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drugstore.com, Inc., (NASDAQ:DSCM)

Q1 2006 Earnings Conference Call

April 27, 2006, 5:00 p.m. EST

Executives:

Dawn G. Lepore, President, CEO, and Chairman of Board

Robert A. Barton, Vice President, Finance, and CFO

Analysts:

Mark Argento, Craig-Hallum Capital

Chris Dubeau, Blue Line Capital

Welcome to the Drugstore.com Quarterly Results Conference Call. At this time, all participants’ lines have been placed in a listen-only mode. Following today’s presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press “*” followed by the “0”. As a reminder, this teleconference is being recorded, Thursday, April 17, 2006. At this time, I’d like to turn the presentation over to Brinlea Johnson, please go ahead.

Brinlea Johnson, Investor Relations

Good afternoon. Welcome to the Drugstore.com First Quarter 2006 Earnings Call. With me today is Dawn Lepore, Chairman and Chief Executive Officer, and Bob Barton, Chief Financial Officer. Before we get started, we would like to remind you that the information on this call may include forward-looking statements. Words such as expect, believe, anticipate, and similar expressions are intended to identify forward-looking statements, which involves risks and uncertainties that could cause Drugstore.com’s actual results to differ materially from those discussed in the forward-looking statement. In particular comments about Drugstore.com’s anticipated future revenues, earnings, and gross rates are forward-looking. Factors that could cause actual results to differ materially from anticipated results are detailed in our periodic filings with the SEC. I’d also like to point out that during the call, we do mention certain non-GAAP financial measures, which will be explained during the call. Our reconciliation of these non-GAAP measures to most comparable GAAP measures may be found in our earnings press release, which was made available prior to today’s call. Examples include adjusted EBITDA and core OTC. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, and amortization of intangible assets in non-cash marketing and is adjusted to include the impact of stock-based compensation. Core OTC is designed as an OTC segment excluding sales associated with the wholesale agreement with amazon.com, which was terminated in the fourth quarter of 2005 and sales associated with our custom, interest, and category which is now largely reported on a net basis rather than a gross basis due to the change in the company’s contractual relationship with Dr. Weil.

Finally, today’s call is being recorded and will be available for replay on Drugstore.com’s website at www.drugstore.com under corporate information and with this, the earnings press release for the first quarter 2006 including a summary of our financials and supplemental financial information discussed on this call will also be available on our website also under corporate information. With that, I’ll turn the call over to Dawn Lapore, Chairman and Chief Executive Officer.

Dawn G. Lepore, President, CEO, and Chairman of Board

Thanks Brinlea. Good afternoon everyone and thank you for joining us. I’m pleased to be reviewing our results with you because I believe we’re making significant progress along the goals we’ve outlined for this year. Following my remarks, I’m going to turn the call over to Bob to go over the financials in more detail.

There are four main messages in my comments today. First, we’re making significant progress on our profitability goals and expect to approach break even in the second quarter. Second, we’ve meaningfully increased the profitability of our OTC business through important business model changes. Third, we’re working on ways to grow the top line and bottom line of the pharmacy business. And fourth, we achieved modest growth in our vision business through product selection and favorable margin.

Now, let me move to our results. Company reported quarterly net sales of $100.4 million, the second highest in company history driven by record orders of more than 1.3 million. Repeat orders represented 81% of net sales and exceeded 1 million for the first time ever. While new customer orders remain strong as well at $326,000. Our EBITDA loss of $1.4 million reflected a significant sequential improvement and beat guidance despite $1.8 million in final brand spend. Gross margin was also strong, g rowing by 100 basis points year over year to 21.3%. Our gross margin was even stronger in our core OTC business with 180 basis point improvement year over year to 28.2%. This encouraging bottom line performance is a direct result of the many changes that we’re making in our business that have long-term positive implications. Given this progress, we now expect to approach EBITDA break even in the second quarter.

Our OTC segment continues to be a key driver of the business and represented 47% of sales. This quarter, we reported sales of $49 million with $48.3 million from our core OTC business which grew 21% year over year and we expect that growth to accelerate in the second quarter. Within our OTC business, there were some very high performing categories. Sale from beauty.com, our high end beauty site, grew an impressive 43% year over year. Our natural store was up 31% and sales in our personal care category, which continues to be a cornerstone of our business and a key category for our repeat customers grew by 26%. Our total beauty sales were impacted by some short-term product availability issues and grew by only 20% year over year, but we’ve resolved these issues with our suppliers and see additional growth in this segment going forward. In fact, there are a number of very positive trends in this business including the increase in our sales of color cosmetics and the strong launch of products targeting women over 50.

