Internet Capital Group Q2 2006 Earnings Conference Call Transcript (ICGE)

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Internet Capital Group, Inc. (ICGE)

Q2 2006 Earnings Conference Call

August 3, 2006 10:00 am ET

Executives

Karen Greene - VP IR

Walter Buckley - Chairman, CEO

Kirk Morgan - CFO

Doug Alexander - Managing Director

Analysts

Joseph Besecker – Emerald Asset Management

Jeff Van Rhee – Craig-Hallum

Operator

Greetings, ladies and gentlemen, and welcome to the Internet Capital Group’s second quarter results conference call. (Operator Instructions) It is now my pleasure to introduce your host, Ms. Karen Greene, Vice President of Investor Relations. Thank you, Ms. Greene, you may begin.

Karen Greene

Good morning. This is Karen Greene with Investor Relations and I want to welcome you to Internet Capital Group’s second quarter conference call.

I’d like to remind everyone that we’re going to use presentation slides to accompany our prepared remarks today. These slides can be found on our web site at internetcapital.com. Go to the Investor Information tab and you’ll see an icon for our second quarter conference call. The slides can be accessed through that icon. For those of you without immediate access to our web site, the conference call and the associated presentation slides will remain on our web site and be available for future reference.

On the call this morning we will be discussing certain non-GAAP financial measures. For additional information on these non-GAAP financial measures, including a reconciliation of these measures to the most comparable GAAP measures, please refer to the press release we put out this morning, including the attachment to this press release. The press release is also available on our web site which again is internetcapital.com. To access the press release on our web site, go to ICG Press Releases tab and select the August 3 press release. The attachments to the release can be accessed by clicking on the *.pdf file contained within the release itself.

Before we begin, I’d like to briefly review our safe-harbor language. The statements contained in our press release and those that we make in the conference call, as well as the accompanying slide presentation, that are not historical facts are forward-looking statements that involve certain risks and uncertainties including, but not limited to, risks associated with the uncertainty of future performance of our partner companies, acquisitions or dispositions of interests in partner companies, the effect of economic conditions generally, capital spending by customers, development of the e commerce and information technology markets and other uncertainties detailed in the company filings with the Securities and Exchange Commission. These and other factors may cause actual results to differ materially from those projected.

Now let me turn the call over to Walter Buckley, ICG’s Chairman and CEO.

Walter Buckley

Thanks, Karen, and welcome and thank you for joining us this morning. I will begin by providing you with an update on ICG and discuss Q2 highlights. Kirk Morgan, our Chief Financial Officer, will follow with ICG’s financial results and a review of partner company performance for the second quarter.

In the second quarter of 2006, ICG continued to demonstrate good progress against our corporate objectives and goals. This morning, I will provide the details of this progress and how it translates into long-term value creation for ICG and its stockholders.

I’d like to begin by stating our mission, which is to be a leader in the on demand Internet and software space by owning stakes in leading, on demand software companies. You’ve heard me say this numerous times before and, in fact, this mission hasn’t changed in concept, just in terminology, since we founded the company ten years ago. Although we have companies that do not fit the model today, the majority of our companies are on demand companies and our goal is to continue to move in this direction and be known as a key player and leader in the on demand space.

We think that ICG and a number of our companies are well-positioned to capitalize on this emerging market and we saw good evidence of that momentum this quarter.

Finally, as our companies in the on demand market begin to mature, we believe this will become an even more compelling value proposition, with a great deal of growth opportunity still in front of us.

Now listed on Slide 4 are the main take-aways from the second quarter. Excluding CreditTrade, our eight Core partner companies had aggregate revenue growth of 38% and EBITDA improvement of 58% in the second quarter of 2006 versus 2005.

Including CreditTrade results for the second quarter, the Core group had aggregate revenue growth of 12% and EBITDA worsened by 16% over the prior year. The delta is entirely due to CreditTrade’s unusually strong performance in the second quarter of 2005 versus its results in the second quarter 2006. Therefore we believe that looking at the results of the remaining eight companies are more indicative of the momentum we’re seeing across the board.

