iVillage Inc. Q4 2005 Earnings Conference Call Transcript (IVIL)

| About: iVillage, Inc. (IVIL)

iVillage Inc. (IVIL)
Q4 2005 Earnings Conference Call
February 13th 2006, 4:30 PM. Executives January 1, 0000 ET

Analysts

Jordan Rohan, RBC Capital Markets

Bill Morrison, JMP Securities

Kit Spring, Stifel Nicolaus.

Jeetil Patel, Deutsche Bank Securities.

Youssef Squali, Jefferies.

Imran Khan, JP Morgan

Operator

Welcome to the iVillage fourth quarter and full year 2005 financial results conference call. At this time all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. If you would like to ask a question during this time, please press the “*” key followed by the number “1” on your telephone keypads. If you would like to withdraw your question, please press the pound key.

I would now like to turn the call over to Diane Smykowski, Senior Vice President of Finance. Please go ahead, Ms. Smykowski.

Diane Smykowski, Senior Vice President of Finance

Thank you operator. Good afternoon and thank you all for joining us today for iVallege’s fourth quarter and full year 2005 financial results conference call. I am Diane Smykowski, Senior Vice President of Finance. With me today are Doug McCormick, Chairman and Chief Executive Officer; Steve Elkes, Chief Financial Officer and Executive VP of Operations and Business Affairs; and Jane Tollinger, Executive Vice President of Operations and Strategy.

Before I turn the call over to Doug, to review the results for the fourth quarter and full year, I would like to remind you of the Safe Harbor provisions of the Private Securities Litigation Act of 1995. The statements made during this conference call, which are not historical facts including future earnings guidance, are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks are described in the Company’s Form 10-K for the year ended December 31, 2004 as well as in other Securities and Exchange Commission’s filings.

The Company’s presentation this afternoon is complementary to the related press release issued today announcing iVillage’s financial results for the fourth quarter and year ended December 31, 2005 and certain other information. This press release was also included as an exhibit to our Form 8-K furnished today by the Company to the Securities and Exchange Commission prior to the commencement of this conference call.

Please refer to this Form 8-K, which is available on iVillage’s Investor Relations website located at www.ivillage.com/investor for the financial and statistical information contained in today’s presentation together with any other information required by the SEC’s Regulation G.

A replay and or transcript of this conference call will also available on the iVillage’s Investor Relations website beginning approximately one hour after the conclusion of this call.

Now I would turn the call over to Doug.

Douglas McCormick, Chairman and Chief Executive Officer

Thanks Diane and thank you all for joining us on this call this afternoon. I am pleased to have a chance to speak with you about the iVillage’s solid 2005 performance. And I would like to discuss our current 2006 undertakings.

2005 was a breakout year for iVillage. We grew the Company’s infrastructure in content offering to ensure that iVillage would remain a leading online player well into the feature. And we think our fourth quarter and full year financial results clearly demonstrate that our investments in the Company’s core assets are yielding excellent results. During the fourth quarter iVillage recorded revenue with the iVillage fourth quarter revenue increasing 65% year-over-year. Our online businesses continue to be the key revenue drivers, as we capitalize on our scalability and our unique editorial environment.

Turning to our full year performance, the Company consistently increased revenue during each consecutive quarter and in 2005 with $91.1 million in total revenue, an increase of 36% year-over-year. Importantly, our 2005 net-income more than tripled to approximately $9.5 million, when compared with 2004 net-income of $2.7 million demonstrating the outstanding leverage our platform can deliver. We achieved our 2005 objectives and as result, we are set up for a stronger 2006.

We had several major accomplishments during 2005 that strengthened our business and helped us deliver profitable results. We successfully completed three strategic acquisitions: Healthology, HealthCentersOnline and iVillage UK. Our acquisitions in the health verticals added premium content of Healthology and HealthCentersOnline to the existing iVillage health offering making us a top health property online.

Healthology is the number one position sanctioned distributor of health information videos, and we are in process of expanding that network, recently securing MSN as a new partner. HealthCentersOnline is a leading destination for Diagnostic Centreonline in Diagnostic Centeronline, and in addition to the tropical centers we launched in 2005, including Diabetes, Health, Cancer Health, Allergy Health online. We look forward to the launching several new centers this year. A combination of Healthology distribution in the HealthCentreOnline destination models has attracted blue-chip pharmaceuticals advertisers in search of reaching advanced, a highly targeted audience.