New customer growth in our OTC segment was strong at 326,000 new customers. Search continues to be a critical channel for customer acquisition, in fact 46% of our new OTC customers came through Search in the first quarter. Year over year, we saw 28% growth in OTC orders through our Search channel while our cost for new customer in Search only grew 6%, but we continue to aggressively manage our Search cost through careful ROI management on an individual keyword basis. We manage over 150,000 keywords and have the flexibility to move away from some of the more generic words that see the most pricing pressure. I believe our online marketing efficiency will continue to be a core competency and strength for us.

Now, let’s move to our mail order pharmacy segment. Mail order pharmacy sales were $18.3 million this quarter and reflected record basket sizes of $155. FSA or flexible spending account program was also strong, growing 89% year-over-year to over $1.1 million from our partners. However, total sales growth in the low-margin mail order segment was negatively impacted by Medicare Part D, in fact the impact while within our range of expectation is running at the end of that range and as a result we did not achieve double digit sales growth in this segment during the first quarter. In order to reach that double digit growth, we’re working on ways to grow the top line and the bottom line of the pharmacy business.

Toward that end, we recently launched a marketing partnership with a leading insurance company to provide our customers information on their Medicare Part D plan. We are exploring additional advertising relationships with pharmaceutical manufacturers and ad agencies, monotize the more than 1 million unique visitors per month to our online pharmacy site. Visitors to our online pharmacy continue to gauge in our drug and health contents including the drug price checker, drug interaction checker, and the “ask your pharmacist feature.”

In addition, we’ve outlined initiates to grow our specialty pharmacy business. Currently, specialty drugs represent over 10% of our cash business. These high priced drugs include biologics and injectables, some requiring special shipping and handling; the chronic disease states such as growth hormones, oncology, and multiple sclerosis. We plan to continue to build our online content and tool as well as our clinical expertise around these drugs and disease states to grow this high-margin segment. Overall, we’re aggressively moving to counter the impact of Med D, but it’s important to note that due to the low pharmacy margin, the EBITDA impact of this slower mail order pharmacy growth was only about $100,000 or less.

Now, I’d like to move to Vision. Sales from our Vision business increased 4% year over year to $12.6 million. We believe that our focus on broad product selection, competitive pricing, and our commitment to maintaining favorable margins has paid off. During the quarter, we finalized an agreement with Cooper Vision, which allows us to offer our customers a private labeled version of the very popular Biomedics brand, previously available only through doctors. We also implemented a number of price changes targeted at further improving our margins and covering the cost of verifying prescriptions.

The last segment that I want to cover is our local pick-up business. Sales from our local pick-up pharmacy decreased modestly in the first quarter to $24.2 million. The economics of this business continues to be good; however, as we’ve shared in the past, we do not view this as a growth segment.

Job One in 2006 is to make our business EBITDA profitable and use that as a stepping stone to cash flow generation and GAAP profitability. During our last earnings call, I outlined many of the modifications we made to our OTC business to enhance our profitability. These included modifying our shipping policies, removing the Diamond deals program, and reviewing the profitability of each of our 25,000 SKUs. At an aggregate level, we gained more than $500,000 in EBITDA benefit from these changes and still grew our core OTC business at 21% in line with e-commerce.

We increased the profit of our OTC segment while impacting only about $2 million in revenue, and we believe there will be additional benefit going forward. We are targeting our margin to continue to improve. In late March, we added a weight-based surcharge for orders over 20 pounds. Because this change was implemented late in the first quarter, the full impact will be reflected in future quarters. Just after the quarter end, we signed a new shipping contract with UPS. Under the terms of this new contract, we will benefit by even better rates than we have previously enjoyed. This should further reduce our shipping subsidy cost.

Although many of our initiatives in the first quarter were aimed at the bottom line, we were also very focussed on driving revenue through continued conversion improvements, additional personalization, and new features. Specifically, we launched an important new feature in our OTC business, Auto Delivery. This new services allows customers to sign up for automatic delivery of key products every 30, 45, 60 or 90 days. We launched this service with about 40 SKUs mostly in the beauty and skin care category, but based on the positive customer response we’re expanding to several hundred SKUs over the course of the next few months. We believe this feature will aid retention and frequency and many of our vendors have expressed interest and are participating in the program.