ICG Commerce, StarCite and Metastorm all had great quarters, with excellent revenue growth, a number of large, multi-year contract signings and substantial pipeline growth.

Four of the nine companies were EBITDA positive and of the remaining companies, two include our recent acquisitions and two others are engaged in significant product development initiatives which will begin to wind down in the second half of the year.

We continued to improve our balance sheet during the quarter, repurchasing $10.4 million of debt. This brings the balance of our standing convertible debt to $26.6 million.

Finally, we’ve been very active in looking at new deals this quarter as well as driving M&A activity at our partner companies.

Subsequent to quarter end, CreditTrade and Investor Force both made important announcements of progress on this front and we are very enthusiastic about what this implies for both companies in terms of value creation. I will talk more about this in just a few minutes.

Now to give you a sense of the progress of our partner companies, the progress our partner companies have made in the past quarter, let me share some highlights of our Core companies, which you’ll find on Slides 5 through 7.

Turning to Slide 5, I’ll start with ICG Commerce. ICG Commerce is a leading procurement services provider who and continued to experience strong revenue growth this quarter versus the second quarter of 2005.

In Q2 2006, ICG Commerce had revenue growth of over 30% and generated healthy EBITDA margins and was net income positive. The company expanded their relationships with several key customers including Timken, Vought and a large software company. In addition the company continued to help customers such as Delta Airline and Goodyear achieve performance milestones and saving targets. Earlier in the quarter, the company was recognized by the International Association of Outsourcing Professionals of one of the world’s top outsourcing service providers for 2006.

StarCite, a provider of on-demand global meeting solutions, had another quarter of strong revenue growth and a large number of new customer acquisitions. New corporate customers included Akamai Technologies, Merrill Lynch, Piper Jaffray and Royal Philips Electronics to name a few. From a supplier side, StarCite also signed new marketing partnerships with Accor Hotels, representing 100 hotel properties around the world, and Steigenberger Hotels, representing 16 hotel properties.

Finally Metastorm, a leading provider of business process management software, achieved record revenue growth of 37% in the second quarter. This growth was driven by strong sales of its full BPM suite. The company also posted its ninth consecutive quarter of profitability. Metastorm added 27 new BPM customers this quarter, including USIS, the largest supplier of security investigations to the U.S. government, Honeywell, BBC and the U.S. Department of State. In addition, existing customer such as the U.S. Department of Justice and Deloitte Touche substantially expanded their contracts. Finally, Metastorm issued a major new software release during the quarter.

Turning to the two Core M&A that occurred after quarter-end, I’ll begin with Investor Force. As outlined on Slide 8, the sale of Investor Force’s database division to Morningstar for $10 million in cash and a licensing deal was an important and strategic step for the company. This transaction will enable the company to focus its resources on continued growth of its enterprise software platform while leveraging Morningstar’s expansive data resources to enhance its product offerings.

In addition, this transaction allows ICG to recover recent fundings we made to this company and provides Investor Force with the capital to build out its core business.

During the second quarter, Investor Force made good progress on its implementation to several of its large customers, with two clients going live in August and several more to follow by year end. It also ended the quarter with a very strong backlog of signed customers.

Now moving on to CreditTrade on Slide 9, I’d like first to make a few comments on the credit derivatives market. While this is a volatile market that seems to thrive in a turbulent economy, the overall credit derivatives market is growing rapidly, over 100% annually according to industry analysts. Therefore we believe this is a market with a great deal of opportunity ahead of it and with the potential to deliver significant returns to the leading players.

Bringing CreditTrade and Creditex together, two companies with complementary sectors, geography, functionalities and strengths, will significantly enhance the market presence of the combined company, positioning it to be an industry leader. The combined company will be net income positive and since January 1, 2004, has shown an annualized revenue growth rate of over 50%.

ICG will continue to participate in the credit derivatives market through a meaningful, but less than 20% interest in the combined company and Doug Alexander will continue to hold a Board seat. We view this transaction as an opportunity to have an ownership stake in one of the premiere companies in the credit derivatives market, capable of creating significant value over the next several years.