As we had conveyed to you during previous calls, how can family whelm this information is one of the key reasons women are drawn the Internet and now more than ever before to iVillage. 2005 saw the successful re-launch of ivillage.com with a new design and increased navigability that have resounded well with both our visitors and our advertisers. We have mentioned previously that as a result of our re-design, we had to reestablish many of our natural search engine rankings iVillage built up during its first decade of operations and the benefits of this will be seen in 2006.

Our strong revenue performance documents that advertisers are not only drawn to one of the most highly stylized website on the internet but they are also willing to pay a premium for our inventory, including our better ad-placements, our new photo centers and our enhanced video player. The advertising utility of our site and iVillage coveted audience have enabled us to continue to grow our revenues based on the strong pricing power we get from our quality content.

The iVillage property continues to attract the large number of brand new advertisers, which find our audience relevant to their diverse products. During Q4, we receive substantial commitments from our blue-chip advertisers including Target, Colgate-Palmolive and Norelco among others.

Consumer products goods client such as Kraft, P&G and General Mills were some of the major advertisers during the fourth quarter with spending levels that are commensurate with our pharmaceutical and healthcare clients, which include Pfizer, AstraZeneca. In fact our new sites offerings have attracted an increase number of advertisers from a growing a number of sectors. Finance advertisers including American Express and Citibank moved into the top 5 advertiser categories represented on iVillage.

Finally, our fourth quarter iVillage.com revenue grew more than 80%, year-over-year speaking volume above the attractiveness of our re-design and what that deliveries to our advertisers. Now that we have completed the site redesign, in 2006 we are focused on raising our unique visitors and our page viewers.

I will give you specific on our traffic building initiatives in a moment, but first I am pleased to say that our January report card is in and these initiatives are already paying off. In fact according to comScore Media Metrix, we delivered 14.5 million unique visitors in January, reflecting an 11% increase over December and moving our competitive ranking up 14 places since the end of last month. Further, our page views in January are trending up as well. We are the fourth most commercially trafficked full-service health offering delivering more unique visitors in this area than AOL in January.

Once again, proving that our strategy is solid and working. The attractive CPMs achievable in health are some of the highest in the industry and they remain a solid revenue driver for iVillage. We have several initiatives underway to increase our traffic and our page views.

iVillage is actively pursuing in aggressive search engine optimization or SEO strategy to accelerate and improve our natural search engine rankings, thus increasing our unique visitors and page viewers. SEO combined with the ongoing adjustments and enhancements to our site now allow for the spidering of our message boards with prior to this year had not been possible, and spidering is an important part of search technology that will make our valuable community offerings more accessible to internet advertisers and users.

Another investment we are making to increase iVillage’s traffic and brand awareness is our decision to increase our marketing spend with highly targeted prints and television advertising. In 2006, we planned to start an efficient TV and print ad-buy (phonetic) initially spending under $1 million. Studies have shown that the combination of TV and online advertising make online campaigns more impact full. We expect TV advertising to increase the effectiveness of our SEO strategy and our keyword buys, thereby leading us to tangible online results.

I would like to point out that our 2006 business outlook reflects both our SEO strategy and our initial TV and print aspects. We also continue to remain focused on expanding distribution channels for iVillages content to broaden the reach of our brand and increase traffic to our site through means that require minimum investment on our part.

On December 20th, we announced that MSN renewed its content publication agreement to present iVillage content on its MSN Lifestyle and women’s channel. We are exciting about our relationship with MSN and very pleased that our content will continue to reach the broad MSN audience in search of information for women on their website channel.

Similarly, iVillage content is now part of a promotional tie end on XM radio’s women’s channel, Take 5. As a result of this tie end at iVillagenet is aired multiple times per week on appropriate programs. We think XM is a terrific neighborhood for the iVillage brand and we are happy to keep up and people like Oprah, who recently announced an agreement to create and Oprah and Friends channel on XM.

We are always considering new partnerships in channels for distributing our high-quality content and raising awareness of the iVillage community. Recently, we started working with CBS to produce an “eye on women” and they will keep you updated on our progress on their radio networks.

On a recent distribution note at the end of last year, we began a pilot with Cox Cable that brings Healthology’s video content to Cox Cable subscribers. We are very excited about this data offering, because it is another channel and medium for distributing iVillage content. The pilot is running in their Free Zone and it offers video health information driven from Healthology’s vast library videos. We expect that in success our DoD health offering and provide cable operators with a powerful channel, generating sponsorship revenues for iVillage. Furthermore this is a greater example of a cross promotional opportunity that requires a minimum investment from us. As we already own all of the video. Our valuable Health Video Content and the iVillage brand, will reach a brand new audience.

