InsWeb Corporation (NASDAQ:INSW) Q4 2008 Earnings Call January 22, 2009 4:00 PM ET
Alex Wellins – The Blueshirt Group
Hussein A. Enan - Chairman of the Board & Chief Executive Officer
Kiran Rasaretnam - Chief Financial Officer
[William Meyers – Miller Asset Management]
Welcome to the InsWeb fourth quarter and fiscal year 2008 earnings conference call. During today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (Operator Instructions) This conference call is being recorded today, Thursday, January 22nd of 2009. I would now like to turn the conference over to Alex Wellins of The Blueshirt Group.
Thanks for joining us today on InsWeb’s fourth quarter and fiscal 2009 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the company’s website at www.InsWeb.com. With me on today’s call are Hussein Enan, Chairman and CEO of InsWeb and the company’s Chief Financial Officer, Kiran Rasaretnam.
We’d like to remind you that during the course of this conference call InsWeb will make forward-looking statements including predictions and estimates that involve a number of risks and uncertainties. These forward-looking statements are based on current information which we have assessed but which by its nature is dynamic and subject to rapid and even abrupt changes.
Actual results therefore may differ materially from any future performance suggested in the company’s forward-looking statements. We refer you to the company’s SEC filings including Form 10-K for the fiscal year ended December 31, 2007 for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information.
And now I’ll turn the call over to Hussein Enan.
Hussein A. Enan
Thanks everyone for joining us today. Q4 proved to be another challenging quarter as anticipated. We would nevertheless dreamed to end fiscal 2008 with double digit annual revenue growth despite the unforeseen carrier cutbacks that materialized and increased over the course of the year.
Specifically revenues for the year were $37.5 million approximately 13% higher than fiscal 2007. We recorded a net loss for fiscal 2008 of $2.2 million or $0.46 per diluted share. Adjusted EBITDA which is defined in our earnings release was a loss of $1.2 million. Turning to the fourth quarter revenues were $6.6 million as compared to $7.7 million in the same period last year.
Net loss amounted to $1.3 million or $0.27 per diluted share and adjusted EBITDA was of $1.2 million. While Q4 is typically the slowest for our industry this year our fourth quarter was further impacted by additional cutbacks by some of our direct auto carriers and declining demand for personal life insurance products within the current economic climate.
The softness on the consumer side has in turn led to higher customer acquisition costs with insurance providers competing to capture the reduced numbers of consumers buying new cars or homes. These dynamics have reinforced our commitment to tracking on with our mid and long term strategies which are to grow while finding new ways of acquiring consumers at an affordable cost and reducing our reliance on individual carriers.
Along these lines we made further strong progress during the quarter in signing up new agencies to our platform and bolstering our content and communication offering and in gearing up our new consumer sites. During the quarter we attracted close to 1.7 million other consumers a 14% increase over Q4 ’07 but down 25% from the 2.2 million consumers were attracted in the immediately preceding quarter.
Excluding the agent directory per consumer application costs were down 8% sequentially and down 32% versus the same period last year primarily due to the fact that we are receiving an increasing number of leads from our expanding base of aggregate partners. As I mentioned previously the declining pool of consumers is driving up consumer acquisition costs on an industry wide basis.
However we have also seen increased eagerness among carriers to step up the amount of business they do over the Internet. InsWeb is benefiting from this trend as certain carriers who were previously hesitant to create and/or subsidize online based programs for their agencies have become more amenable to these opportunities.
Revenues for auto consumer were down 6% sequentially and down 30% year-over-year. This reflects the direct carrier scale backs that we continue to experience and that significantly impact on our per consumer monetization which continues to be somewhat mitigated by the solid progress we have made in signing up additional agencies and carriers.
For example last quarter we mentioned that our long term CPC based customers namely Geico, Esurance, www.ProgressiveDirectInsurance.com became advertisers to our standard and preferred data. This expanded program is going well enhancing our offering for consumers while also passing [inaudible] second the near term pressures affecting our business.
We expect to add a few more carriers over the coming quarters and also anticipate that the cutback trend which we experienced in ’08 with certain direct carriers will start reversing itself during the course of 2009. In addition we ended the quarter with a net increase of 802 participating agencies to our Agent Insider platform for a total of 7,577 a 12% sequential increase and a 44% increase over Q4 ’07.
This includes some Farmers agencies who previously bought leads from us through a corporate program. That program was terminated in Q4 so some of the agencies are signing up directly with Agent Insider which is more advantageous to us since they are now bidding for our leads instead of buying them at a fixed price.
InsWeb continues to be committed to making our Agent Insider platform as efficient and as seamless as possible for our participating agents. In Q3 this included integrating with the Quote First email system used by Allstate agencies. We completed a similar project for Farmers during the fourth quarter.
Leads purchased by Farmers agencies through Agent Insider are now being automatically populated to Farmers internal Fast Quote system a web based insurance quoting tool that allows Farmers agencies to quickly build a profile of a customer and provide auto, homeowners and term life insurance quotes. This is a significant development in our relationship with this carrier.