We believe the pending merger of CreditTrade and Creditex is a great example of combining forces with a competitor, increasing functionality, scalability and market share and emerge as a stronger, more valuable entity. Just as we merged Commerce Quest into Metastorm and now CreditTrade into Creditex, we will continue to drive our companies to enhance their value and market position through M&A activity. Ultimately, we believe this type of M&A activity results in value creation for ICG and its stockholders.

In terms of new acquisitions, the level of deals picked up considerably in the first half of the year as we continued to broaden the ICG footprint in the on-demand sector. Our pipeline of deals is robust. We’re reviewing a large number of deals each week and we are currently in the midst of performing due diligence on several very interesting companies.

In summary this quarter, excluding CreditTrade, we experienced strong revenue growth and EBITDA improvement at our four companies. We repurchased $10.4 million in debt and worked diligently to close two important transactions I described earlier. We are satisfied with this progress and we believe the remainder of 2006 will be an exciting time for our companies and for ICG. We look forward to reporting to you next quarter.

With that, I’ll turn it over to Kirk.

Kirk Morgan - CFO

Thanks, Buck, and good morning. I will begin with our second quarter of 2006 consolidated income statement as prepared under generally accepted accounting principals.

As a reminder, Investor Force’s database division was sold earlier this month and has been reflected as a discontinued operation.

Turning to Slide 12, revenues of our three consolidated companies, ICG Commerce, StarCite and Investor Force totalled $16 million compared with $9.8 million for last year’s second quarter when our consolidated companies included ICG Commerce, Investor Force and Commerce Quest. The increase is due to strong revenue growth at ICG Commerce and the fact that StarCite is consolidated in the 2006 period, versus Commerce Quest in the 2005 period.

ICG reported a consolidated net loss of $7.8 million, or $0.21 per share for the second quarter of 2006 as compared with net income of $1.1 million, or $0.03 a share for the second quarter 2005.

Results for the quarter include $1.9 million of stock-based compensation expense compared to $400,000 in the 2005 quarter. Additionally, our results for the 2006 quarter include $300,000 in net charges primarily related to a loss on our debt repurchase which is offset by gains on asset sales and an income tax benefit, compared to $10 million in net gains in the prior year related to gains from our Blackboard shares.

Excluding these items, our steady state net loss improved over 30% from the prior year quarter.

Let me next review our Core company results on Slide 13.

Aggregate revenue of our nine Core companies was $55 million during the second quarter of 2006, an increase of 12% from last year’s second quarter. There were a number of companies that contributed significantly to this increase.

ICG Commerce and StarCite had excellent revenue growth and continue to stake out leadership positions in their respective markets.

Metastorm, which combined with Commerce Quest in 2005, is making significant progress in the business process management market.

CreditTrade’s results were down from a strong Q2 of last year and were affected by the variability in the credit derivatives markets.

Excluding the results of CreditTrade, Q2 2006 revenues for the eight other Core companies were up 38% over Q2 of 2005, which we believe is more indicative of these models.

Our Core companies reported an aggregate $3.6 million EBITDA loss during the quarter, versus an EBITDA loss of $3.1 million last year. Demonstrating the progress these companies are making in their respective markets, four of the nine Core companies were EBITDA positive during the quarter.

Going to the bottom line, the aggregate net loss for the nine Core companies was $6 million, down from $7.1 million last year.

Now let me provide some additional color around our EBITDA results. Excluding the results of CreditTrade which, as I mentioned above, were down from a very strong second quarter 2005, the EBITDA loss of our eight other Core companies improved 58% year over year. Additionally, as we expected, our two most recent acquisitions, WhiteFence and Vcommerce, increased their EBITDA losses over their 2005 quarters as they continue to expand their technology platforms and operating infrastructure.

In summary, we were particularly encouraged by the leverage we saw at the EBITDA line at a number of our companies.

Slide 14 presents the movement of cash at the parent-company level during the second quarter. We spent $12.8 million to repurchase convertible notes. We funded $1.9 million to partner companies, received $800,000 from escrow releases and we had an operating cost of $1.5 million net of interest. We ended the quarter with $107.4 million of cash at the parent company.

