y. Kong

Oh, the operating margins. The B2B tend to have a lower gross margin in Q3 so that’s what you’re seeing. That’s the main reason why.

Eric Wold - Merriman Curhan Ford & Co.

So to make sure I understand this. I understand that gross margin would be lower on a wholesale sale versus on the site. I’d assume operating margins at least comparable because there are not a lot of costs involved and you can get rid of a big chunk all at once. Why would that push down operating margin or let me ask another question? Why would you choose to do a B2B sale for a large piece of merchandise that could go through the site at a lower operating margin than what you could make on the site?

Lawrence Y. Kong

Our main objective is really maintaining our profit targets and sometimes even though the margins may be lower I think maintaining our profit targets would be more important than just protecting the profit margins and that’s what we think we should be doing.

Operator

Our next question comes from Elizabeth Pierce - Roth Capital Partners LLC.

Elizabeth Pierce - Roth Capital Partners LLC

Perhaps Leon can you talk to us a little bit about the marketing strategy in the second half and I don’t know if you’re willing to make it kind of by segment what you’re doing, particularly in the fourth quarter? Obviously your acquisition costs moved down a bit and I presume that’s seasonal and maybe we should think about that increasing in the fourth quarter?

Leon Kuperman

Traditionally our marketing spend goes up significantly in the first and fourth quarters, so yes we are planning on spending more money on marketing in the last three months of the year. And traditionally why we do that is the customers are more readily available and it’s easier to acquire them at that time than it is in the slower summer season.

In terms of specific strategies, we do have several in the works. We’re not commenting on any publicly but we are certainly looking at our traditional marketing avenues as well as other more innovative campaigns that we’re going to be working on and I think you’ll start to see those roll out on the site as the months progress.

Elizabeth Pierce - Roth Capital Partners LLC

Lawrence, a question on the gross margin on the B2B. Are you willing to give us just a little bit more color on the spreads between the two?

Lawrence Y. Kong

At this time we’re not disclosing the details.

Elizabeth Pierce - Roth Capital Partners LLC

But enough that it might move the margin down as you were saying in Q3?

Lawrence Y. Kong

Yes.

Elizabeth Pierce - Roth Capital Partners LLC

Basically you’re maintaining that 27 to 28 so it’s a mix issue, right?

Lawrence Y. Kong

No, the 27 to 28 is for the year.

Elizabeth Pierce - Roth Capital Partners LLC

Right, so that’s a mix issue as a wholesale being a little bit lower and the site being a little bit higher perhaps?

Lawrence Y. Kong

Right. Definitely.

Elizabeth Pierce - Roth Capital Partners LLC

300 or 400 basis points or are you just not comfortable giving us that?

Leon Kuperman

We’re just not far enough into the quarter to be able to give you any kind of accurate guidance on the complete gross margin. There are a lot of other factors that play over the next couple months that we want to wait and see how those play out before we disclose those numbers.

Elizabeth Pierce - Roth Capital Partners LLC

I know you released it in the Q, the co-op marketing number. How much was that in the quarter?

Lawrence Y. Kong

We already filed the 10Q so you can look up for the exact numbers.

Leon Kuperman

In general the co-op marketing is working along as planned and there are no big surprises in that number.

Elizabeth Pierce - Roth Capital Partners LLC

Would you have made the guidance without that or was it in your guidance?

Lawrence Y. Kong

You mean the co-op marketing contribution?

Elizabeth Pierce - Roth Capital Partners LLC

Yes, it was in your guidance.

Lawrence Y. Kong

The co-op marketing contribution is all part of the guidance since last year.

Elizabeth Pierce - Roth Capital Partners LLC

I presume David’s still there. David, just maybe your thoughts about what you see happening with metal costs, gold, platinum, silver and what kind of things that you’re seeing. The people who are approaching you to perhaps help them take inventory off their hands?

David Zinberg

The price of gold has not fluctuated a lot in the past year it’s been between $850 and $1,000 and it’s about $890 today and it’s basically the same. The economic downturn does affect manufacturers in having more closeouts than usual but not the price of gold.

Elizabeth Pierce - Roth Capital Partners LLC

In terms of the people, the types of companies that are approaching you to help with inventory liquidation. Anything that you can tell us about what you’re seeing?

David Zinberg

No, we’re not going to review our sources. That’s too much information for our competitors but we see a lot of closeouts available right now.

Elizabeth Pierce - Roth Capital Partners LLC

So it would be fair to say that you haven’t seen any slowdown in that and in fact perhaps an acceleration?

David Zinberg

No, just public information. Whitehall Jewelers is bankrupt. Fremont Jewelers is filing for bankruptcy. So there is a lot of merchandise that’s going to be hitting us in the next month.

Elizabeth Pierce - Roth Capital Partners LLC

Lawrence, another quick question for you. The guidance in the third quarter, the $0.10 to $0.11, what share count is that based on?

David Zinberg

We did not release that number yet.