To summarize the quarter, we had a strong start to 2006. We’re making progress on our profitability goals and expect to approach break even in the second quarter. We have significantly increased the profitability of our OTC business while still growing at the rate of e-commerce. We’ve moving aggressively to counter the impact of Med D and we have achieved modest growth in our Vision business. While we are already seeing the benefits of many changes to our business model, the full impact of these changes will be felt throughout the year. Profitability is definitely our highest priority in 2006, where profitability is the beginning not the end. Looking ahead, we’re also working on a number of strategies to drive our long-term growth. As we execute these programs over the next nine months, I look forward to outlining the steps we’re taking that we think will result in both solid growth and a rapidly improving bottom line. Now, I’d like to turn it over to Bob to review the financial details.

Robert A. Barton, Vice President, Finance, and CFO

Thanks Dawn. First quarter net sales were $104.1 million, the second highest sales in company history. This growth was achieved despite our decision to exit the wholesale OTC fulfillment business with amazon.com in the fourth quarter of 2005 and to re-negotiate our custom nutritional relationship with Dr. Weil, which caused us to recognize those sales on a net basis versus a gross basis. Both of these changes impact our year-over-year comparison. Over the next few minutes, I’ll walk you through some of the details driving our first quarter sales and I’ll review expenses and the balance sheet and provide guidance for the second quarter of 2006. With that as an outline, we’ll get started.

Total OTC net sales continue to reflect double digit growth to $49 million and core OTC net sales grew by 21% year over year to $48.3 million. Mail order pharmacy net sales grew by 2% year over year to $18.3 million. Local Pick-up Pharmacy net sales through our Rite Aid partnership were down 3% year over year to $24.2 million and our Vision segment improved g rowing 4% year-over-year to $12.6 million.

Now, I’ll walk you some of the key customer metrics that drove our first quarter sales starting with overall order volume, which was greater than $1.3 million and grew by 4% year over year, and when excluding the impact from the termination of the Amazon fulfillment agreement, orders grew 11%.

Average net sales for order was $77, and on a segment basis average net sales per order for the first quarter in our OTC segment was flat at $56. Mail order pharmacy grew by 9% to $155. Local pick-up pharmacy grew by 5% to $112, and finally average net sales per order for the Vision segment were up 5% to $87.

Net sales from repeat customers in the first quarter made up a record 81% of total sales. In fact we saw repeat revenue in our core OTC business grow by 29% year over year for the first quarter. Also during the quarter, we added a solid 326,000 new customers bringing our total life today customer base to approximately 7.5 million unique customers. And since inception, we have now filled over 23 million orders and expect to achieve the 25 million order milestone within the third quarter of the year. Our trailing 12-month active customer base grew 10% year over year to $2.1 million while the trailing 12-month spend for active customer grew by 2% year over year to approximately $189. Please note that both the trailing 12-month active customer base and average annual spend numbers exclude net sales and orders associated with our wholesale OTC fulfillment business and our new fulfillment relationship with Dr. Weil, and reflect only the activity of customers making purchases through websites owned by Drugstore.com and our subsidiaries.

With that, we’ll move on to gross margin. As Dawn mentioned, already gross margin was one of our best at 21.3% for the first quarter reflecting an increase of 100 basis points over the first quarter of 2005, and was comparable to the fourth quarter of 2005, which benefitted from seasonally higher margin product sales. Our margin improvement was a reflection of a greater mix of OTC sales and improved OTC segment margins, which resulted from our profitability initiatives. In fact our core OTC segment margins are up 180 basis points year over year. Absolute gross profit dollars for the first quarter increased by 10% year over year to $22.2 million, and our core OTC gross profit dollars are up 29% year over year.

Now we’ll move on to expenses. Before we get started here, I would like to remind you that during the first quarter we did adopt FAS 123R share-based payments. In accordance with that statement, all share-based payments are recognized as expense in the financial statements based on their fair values of the date of grant, further, the expenses reported within the applicable operating functions within the financial statement. Accordingly, historical expense to sales ratio and absolute comparisons will be impacted from this change. The financial statements included in today’s press release provides a summary of stock compensation expenses included in the financial statements by operating function. With that as background, we’ll move on to discuss the expense line items and we’ll start with marketing and sales.

Marketing and sales expense for the first quarter as a percentage of net sales was 8.6%, an increase from the first quarter of 2005, and as expected down from 9.4% of net sales in the fourth quarter of 2005. We anticipate that marketing and sales expense will be in the high 6% to low 7% range inclusive of stock-based compensation for the remainder of 2006. In absolute dollars, marketing and sales expenses for the quarter were $9 million and reflected $1.8 million associated with our brand campaign, which we concluded this quarter.