In 2006, we utilize our extensive video library to further enhance our offline wellness channel. This channel will compliment our very popular newborn channel. We planned to rollout the wellness channel in hospitals during the later part of 2006. As you may know, the wellness channel has been interest market in over a half a dozen hospitals. This initiative is very exciting, because it leverages iVillage existing video content and our other existing editorial products in an environment we are already very familiar with through our successful Newborn channel.

Online video is a strong growth area on in the Internet and is a big hit with women. It is also in great demand by iVillage users and advertisers alike. We’ve responded to this demand by successful in launching several made for iVillage video campaigns last year. And we are working to create more unique video offering this year. We recently launched our first original web-TV show, which is host by Dr Bob Berkowitz it’s called "What Men Won't Tell You, but Women Need to Know". This program is an example of a tough quality compelling content that makes iVillage users comeback and advertisers pay top dollars.

We are very excited about our video products, because they command significantly high CPM from advertisers and doing excellent branding mechanism for our iVillage. We have had iVillage’s interactive content by expanding our multimedia and audio slideshows offerings and plan to undertake more of these projects, in 2006. We gained great traction from some of the multimedia shows we launched last year, and have developed another iteration innovation of our show “Too Sexy for Work” called “First Date you’re wearing that?” We also recently launched two audio slide shows "Teenage Waistland" and "A Day in the Life of the American Woman", which are based on two best-selling books.

In addition to using innovative media and technology, iVillage remains committed to offering the most up-to-date and in demand content, tailored specifically to our female audience. Our top-notch editorial offerings, what attracts visitors and advertisers, as well as drive users and subscriptions.

And in 2006, we have plans underway to launch “pregnancy and baby plus”, which has at its core our extensive re-purpose newborn channel video content that will be made available now online. Pregnancy and Babyplus also has the most robust in journaling and blogging functions in the parenting space. And a product, we call “alert service” designed to streamline the process of getting correct baby product information for busy moms. This will be a subscription product available at the cost of $24 a year and will be fully promoted with online advertising, our Newborn channel schedule, pages in our owned and operated magazines like Lamaze parenting, Lamaze para Padres and Baby Steps.

We are focused on providing women with pertinent content and are working on a continual basis to develop new offerings. We also continue to make important headway on another project tailored specifically to our online community. This is our “Search for Women”. We anticipate launching the new Search at the end of the second quarter 2006. Our objective with Search for Women is to enhance and further customize our users and advertisers experience by participating in the so-called vertical search marketplace.

We intend to make the women.com URL the new home for Search for Women. Providing us with a promotable sustainable home for this new business line. Importantly, this new product will allow us to promote iVillage brand by blanketing the Internet with add campaign promoting Search for the Women’s Intuition.

As we begin 2006, we are very excited about the prospects for both the online marketplace and even more so for iVillage. We believe we have made the right investments in our product offering and infrastructure in 2005 and think we are in excellent position to fulfill our growth strategy for 2006.

We aren’t the only ones who think this. Recently, February 2006, issue of media post OMMA, selected the best websites in 10 different categories. iVillage was selected as the top publisher in the women and family health category. We are proud of our performance in 2005 and are confident about our future. Now Steve will provide you with 2006 business outlook right after he provides you with more specifics on the numbers. Steve Elkes.

Steven Elkes, Chief Financial Officer

Thanks Doug. Today we reported fourth quarter 2005 revenue, up $30.1 million, approximately a 65% increase when compared to revenue of $18.2 million for the same period one year ago. For the full year 2005, iVillage revenues increased 36%, and $91.1 million. As we continue to capitalize on the strength of the online marketplace, our 2005 ivillage.com revenue was up approximately 68%, when compared to 2004 ivillage.com revenue.

Our strong 2005 revenue translated to solid EBITDA growth. Fourth quarter 2005 EBITDA of $11.1 million increased 245%, when compared to an EBITDA of $3.2 million for the fourth quarter of 2004. For 2005, iVillage reported EBITDA of $17 million, up 119% from EBITDA of $7.8 million for full year 2004. On a related note, our $17 million in EBITDA includes approximately $500,000 in one-time legal expenses primarily related to litigation. We filed the lawsuit to protect our rights on our astrology property and believed this was an important investment we made in the best interest of our shareholders over the long-term.