I’ll next comment on liquidity situation at June 30, 2006, which is presented on Slide 15. At the parent-company level, as I mentioned above, we had cash of $107.4 million and the value of our public company holdings, Blackboard, GoIndustry and Traffic.com, was $92.5 million, resulting in approximately $200 million of total liquidity.

Let me now provide a high-level view of the company on Slide 16. For illustration purposes, I will summarize the information as of June 30, 2006. By using the closing price of $9.00 on June 30, 2006, our market cap after considering the possible conversion of our convertible notes was $379 million. Our cash, marketable securities and escrows as of June 30 totalled $218 million, which includes the GoIndustry contingent shares, the LinkShare escrow, and our proceeds from the Investor Force database division sale which were received earlier this month.

By deduction, an implied value of our share of our nine Core companies was $161 million, representing a multiple on our trailing 12 month proportional revenues of 1.7 times.

Additionally, these companies had net cash balances that aggregated $48 million, including Investor Force’s net proceeds from the sale of its database division.

Now as we look forward to the rest of 2006, we continue to expect that our Core group of companies will grow revenues at least 20% for the year. As you saw during the first half, our growth will not necessarily be achieved on a straight-line basis. There will be quarterly variability.

We also expect improvement in the Core company’s EBITDA results while supporting growth and developing their technology platforms.

Our intent regarding the deployment of capital in 2006 is as follows: we want to increase our ownership in our existing companies, we want to facilitate M&A activity at our Core companies, acquire interests in new, on-demand Internet software companies and finally, to continue to evaluate opportunities for debt repurchases.

On the monetization front in 2006, we will strategically monetize assets over the course of the year if the opportunity arises.

In summary, we’re very pleased with our overall quarterly performance and we’re on track to meet our goals for the year.

With that, I’ll turn this back over to Buck.

Walter Buckley

Thanks, Kirk. Now I’d like to open it up to Q&A and joining us today is Doug Alexander, a Managing Director at ICG. Doug was a key driver in the CreditTrade/Creditex merger. Doug is a Board member at CreditTrade and will continue to hold a Board seat at Creditex. We have received a number of questions related to the transaction so we thought having Doug with us today would be very helpful. So we’ll open it up to questions now.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Joseph Besecker with Emerald Asset Management. Please proceed with your question.

Joseph Besecker – Emerald Asset Management

Hey, guys.

Walter Buckley

Hey, Joe. How are you?

Joseph Besecker – Emerald Asset Management

Thanks for taking my call. It seems –

Walter Buckley

Joe, you’re breaking up a little bit.

Joe, we’re having trouble hearing your question.

Joseph Besecker – Emerald Asset Management

Okay. Can you just give me a little more color on the Creditex deal and why it’s important and why you felt a strategic move was necessary?

Doug Alexander

Well, Joe, this is Doug Alexander and I guess the big story here is that in credit trade, you know, we had a position in a company that, though it was doing well in a space we loved, it really wasn’t in our bull’s-eye and also wasn’t one of the top three players in the space. Now, as a result of this pending merger, we’ll have a position in the market-leading, on-demand platform play in that same space we love. It’ll be a market leader and it’ll also now be right in the middle of our bull’s-eye which we believe leads to significant value creation going forward.

You know, just to give you some background. We’ve always loved the credit derivatives market. You know, market size there is measured in what’s called notional value, which is the total value of derivatives outstanding and when we originally acquired our stake in CreditTrade back in 99, the total market size was only a couple hundred billion dollars in notional value. In 2005, it had grown to over $17 trillion in notional value and it’s now growing over 100% a year.

Credit derivatives represent the fastest-growing sector of the $200 trillion plus OTC derivatives market. So we love the space and the on-demand platform play here as a result of this pending merger has two pieces to it. First, Creditex is the largest electronic trading platform play in the sector and second, Creditex’ T-Zero platform, which I’ll talk about in a minute, is emerging as an important solution to back office problems that have franked plagued the credit derivatives industry over the last two years due to its growth.

In terms of the trading platform in this market, liquidity and flexibility are key and, as a result of this pending merger, we’ll now be a massive provider of liquidity in credit derivatives and also give our customers the ability to trade however and wherever they desire.