Similarly earlier this month we completed an integration with State Farm’s quoting engine. State Farm is the single largest personal alliance company in the United States and this positive development should help us continue to recruit even more State Farm agents. Finally we also partnered with Leads 360 a top rated online lead management system provider to integrate Agent Insider with the Leads 360 platform.
Captive and independent agents who utilize this platform will be able to have auto or home and term life insurance leads purchased from Agent Insider populated automatically into the Leads 360 system saving them considerable time and effort.
Turning now to our sponsored web based business [TPT] metrics went up approximately 2.5% on a sequential basis with prices of an average of $6.46 compared to $6.30 in the immediately preceding quarter and $6.57 in the corresponding quarter of ’07 reflecting carriers’ continued appetite for new business.
Last quarter we expanded our existing pool of aggregated partners with the addition of two new aggregates. This initiative is designed to acquire consumers more attractive margins by making our distribution network available to businesses with alternative marketing focuses and the need to better monetize their traffic.
Furthermore many of these agreements are reciprocal allowing us to maximize revenue opportunities through the mutual sharing of leads and distribution outlets. Turning to our content interpretation efforts leveraging our expanded team of writers we continue to move full speed ahead to develop consumer friendly content and tools. As a reminder of our strategy in this area we are developing feature rich content that is designed to attract new visitors at a much lower cost.
I would now like to provide you with an update on the new consumer worksites we talked about last quarter. Our new blog and advice site, www.FreeInsuranceAdvice.com, is almost ready to launch and we go live in the next few weeks. As a reminder this destination is designed to generate traffic through a social networking approach.
It leverages the index content we have available for consumers and also provides a direct outlet for us to interact with people who may be looking for advice on any type of insurance. Also during Q4 we introduced InsWeb’s new instant quoting tool. This tool is a first for the industry. By entering only seven pieces of information consumers can instantly view car insurance estimates based on up to date industry data.
Unlike similar tools offered online today InsWeb’s tool is updated weekly with the latest care insurance rate data of over 95% of insurance companies in the US. This tool is also a key underpinning for www.InsuranceRates.com the consumer centric site we are planning to launch in this quarter.
Again consumers visiting the site will be able to view rates from almost all the top carriers that best fit their criteria whether or not we have a relationship with those carriers. Consumers will then have the liberty of deciding whether or not they want to sell their information to any carrier.
As I mentioned last quarter while generating fewer leads overall the site will allow us to monetize leads at more favorable economics by allowing agencies to interact with consumers later in the process when they are more likely to complete a transaction. Now I’d like to make a brief comment on InsWeb’s outlook as we enter 2009.
The current economic conditions and carrier cut backs make it very tough to provide any financial projections for the new fiscal year. However we are confident that we have a fundamentally sound and scalable business model combined with a debt free balance sheet that consists principally of cash and cash equivalents that can withstand an extended global downturn.
We believe that we have the right initiatives in place to drive long term revenue and profit by continuing to grow our base of carriers, agencies and aggregates, by expanding InsWeb’s reach through syndication partnerships as well as our own consumer centric properties that will give us more control over our traffic and by continuing to enhance our product offerings.
I think it’s important to note that these efforts are designed for success even if the current macro economic environment persists. We are encouraged by our clear progress in these areas and believe we will begin to reap the benefits in 2009. I will now turn the call over to Kiran who will review our detailed financial results for the fourth quarter and for 2008.
Revenues for the fourth quarter of 2008 were $6.6 million a decrease of 14% compared to the fourth quarter of 2007 and a decrease of 26% sequentially. Revenues for fiscal 2008 were a record $37.5 million an increase of 13% compared to fiscal year 2007. GAAP after tax net loss for the fourth quarter of 2008 was $1.3 million or $0.27 per diluted share.
In the fourth quarter of 2007 we reported net income of $1.3 million or $0.23 per diluted share which included a one time benefit of $985,000 due to a take down of a lease loss accrual. In the third quarter of 2008 we reported a net loss of $552,000 or $0.12 per diluted share. For fiscal year 2008 GAAP after tax net loss was $2.2 million or $0.46 per diluted share.
This compares to net income of $2.4 million in fiscal 2007 or $0.46 per diluted share including the just described one time benefit. Adjusted EBITDA defined as net income excluding net interest, taxes, depreciation, amortization, share based compensation expenses, severance and other one time gains and losses that are not related to our continuing operations for the fourth quarter of 2008 was a loss of $1.2 million.
This compares to a gain of $617,000 for the quarter of 2007 and a loss of $432,000 for the third quarter of 2008. Adjusted EBITDA in fiscal 2008 was a loss of $1.2 million compared to a gain of $2.7 million in fiscal 2007. In the fourth quarter of 2008 we acquired 2.8 million consumers through our marketing efforts. This represents a 70% increase compared to the fourth quarter of 2007 and a 3% decrease sequentially.