We also continue our trend of solid net-income growth reporting fourth quarter 2005 net-income of $8.8 million or $0.11 per share, compared to net-income of $2.4 million or $0.03 per share in the fourth quarter of 2004. Full year 2005 net-income was $9.5 million or $0.12 per share, this compares to a net-income for fiscal ‘04 of $2.7 million or $0.04 per share. We added cash for balance sheet and ended the fourth quarter 2005 with $55.9 million in cash and cash-equivalents and currently carry no debt. Healthology and HealthCentersOnline had made iVillage a leading provider of health information online.

We are realizing the financial benefit had been a key phase for pharmaceutical and Health Service companies to advertise. The integration is progressing smoothly, streamlining our key business functions. Furthermore, we’ve set this Healthology’s video capabilities to contribute to additional view of this premium space. We are confident that we will continue to capitalized on the tools in experience Healthology and HealthCentersOnline bring to iVillage, in 2006.

We are pleased with the performance of iVillage in 2005, and accept its potential to materialized further in 2006. We have many important initiatives underway, which we expect to improve our gross prospects in 2006 and beyond. As Doug mentioned, our Search for Women, our search engine optimization strategy and our targeted marketing effort as one of our key undertaking. These initiatives are included in our 2006 filings. Now I would like go over our business outlook for 2006.

For the first quarter of 2006, we expect to generate revenue between $21.5 million and $23.5 million, which at the mid point of this range represents an increase of approximately 30%, when compared to the first quarter in 2005. We anticipated reporting EBITDA between $1.5 million and $2.5 million for the first quarter of 2006. Additionally iVillage expects to report $0.00 per share or a net loss of between approximately $1.3 million and $300,000 during the first quarter of 2006, this includes an estimated $800,000 in non-cash stock based compensation expenses.

We believe that the company is well positioned for the growth and expect iVillage to continue to benefit from our strong sales efforts quality brand in 2005 acquisitions. Today, we are providing our fiscal year 2006 business outlook, iVillage currently anticipate reporting revenue for 2006 between a $105 million and $113 million, an increase of approximately 15% to 24% revenue as compared to 2005 revenue. Our EBITDA outlook for 2006 is $24 million to $29 million, which at the mid point of this range represents an increase of about 55% when compared to 2005 EBITDA.

The company also expects deliver net-income between $13.8 million and $18.8 million for the full year 2006, including an estimated $3.2 million in non-cash stock-based compensation expense. Now I will turn it back to Doug to conclude.

Douglas McCormick, Chairman and Chief Executive Officer

Thanks Steve, our 2005 investments in iVillage certainly paying off. Our site redesign and acquisitions have enhanced our product offerings and have positioned iVillage as a valuable online property that delivers high-quality content to our users and a targeted and desirable audience to our advertisers.

Furthermore, we continue to develop a product offerings and advertisers are increasingly enthusiastic about, that our 2006 priorities and to grow traffic and to continue to enhance our editorial products creating increased channel for distribution of iVillage content and continue to produce original made for iVillage video.

In summary, we continue to expand our franchise, our business is strong and keeps getting strong and iVillage brand continues to play an increasingly important role on the Internet. And with that Steven and I are happy to take your questions.

Questions-and-Answer Sesssion

Operator

Thank you, the floor is now open for questions, if you would like to ask a question at this time, please press the “*” key followed by the number “1” on your telephone keypad. Once again for queuing for question, it is “*” “1” on your touchtone phone at this time. Our first question will be coming from Imran Khan of JP Morgan

Q - Imran Khan

Yes, hi guys good quarter.

A - Douglas McCormick

Thank you.

Q - Imran Khan

Couple of questions, in terms of, if you look at your fiscal ‘06 guidance, I was wondering if you could give us some color like what kind of page views growth or what kind of pricing growth you are building into your model? And secondly, in terms of, as you are focusing on page views growth, you talked about search-engine optimization, can you give us some color what percentage of your traffic directly comes from organic search or right into iVillage.com, at the same time may be you can give us some sense, the unique users that are coming back, repeat unique users? Thank you.

A - Douglas McCormick

Well, I am not sure we have been public with the number about what percentage of our usage comes from organic search, I believes it’s in the 20’s, and we think that we can beat that up dramatically. So, those are good and obviously a lot of our traffic just comes from people who bookmark us and regularly come to us, and so overwhelmingly those are the two biggest sources for our traffic right now. In terms of the metrics for next year’s number, Steve, how comfortable are you breaking down those?