You know, credit derivatives is a very fast-growing, complex market. It has a wide range of products that vary in complexity and liquidity and new products are constantly emerging and as these products emerge within the space, they tend to be complex with low liquidity and these types of products tend to be brokered by physical brokers with a lot of expertise, a lot of market knowledge, and this has been CreditTrade’s strength, historically.

Over time, as the products mature, they’ve become more standardized, they’ve become more liquid and when that happens the trading moves gradually from a highly-customized process to being more standardized and eventually traded electronically and this is Creditex’ strength.

Since new products are constantly being created and moved along this spectrum, it’s an ongoing process. So now we have the one combined company in the space that has the ability to handle these products through their entire life cycle and allow clients to trade with us however it suits them for a particular product in North America, Europe and Asia.

So that’s sort of the on-demand trading play. The second piece is this back office play called T Zero and it addresses a huge problem in the market and it’s almost hard to believe it’s 2006 and most of the resolution of these trades in the back office occur on what Greenspan calls scraps of paper.

Joseph Besecker – Emerald Asset Management

Right.

Doug Alexander

In May, Greenspan was quoted as saying that, you know, the credit derivatives market is becoming the most important he’s seen in decades, so it’s a very important market. In the same speech he blasted the industry on their back office operation and he’s viewed this back office problem as a significant risk to the global financial system.

The problem’s gotten so bad that some dealers are literally putting caps on trading. It’s almost like closing the New York Stock Exchange a day a week. That’s how bad it’s gotten, and last year the Federal Reserve in New York called the fourteen biggest dealers in a room, literally locked the door and didn’t let them out until they agreed to a framework to solve the problem.

T Zero, the second piece of the on-demand play is Creditex’ answer to that problem. It allows traders to capture and communicate trade data to support straight-through electronic processing, eliminates paper. It’s gotten a lot of support. Now, the combined CreditTrade/Creditex will be standardizing on the system which brings a tremendous amount of liquidity to that platform and on July 5, this past month, Bloomberg announced their going to provide their 250,000 users T Zero through that platform. So we think T Zero has the potential to become a very important part of the solution to this problem.

But those are the two pieces of the on-demand that really puts this in the center of our bull’s-eye and it makes us really excited and I think, you know, I think what you see in a broader ICG sense is we’re successfully taking what’s an interesting assets and have now have turned that into position in a market-leading, on demand play. I know the world hypergrowth is overused, but this is a hypergrowth market and I think it’s consistent with our strategy of using M&A opportunistically to drive shareholder value.

Joseph Besecker – Emerald Asset Management

So Doug, what type of client, then, when they were combined, could you get, you know, like, with the profile that they were buying that you can get now? A typical situation that you would go for now as a combined entity as opposed to, you know, when they were separate?

Doug Alexander

Yeah, I think that’s a good question. I think that, you know, our clients for both companies are the same. It’s companies like Deutsch Bank, J.P. Morgan, Goldman Sachs, Merrill Lynch, you know, all the big banks you would expect.

But what we would do is, we’d work with specific desks within those banks depending on what our particular strength was. CreditTrade is very strong in U.S. industries and emerging markets. So if you’re the emerging market desk at Deutsch Bank, you would use us. Creditex was strong in European indices and products that tended to be traded electronically, and what would happen is that as these products would evolve, they would move off our desk onto the Creditex platform and we’d be starting over with new products coming in.

Now as a result of this combined entity, we can manage those products through their whole lifecycle across a broader number of desks within those large banks, which allows us to capture more value.

Joseph Besecker – Emerald Asset Management

All right. Well, good luck. Thank you.

Doug Alexander

Thanks.

Operator

Your next question is from Jeff Van Rhee with Craig-Hallum. Please proceed with your question.

Jeff Van Rhee – Craig-Hallum

Hey, guys. Couple of questions, I guess. Doug, while you’re on Creditex/CreditTrade, in terms of the revenue stream, is this a floor? I mean, we had some credit volatility a year ago that really drove very, very strong revenues. We’ve taken the hit year over year in terms of growth with the lack of that volatility. Where we are now in terms of this quarter, is this a reasonable baseline that we ought to at least see sequential growth that, essentially, that volatility and all the other, I guess, abnormals have been washed out?