Operator

Our next question comes from Mark Argento - Craig-Hallum Capital.

Mark Argento - Craig-Hallum Capital

In terms of the Spanish language site, just some initial impression there. Are you guys buying keywords in the languages of the site, in particularly in Spanish and how big do you think that business can be over time for you? And secondly, you guys have been growing like a weed here over the last couple years. How are you doing in terms of cap ex needs, real estate, IT? Do you have to spend a bunch more money and plow money back into the business?

Leon Kuperman

To start with on the Spanish site and on the marketing, yes we have started over the last quarter purchasing keywords in Spanish and we plan on doing that in every language. What we’ve noticed is based on geography keyword pricing structure is very different. The conversions also vary greatly between languages so we’re just figuring out those formulas and making sure that we have profitable ones. Our intent is to run each language with its own P&L, its own staff, so we’re prototyping the formula with Spanish and it seems to be providing good results and we’ll continue to update you as we get more information.

In terms of capital investment, last year in 2007 we made a significant investment in our IT infrastructure. You may recall that we moved our data centers and announced an entirely new platform. In terms of building infrastructure, we may be looking at something at some point next year but there are no concrete plans as of yet.

Mark Argento - Craig-Hallum Capital

I know the initial strategy with Buyz.com was to be able to take advantage of the comparison pricing engines out there and sites out there. What have you learned from your initial experience with the Buyz.com website or store and are you seeing the kind of uptick you’d like in terms of maybe generating revenue from that category?

Leon Kuperman

The dynamic of cost per click on the shopping comparison sites is an interesting one. The prices for those clicks are typically less than what you would pay on a Google Adwords for example and the customer’s a little bit more targeted because you have to remember they’ve already seen your products and the picture of that product before they’ve actually committed to the click. So we’re seeing more targeted customers coming to the site but we’re not yet seeing the volume that would give us significant reason to change our guidance in 2008. But we are seeing some really positive things on the marketing side and we’re going to continue to work on that and update you guys.

Mark Argento - Craig-Hallum Capital

On the B2B business in the quarter, I think you said it was about $8 million with the revenue. Did you guys quantify how many transactions that was roughly?

Leon Kuperman

No, we didn’t disclose the number of transactions for the wholesale business.

Operator

Our next question comes from [Graham Rane - Barris Capital].

[Graham Rane - Barris Capital]

Could you break down the international sales, where they’re going? Was there more to Canada/UK or was there a significant uptake in some of the Spanish-speaking countries?

Leon Kuperman

International sales in the second quarter represented 25% of overall revenue and of that because of traditionally we’ve been operating in English of course UK, Canada and Australia are the strongest international countries that we sell into. They also have some of the better import policies. When we started marketing in Spanish we did notice a good uptick in the countries that were revenue participating countries. Out of the Top 10 countries five of them were Spanish-speaking and we believe that’s directly attributive and as a result of translating the site into Spanish.

[Graham Rane - Barris Capital]

Leon, is there any reason why you can’t work on multiple languages at the same time as opposed to rolling them out one by one?

Leon Kuperman

In our internal pipeline we work on multiple languages at the same time but our rollout strategy because we have to build an entire organization and a P&L around each language, it’s not something we feel operationally we can launch simultaneously. So from a technical perspective, yes we do build them out simultaneously but we’re very careful and focused as we roll out each country.

[Graham Rane - Barris Capital]

How are you thinking about uses of cash right now in terms of putting it in inventory, buying back stock, or investing in infrastructure? How do you kind of weigh those three options?

David Zinberg

As you can see we did significant stock repurchases in Q2, we did significant purchases of inventory, and we only have $6 million outstanding on the credit line. So as we continue, we will put our funds basically into those two areas.

Operator

Our next question comes from Elizabeth Pierce - Roth Capital Partners LLC.

Elizabeth Pierce - Roth Capital Partners LLC

The metrics that you provided for the second quarter, does that exclude the $8.4 million from the top line?

Lawrence Y. Kong

No. All our metrics do not include the B2B and if you look in the Q there’s a footnote that also states that.

Elizabeth Pierce - Roth Capital Partners LLC

Just fooling with my model was making some things look pretty interesting. In terms of how we should think about $55 million to $58 million for Q3, any guidance on what we should think about wholesale?

Leon Kuperman

We’ve already kind of indicated that there’s going to be a significant wholesale component to that revenue guidance and that’s part of the reason that we’ve introduced it in order to give you some visibility in that uptick. So more than that we can’t really say at this point.

Elizabeth Pierce - Roth Capital Partners LLC

So it was about 15% for Q2? Is that what it was? $8.4 million over $55 million, something like that?

Leon Kuperman

That’s about right.

Elizabeth Pierce - Roth Capital Partners LLC

Could it be in the neighborhood of that or should we expect it to be higher?

Lawrence Y. Kong

We don’t know yet. The quarter just started.

Operator

There are no further questions.

Leon Kuperman

Thank you very much for your continued interest and we look forward to speaking with you all in next quarter.

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