A - Steven Elkes

Well, with respect to page views – I mean one thing we can say is certainly if you look at the total page views in ‘04 versus the total page views in ’05, even given the year, we saw growth of about 10% or 11%. So, obviously we are expecting a better than that next year clearly.

A - Douglas McCormick

On core page views.

A - Steven Elkes

On core page views and then in terms of pricing, you can look at the revenue per page we had this year, obviously, we would like to see an improvement on that next year so, we are modeling both those factors, I think you would see, obviously the double digit in terms of pricing growth.

A - Douglas McCormick

Yeah I guess the, you know we are looking for double digit in pricing and double digit in page views to give you the answer that you can put into your models.

Q - Imran Khan

Thank you, that is very helpful but one last question. Doug, you talked about how finance vertical is very strong for iVillage, can you give us some more color what other verticals you saw strength or do you expect to strength as you enter the ’06? Thank you.

A - Douglas McCormick

Thank you, Imran, we continue to see real strength in the big box retailers, as our head of sales always points out that the people are either researching their products online and then going into the stores to buy it, or they going into the stores to look around then they come online to buy it, there is a real for any major purchase. So, big box retailers and of course entertainment continues to grow and I don’t think that there’s a women’s movie out there that would launch without considering iVillage’s prior that launch, so, movie is open, it’s very critical for them to get that first weekend box office. So, we seem to be hitting very well with them as well as with television - television series etc. that gives us, so entertainment big box retailers are big, and of course, we saw a nice play as I mentioned in the call on the consumer products goods.

Q - Imran Khan

Great thank you

A - Douglas McCormick

Thank you

Operator

Thank you, our next question is coming from Youssef Squali of Jefferies.

Q - Youssef Squali

Thank you, very much, it’s Youssef Squali. Good afternoon, a couple of question. Just going back to the page view issue, so in Q2 or in Q3 you $368 Q2 you had $391, Q4 you were $362, very flat, while correct me if I am wrong, but you’ve gone through the redesign of the site at the end of Q4 of ‘04 or early ‘05 and so, I wouldn’t expected to see at least a sequential improvement, maybe not over year-over-year but certainly sequentially and I am trying to kind of understand why we haven’t seen that particularly in Q4, which is seasonally the strongest. And, second, can you quantify for us the percentage of rich media as a percentage of your total online ad’s served?

A - Douglas McCormick

Well, let me answer the - first of all, we don’t see Q4 as seasonally the highest quarter, usually Q1 is, and we are happy to see that in Q1, we are already up 11% from - and in page views we are up 20%. And the numbers that we have right now from December to January and so, we might have with 21%, I think, just looking at our January page view number. So, I think, we’ll probably turn the corner for you, maybe not in the time that you would wanted us to do so but, we are showing some nice traction there with a lot of these moves. So, we feel that we have, we got the improvement that you’ve discussed perhaps 90 days later than you expected, and from a standpoint of how much of our billing is rich media, and it really depends on how you define rich media, there’s very little just people buying, a very few people are buying just static banners anymore and so we define rich media as things that move and things that pop out at you, or anything that has any kind of movement in it, that would take you from simply kind of banners that have any kind movable graphic all the way up to full motion video, it’s the overwhelming majority of the ads on iVillage will have that type of movement in them and it’s getting more and more, I mean, advertisers want to take a advantage of that interactivity.

Q - Youssef Squali

Sure, just as a follow-up, Steve, in your guidance for Q1 this 30% year-on-year growth, what kind of organic growth is that in spike for the online revenue business?

A – Steven Elkes

In term, you mean, growth from Q4 of ‘05 to Q5 of ’05, is that your question?

Q - Youssef Squali

No.

A – Steven Elkes

You are going into Q1 ‘05 to Q1 ’06?

Q - Youssef Squali

Correct, yeah. Please.

A – Steven Elkes

The growth in organic business, you would say excluding acquisitions and such or how you are thinking of the-?

Q - Youssef Squali

Oh, that’s how, I would define it, I guess there are only two ways, either excluding acquisition or normalize for acquisitions, I will take either.

A – Steven Elkes

Yes, probably if you would exclude acquisitions from Q1 of ‘05 to Q1 of ’06, you would be about 10% you know and obviously how the quarter actually falls out, and I should mention that the guidance that we gave in ‘06 for EBITDA, we did not exclude, we did not include the stock-based compensation charges, or we could give you the amount when we calculated the net income so you know I wanted to make sure to account for that properly in the model.