Doug Alexander

Yeah, I mean, the way I would look at this market, it overall is growing 100% a year in terms of notional value and I had mentioned that $17 trillion figure earlier for 2005. To give you a sense of the scale, these two companies combined will handle over $2 trillion of that volume, which is significant. You know, we measure this company different than our others. I tend to measure on an annual basis because the quarterly volatility’s so high and if you look at the growth of the combined companies since January 1, 2004, it’s been over 50% a year annualized kegger, you know, through that time period, and we expect that to continue.

I think this quarter has been, I think, a solid quarter for both companies. I wouldn’t say clearly compared to Q2 last year where we had some big credit events, this was not sort of, in terms of the credit derivative market, a particularly strong quarter. But I think, to answer your question directly, I think this would probably provide a good baseline for the combined companies.

Jeff Van Rhee – Craig-Hallum

When, just to reflect back to last year, I guess, when were these – I know GM and some others kind of drove some volatility. When do we get out from under the tough year over year comps as it relates to the CreditTrade/Creditex?

Doug Alexander

I think starting Q3.

Jeff Van Rhee – Craig-Hallum

Okay. So Q3 last year things got back to a little more normalcy?

Doug Alexander

And Q4 in particular. I think some of the events slide into Q3 last year because it started out very strong but then we got some more of a market last year, you know, about late July so I’d say it’s a reasonably good comp, Q2 actually to Q2 this year.

Walter Buckley

And I think the other thing, Jeff, is I think we’ll continue to give you 12 month to 12 month comparisons because I do think that gives you a better sense of, you know, how the overall business is doing.

Jeff Van Rhee – Craig-Hallum

Okay. Buck, on the expectation for 20% revenue growth for the year. We’re halfway through. It looks like so far we’re around 13%. Obviously you still are convinced we’re going to see back half of the year acceleration. Can you give some more color as to where that acceleration is likely to come from? Where that confidence comes from?

Walter Buckley

Yeah, Jeff, I mean first of all, looking at the eight Core companies today, those companies are growing 38%, you know, up from 29% in the first quarter and, you know, you may see some volatility but I think that those companies are doing very well and will continue to do so. I think, you know, some of the companies that are in the lower part of that bucket will, we think, increase and I think the combined company, Creditex and CreditTrade, as Doug said, you’re hitting a floor and I think that the combination will also, you’ll begin to see pickup on the revenue growth side there as well so, you know, we’re forecasting, you know, 20% plus growth, you know, overall.

Jeff Van Rhee – Craig-Hallum

On the ICG Commerce side, I mean, certainly that – just have been very impressive as of late, you know, putting up great numbers, new signings and all the other key metrics seem to be there. What’s the latest update on the CEO position there?

Walter Buckley

Yes. You know, the good news from our perspective is we’ve got a great management team at ICG Commerce. They have really not missed a beat and they’re, you know, they execute extremely well. You know, I think the company is well-positioned in this market and, you know, we’re frankly very close to, you know, finalizing that search. But the most important thing, I think, the company, you know, hasn’t missed a beat and, if anything, is seeing growth from a pipeline and a backlog perspective.

Jeff Van Rhee – Craig-Hallum

Is it reasonable to think that position filled a month or less? I mean, the probabilities are that’s the case?

Walter Buckley

Yes.

Jeff Van Rhee – Craig-Hallum

Okay, and then I guess lastly, could you just comment on EBITDA trends for, I guess for all the Core companies. We’ve ranged now between sort of $3.1 million to $3.6 million in general EBITDA losses, a couple of quarters higher than that, in the 5s. But for about the last year and a half that seems to be the range where EBITDA has trended. You know, a lot of these Core companies have been in the portfolio now five, six years. Some newer. Obviously WhiteFence, Vcommerce, a couple longer. But net net, maybe five or six-year average holding, when do you think in looking at their life cycles that we really turn that corner? I mean it seems like it’s been just out in front of us here for a little while where, you know, especially with these on-demand models, the revenue growth really drives the leverage to the EBITDA line.