Marketing and sales expense for new customer was just under $28 for the quarter, up from $23 in the first quarter of 2005, but down slightly from the fourth quarter of 2005. Almost all of the annual increase in our cost for new customer reflects money spent during the quarter on our brand development efforts.

Fulfillment and order processing expense which includes customer care and credit card fees, for the first quarter of 2006, fulfillment order processing expenses were 9.8% of net sales, which improved from 10.3% in the first quarter of 2005. We expect fulfillment order processing expenses to remain in the high 9% and low 10% range for the remainder of the year inclusive of stock-based compensation.

Other operating expenses, technology and content expenses for the first quarter of 2006 were $3.9 million, and general and administrative expenses were $4.3 million, and represented 3.8% and 4.1% respectively of net sales. We expect both of these line items to continue to be in the high 3% to low 4% ranges inclusive of stock-based compensation for the balance of the year.

Now, we’ll move on to net loss. On a GAAP basis, net loss for the first quarter was $5.3 million or $0.06 per share, better than our previous guidance of a net loss of $7.2 million to $8.2 million. On an adjusted EBITDA basis, we recorded a $1.4 million loss which was also better than our guidance of an adjusted EBITDA loss range of $3.5 million to $4.5 million. Remember during the quarter, we spent $1.8 million in our brand awareness campaign. With this in mind, you can see that we are getting closer and closer to EBITDA profitability.

On the head count front, we ended the first quarter with an employee base of approximately 715 FTEs. On the balance sheet, specifically in regards to cash, we ended the first quarter at approximately $41.9 million in cash, cash equivalents, and marketable securities. And in regards to inventory, our annualized return rate for the quarter was approximately 14.

In summary, we believe the results for the first quarter were very positive and our bottom line progress was clearly ahead of plan. Our high-margin core OTC business grew at a healthy 21% clip while we expanded the margins in that business by 180 basis points. Even better, we expect the growth from our core OTC business to accelerate into the second quarter. We believe we are focused on growing the business in the right areas and are making the right tradeoffs between revenue growth and bottom line benefits. With that, we’ll move on to our outlook for the second quarter of 2006.

For the second quarter of 2006, Drugstore.com is targeting a net sales range of $101 million to $105 million, and a net loss range of $4.3 million to $5.5 million. On an adjusted EBITDA basis, we are targeting a range of break even through a loss of $1 million. That concludes our prepared remarks for today. At this point, we’ll open the call up for questions.

Question-and-Answer Session

Operator

Thank you management. Ladies and gentlemen, at this time, we will begin the question and answer session. If you would like to ask a question, please press “*” followed by the “1” on your pushbutton phone. If you’d like to decline from the polling process, please press the “*” followed by “2.” You’ll hear the tone prompting your selection and your questions will be polled in the order they are received. We do ask that if you’re using speaker equipment please lift the handset before pressing the numbers. Our first quarter comes from Mark Argento with Craig-Hallum. Please go ahead.

Mark Argento, Craig-Hallum Capital

Good afternoon. A couple of questions for you here. In particular, you had mentioned Dawn that you guys will be approaching EBITDA break even in the second quarter, was that a little earlier than you had originally anticipated? I know your previous fiscal 2006 guidance had been to hit adjusted EBITDA profitability in the second half of the year. So, are you essentially a little bit ahead of where you originally had planned to be?

Dawn G. Lepore, President, CEO, and Chairman of Board

Hi Mark, nice to hear from you. We didn’t give specific guidance about the second quarter. We did say that we would get EBITDA profitable in the second half of the year, but I am very, very pleased with approaching break even in the second quarter. I’m going to let Bob add any comments.

Robert A. Barton, Vice President, Finance, and CFO

I think what I’d add to that Mark, we are very pleased with the results in the first quarter and in fact clearly our first quarter results were ahead of our EBITDA plan. So, as we look forward, we feel very good about our overall targets in terms of breaking the barrier in EBITDA profitability this year.

Mark Argento, Craig-Hallum Capital

The almost 200 basis point improvement in the OTC business in the quarter, in terms of the contribution margin if I’m looking at this correctly, at a high level could you just provide just a little bit of color on where we really saw the most impact basically contributing to that impact. So, in particular just walk me through your thoughts on the reduction in the SKUs, eliminating unprofitable SKUs, how much of that really contributed to your improvement in the quarter relative to some of the other initiatives that you have in place?