Excluding consumers to the agent directory which we launched in the first quarter of 2008 we acquired 1.9 million consumers in the fourth quarter of 2008 an increase of 19% compared to the fourth quarter of 2007. During 2008 our marketing efforts attracted over 12.1 million consumers an increase of 84% compared to 2007. Excluding agent directory our marketing efforts attracted 9.7 million consumers in 2008 an increase of 48% compared to 2007.
For the fourth quarter of 2008 auto revenue which accounts for 81% of revenue was $5.4 million. This represents a 20% decrease compared to the fourth quarter of 2007 and a 29% decrease sequentially. Auto revenues for fiscal 2008 were $31.4 million or 14% higher than fiscal 2007. The number of auto consumers acquired during the fourth quarter of 2008 was nearly 1.7 million.
This represents a 14% increase compared to the fourth quarter of 2007 and a 25% decrease sequentially. Most of our other revenues are generated by term life and property which includes homeowners, condos and renters. In the fourth quarter of 2008 property revenues were $613,000. This represents a 5% increase compared to the fourth quarter of 2007 and a 29% decrease sequentially.
For fiscal 2008 property revenues were $3.4 million an increase of 79% compared to fiscal 2007. Term life revenues for the fourth quarter of 2008 were $466,000. This represents a 14% increase compared to the fourth quarter of 2007 and a 24% increase sequentially. Term life revenues for fiscal 2008 were $1.7 million a 49% decrease compared to fiscal 2007. Term life revenues excluding the term life agency which we sold in April 2007 were $1.7 million in fiscal 2008.
This represents a 100% increase compared to fiscal 2007. Switching now to a discussion on expenses in the fourth quarter of 2008 our direct marketing expenses totaled $4.6 million. This equates to $1.67 per consumer a 40% decrease compared to the fourth quarter of 2007 and a 26% decrease sequentially. Excluding Agent Directory in the fourth quarter of 2008 our direct marketing expenses averaged $2.35 per consumer.
This represents a 16% compared to the fourth quarter of 2007 and a 9% decrease sequentially. Marketing expenses for fiscal 2008 were $26.7 million or $2.19 per consumer. This represents a 26% decrease from the $2.97 per consumer we spent in 2007. Excluding Agent Directory marketing expenses for fiscal 2008 were $25.9 million or $2.67 per consumer. This represents a 10% decrease compared to 2007.
As of the end of the fourth quarter of 2008 we had 88 employees down from 89 at the end of the immediately preceding quarter. We had 62 employees at the end of the fourth quarter of 2007. Excluding direct marketing expenses operating expenses for the fourth quarter of 2008 were $3.4 million.
This compares to operating expenses excluding direct marketing and the one time benefit of the lease loss accrual take down of $2.9 million for the fourth quarter of 2007 and $3.2 million for the third quarter of 2008. The increase in operating expenses is due to the continued investment in new initiatives that Hussein referred to earlier.
Included in our operating expenses are share based compensation expenses booked according to FAS 123R. These expenses were $63,000 for the fourth quarter of 2008. This compares to share based compensation expenses of $276,000 for the fourth quarter of 2007 and $164,000 for the third quarter of 2008. Operating expenses excluding direct marketing expenses were $13.3 million in fiscal 2008. This included share based compensation expenses of $640,000.
2007 operating expenses were $12.5 million which included $1.1 million in share based compensation. Taking a look at the balance sheet cash and cash equivalents at the end of the fourth quarter of 2008 were $9.2 million a decrease of approximately $1.5 million from the end of the fourth quarter of 2007 and an increase of $113,000 from the end of the third quarter of 2008.
Our balance sheet is debt free and consists primarily of cash and cash equivalents. I will now return the call to Hussein.
Hussein A. Enan
This concludes our formal remarks and we will now turn the call over to the Operator to start the Q&A session.
Ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions) One moment please for the first question. Our first question comes from William Meyers – Miller Asset Management.
William Meyers – Miller Asset Management
I’m trying to understand a little bit better the issue of the cost of acquisition of customers on the Internet. I guess my thinking was that in an economic slowdown the cost per click would go down because there would be less bidders. Are you saying that because the insurance companies are pursuing themselves advertising on the Internet that the cost per click went up or is there something else going on here that I don’t understand?
Hussein A. Enan
The cost per click hasn’t gone up but the effectiveness of the click has gone down. We don’t advertise on a CPC basis, we advertise also on a CPM basis. On a CPM basis when you spend the same number of dollars to advertise you get fewer people clicking through. Of the people who do click through, fewer of them actually convert.
As carriers and ourselves want to keep up the same level of activity you have to do more advertising to get the same number of consumers or conversely if you don’t increase your advertising spend you’re going to get fewer consumers. Does that make sense?
Management I’m showing that there are no further questions. I’ll turn it back to you for closing comments.
Hussein A. Enan
Thank you for being on the call with us today. We appreciate your continued interest and look forward to updating you again next quarter. Good bye.
Ladies and gentlemen that will conclude today’s teleconference. We do thank you again for your participation. At this time you may disconnect.
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