Walter Buckley

Yeah. I mean, we’re seeing that leverage, Jeff, at a number of the companies. I mean, I think, ICG Commerce, StarCite, Metastorm, Marketron, you know, the four that have been performing very well this year and, you know, taking out the two most recent acquisitions, WhiteFence and Vcommerce which, you know, are still significantly investing in their technology platforms and infrastructure so they’re sort of new to the portfolio, you know, if you look at Investor Force and Free Boarders, I think they’re on the, you know, the latter stages of developing their platforms and, you know, we would expect to see, you know, improvement on that front as well.

So, I mean, we’re very encouraged by what we’re seeing on the EBITDA side if you strip out sort of the CreditTrade anomaly this quarter, we would have had significant improvements for the rest of the group and then, if you’re stripping out the new acquisitions, you know, it would have been positive. So we continue to be very encouraged by what we’re seeing here.

Jeff Van Rhee – Craig-Hallum

Yeah, I mean, given I think when you reach that point and you can be valued on EBITDA and some of the leveragability of the EBITDA, I think it changes the valuation story. Are there any thoughts in your mind when, given all of these moving parts - obviously every quarter we have a couple that outperform and some that underperform but, as a mix, would you hazard a guess? Do you think you have any sense of when this group goes EBITDA positive as a whole? I mean, is that a target in any timeframe, internally at least?

Walter Buckley

Well, it is very difficult to project that with the new moving parts in and out, Jeff, you know, as we expect to add on new acquisition and make monetizations, it makes the job of forecasting that very difficult because there’s a bunch of moving parts. But as I said, without the two most recent acquisitions and without the CreditTrade anomaly, this group would have been positive this quarter so that, you know, that’s what we’re seeing and what we’re encouraged by is sort of the, you know, our base business without the new acquisitions is performing very well.

Kirk Morgan

Yeah, I think the key, if you look at the, you know, the four or five most mature businesses, they’re doing very well from, you know, not only a top line, you know, the most valuable companies, and from a bottom line so, you know, I think that, you know, it really depends on where they are from a maturity standpoint in their business models but companies like ICG Commerce, StarCite, Marketron, who are further along from a maturity standpoint are really generating nice EBITDA margins and we think that’ll continue and to increase.

Jeff Van Rhee – Craig-Hallum

Then, I guess one last question. On the Investor Force side, can you just update us on the timeline there? Obviously you’ve monetized part of that business that was generating some good cash flow and you’ve invested in this on-demand side of the business. You know, there’ve been a number of deals that you’ve been working on, installing and some working through the pipe. Give us a taste of where we are in the maturity there. When do we really see that inflexion point where we’re closing handfuls of deals every quarter and starting to see that revenue really flow and impact the overall performance of the company?

Walter Buckley

Yeah and I think that, you know, they got their first up and running, they have a second this month and, you know, there’s a number behind waiting to be installed and, you know, installed and implemented so, you know, I would say it’s probably the first half of next year where you begin to see, you know, a real bump in revenue from where we are today. It takes time. You know, these on demand models, you know, even though you may be looking at a million-dollar order, you’ve got to prorate it over the life of the contract so it’s not, you don’t get that quick start in revenues.

Jeff Van Rhee – Craig-Hallum

And last one, I promise. Any number of monetizations that’s a reasonable way to think of, you know, between here and say the end of 06?

Walter Buckley

You know, obviously we’re in the market from both a buyer and a seller standpoint with a number of companies and, you know, it’s just hard to predict what will close when but I will say there’s a fair amount of activity on both sides and that we would expect to see more deals either on the buy side or on the sell side.

Jeff Van Rhee – Craig-Hallum

Okay.

Walter Buckley

This year.

Jeff Van Rhee – Craig-Hallum

Thanks.

Operator

Gentlemen, there are no further questions in queue. Do you have any closing comments?

Walter Buckley

Well, I’d like to thank all of you for joining us this quarter and we look forward to reporting third quarter results in a few months. Thank you.

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