Dawn G. Lepore, President, CEO, and Chairman of Board

I’ll let add Bob add some comments. I’m sure we’re breaking out everyone individually, but it was pretty evenly spread around the shipping surcharges, the change in the shipping programs and the SKUs. The nice thing about what we did with SKUs is we were able to increase the margin on the SKUs without greatly impacting sales on many of those categories, which we feel really good about. We did that through a lot of demand curve analysis. Bob, what would you add to Mark’s question?

Robert A. Barton, Vice President, Finance, and CFO

Well, where I think I’ll start, we think of all the initiatives combined we probably saved ourselves about $0.5 million to start with, just from adjusted pricing, adjusting our shipping, and various other initiatives. I think in addition to that, we find ourselves continue to be very efficient on the marketing front, excluding the brand spend, and also on the fulfillment front. Those also had a big piece of our overall benefit for the first quarter. And the thing that I’m most encouraged when I think about what happened in the first quarter, we grew our highest margin category which is just under 50% of our sales and makes up about 70% of our contribution margin dollars. We grew that category to 21% clip on a core basis while expanding our gross margin. So, I’ve designed myself with excitement because that’s exactly what we need to do to achieve our EBITDA goal.

Mark Argento, Craig-Hallum Capital

It looks like essentially the basket in that category was flat, so you did it mostly through new customer ads and looks like through Search, and you did that cost effectively. In the second quarter, you said to expect to see accelerating growth in the OTC categories, should we be able to see expanding basket size or is that going to be predominantly driven through more customers?

Robert A. Barton, Vice President, Finance, and CFO

What I would add to that, I think to start with, we didn’t just see growth from our new customers. We actually saw record sales from our repeat customers as well. In fact sales from our repeat customers made up about 81% of our total sales on the quarter, so that was quite positive and I think where we’re continuing to focus is on the order front, is really continuing to increase the frequency of our customers. A couple of ways that we’re doing that is, when they get to the site we need to convert them. The marketing team has been very, very focused on that, has been reasonably successful on being able to do that at this point; as well as implementing features such as auto replenishment; they got launched at the end of the first quarter. That’s yet another tool that we can lure our customers in for another order, second, third, fourth, etc. So there are a number of initiatives that are taking place and I think we’re continuing to focus on driving new customer order volumes while expanding the marketshare, if you will, of our repeat customers annual Drugstore basket in a given year.

Dawn G. Lepore, President, CEO, and Chairman of Board

Since brought Search, I just wanted to add another comment about Search, because this is something I’m really pleased about. I’ve read so much in the press about increasing Search cost, and I think our results really speak for themselves, the fact that we were able to increase the number of orders that came through Search while really, really managing the efficiency of the Search dollars, and I think that we will continue to do that going forward.

Mark Argento, Craig-Hallum Capital

One last question and I’ll let somebody else hop in. I know it’s not a clear focus for you in terms of the local pick-up business, in terms of the margins on that business, they were down sequentially, should we expect those to kind of plateau at current levels or are you going to run into continued headwind on the margin side in that business?

Dawn G. Lepore, President, CEO, and Chairman of Board

I’m gong to let Bob talk about margins, but I just wanted to reiterate that we like local pick-up, we like the economics. It is not a growth business just because it’s really dependent on Rite Aid marketing rather than us marketing, but Bob can add a few comments about the margin impact this quarter.

Robert A. Barton, Vice President, Finance, and CFO

I think the one thing you have to keep in mind, sometimes the margins through the local pick-up will be impacted by the overall mix of prescription drugs that are being purchased by the customers that are going to Rite Aid to pick them up. The other thing that you’re seeing is the impact from Med D. Obviously, Rite Aid is participating in Med D to the extent that people are migrating to that program that you will see margins get squeezed in that category, and that’s why I have to go back and reiterate the fact that how exciting it was to see our high margin OTC category grow at such a great clip while we expanded the gross margins, and again that makes up 70% of our contribution margin dollars.

Mark Argento, Craig-Hallum Capital

Thanks guys.

Dawn G. Lepore, President, CEO, and Chairman of Board

Thanks very much Mark.

Operator

Thank you. Our next question comes from Chris Dubeau with Blue Line Capital. Please go ahead.

Chris Dubeau, Blue Line Capital

Hi, I appreciate you taking my call. Just a couple of followup questions. You gave some detail in marketing expense and fulfillment in order expenses including stock-based compensation, could just repeat those please for the second quarter?

Robert A. Barton, Vice President, Finance, and CFO

Marketing and sales expense were about $9 million on the quarter, which was 8.6% of sales.

Chris Dubeau, Blue Line Capital

I was talking about the outlook.

Robert A. Barton, Vice President, Finance, and CFO

The outlook, marketing and sales as a percent of sales going forward, we expect to be in the high 6% to low 7% range, and on the fulfillment order processing expense the high 9% to low 10% range.

Chris Dubeau, Blue Line Capital

And that includes stock-based compensation, correct?

Robert A. Barton, Vice President, Finance, and CFO

That’s correct.

Chris Dubeau, Blue Line Capital

Could you talk a little bit about the stock-based compensation, it almost double sequentially year over year and it was up about six times sequentially, how should we think about that?

Robert A. Barton, Vice President, Finance, and CFO

Well, I think you need to keep in mind that this was the first quarter that FAS 123R that had been adopted, and we handled on a prospective nature. While the historical expenses by line item now reflect stock-based compensation, those expenses were simply based on under market awards or we modified stock grants. Going under our adoption of FAS 123R, all stock grants have an expense component of them. So, you’ve got a much higher volume of stock that now suddenly has an expense component that you did not have historically. So you really can’t measure it apples to apples. So I think the way you need to think about it is, what we recorded in the first quarter this morning is more indicative of what you will see in the future.

Chris Dubeau, Blue Line Capital

Can you talk about how many options were issued and at what strike in the quarter and is it kind of front end loaded for the year, how should we think about it?

Robert A. Barton, Vice President, Finance, and CFO

Specifically the expense on your initial options will tend to be front end loaded. That will depend on the number of options that are granted over the course of the year. At the beginning of the year what we had shared with folks is we estimated most recently in our 10-K that based on options granted, we thought expenses would come in at about $6 million on a year. Again, that’s going to be subject to future grants, and I would point you to our cues upcoming to give you more insight in regards what the grants were and the information there.

Chris Dubeau, Blue Line Capital

It looks like you burned about $4.2 million in the quarter. As you move towards profitability in the second quarter, can you give us a little color on kind of CAPEX and what you think your burn rate will be in the second quarter and how it will work out through the rest of the year?

Robert A. Barton, Vice President, Finance, and CFO

As we have shared more broadly, obviously our burn from an EBITDA perspective, as we approach break even, should start to generate cash from us and really it is going to come down to a function of CAPEX throughout the year, and what we had shared with the street at the beginning of the year was that we thought we would end with $35 million or more in cash, and we have not changed that at this point.

Chris Dubeau, Blue Line Capital

Did you give CAPEX guidance for the year?

Robert A. Barton, Vice President, Finance, and CFO

Somewhere between $5 million and $10 million is what we had shared previously.

Chris Dubeau, Blue Line Capital

Finally, can you talk about what you’re doing to reduce your marketing expense so you can accomplish this kind of 6%-7% of revenues target without impacting the topline?

Dawn G. Lepore, President, CEO, and Chairman of Board

A piece of that reduction is because we ended our brand spend and although the brand spend obviously will help us grow with the business long term, short term we felt that the payoff wasn’t fast enough given that we were so close to profitability. So, that is a big piece of the efficiency, and ongoing Search efficiency will obviously be important as well. The brand spend represented $1.8 million in the first quarter and that was ended as of the first quarter. There will be no brand spend in the second quarter, third quarter or fourth quarter.

Operator

Thank you management. Ladies and gentlemen, if there are additional questions at this time, please press the “*” followed by “1” and if you’re using speaker equipment we ask that you please lift your handset before pressing the numbers. One moment please for the next question. Management, at this time, we have no additional questions in the queue and I’ll turn the conference over to you for any further remarks.

Dawn G. Lepore, President, CEO, and Chairman of Board

Once again we appreciate you joining us this afternoon. We’re very pleased with our progress so far and we look forward to giving you another update at the next quarterly call. Thanks very much.

Operator

Thank you management. Ladies and gentlemen, at this time we will conclude today’s conference call. We thank you for your participation. If you wold like to listen to a replay of the presentation, please dial 1-800-405-2236 or 303-590-3000 with the access code of 11058599. Once again, if you would like to listen to a replay of today’s conference please dial 1-800-405-2236 or 303-590-3000 with the access code of 11058599. We thank you for participating. You may now disconnect and please have a pleasant day.

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