Q - Youssef Squali

Okay very helpful, thank you.

Operator

Thank you, our next question is coming from Jeetil Patel of Deutsche Bank Securities.

Q - Jeetil Patel

Hi guys couple of question. First of all you had guided to 87, 89 million walking into the quarter, you delivered about $2 million of revenue upside, can you just give us a sense of what was it that drove the $2 million variance in terms of, was there a particular segment of the marketplace. You have segment of advertisers that stepped in on a spot basis anything that you kind of give us a sense of the $2 million incremental? Second, you know you talked about a lot of initiatives for 2006, anything from the CBS distribution cable cost, cable deal new online for pregnancy and baby plus as well as the Search for Women as well as a marketing expense so, can you just give us a sense of maybe what are the top two or three kind of levers that you look at inside the initiatives bucket that you talked about that could actually drive incremental growth as you look at the shares? And then I have quick follow-up.

A - Douglas McCormick

Let me give you the three levers and then let Steve can handle the second part of the question. The three levers, first of all the biggest lever is uniques and page views which we are keenly focused on and that just going to drive the whole machine. So that would be the number one thing that we stay focused on here all the time. The second thing would be I would say in terms of it’s importance perhaps Search for Women, is something that we really want to not only get going here but propagate and clearly create a new paradigm in vertical search and I would say and the Pregnancy and BabyPlus would be the third most important revenue generating area for us. It’s cords with what it is we do. So if you would look for the top three those would be them.

A - Steven Elkes

And in terms of what the group, what drove the growth about the guidance, I believe the guidance, the top of guidance was 90, am I missing, is that what you had?

Q - Jeetil Patel

87, 89 was your range last quarter or so?

A - Steven Elkes

Alright, the primary drivers obviously were online, we saw, you know improvement in straight ad sales as well as Healthology and Health Centers, so the bulk here was all in those areas where we would like to see it and where you would like to see it.

A - Douglas McCormick

If you would like, I thought we did bring up the guidance to 80 to 90 on the last call.

Q - Jeetil Patel

Yeah I was just trying to figure out the variance to that number than $5 million or so. Just trying to figure out, was there a late spot buying was going on late in the quarter anything interesting kind of take that in that quarter that drove the upside.

A - Steven Elkes

It was really just increased demand and the increased price and it goes with it in Q1 so always nice to see.

Q - Jeetil Patel

You talked about also verticals, the finance vertical ramping up next to CPG and Pharma, is there anyway you can just give us a sense of maybe the top three or five verticals that you operated today from largest to smallest, can you give us a sense of if that mix is changing any?

A - Steven Elkes

Well it changed a little bit because the top was Pharma and then behind that was CPG and this quarter they kind of reversed for the first time. And then the next three I don’t know if I can give you these in exact order but it would be entertainment, it would be finance which is broken in and the third was retail, what we call big box etc. Okay.

Q - Jeetil Patel

Great thank you.

A - Steven Elkes

Thank you.

Operator

Thank you our next question is coming from Kit Spring with Stifel Nicolaus.

Q - Kit Spring

Hi guys, great rebound from Q1 last year.

A - Douglas McCormick

Well thank you.

Q - Kit Spring

Can you just talk about the rebound in the Parenting network, talk a little bit about where you think you are as far as the inventory that you could possibly sell. Do you feel like you are selling about what you should be selling or could you put more commercials on the site without impacting traffic? And maybe give us an update on the acquisition or merger environment. Thanks.

A - Douglas McCormick

With respect to the Parenting network, you know, on a year-to-year basis the Parenting network of course used to have the Wal-Mart business in there.

A - Steven Elkes

Were you asking specifically about online or offline, Kit?

Q - Kit Spring

I guess, offline I think it went from 2.9 to 3.9, so was year-over-year, you did not have Wal-Mart in the fourth quarter of last year, the first quarter you didn’t have Wal-Mart?

A - Douglas McCormick

Right, so I mean we are seeing - to answer your question, with respect to the Parenting network, we have more hospitals of course paying us our fee in there, which is great business for us. Those are hospitals that have to pay a license fee to the product and we’ve seen some nice growth in that area. But I think that the answer specifically where we can have more growth is in the advertising section. We have avails right now to sell. And there is one category that is open that we can step in and just literally create new business for and it’s not a question of us being oversold or having too many spot. Now the good news is in a short while we will be using some of those avails for to promote Parenting and BabyPlus in an iVillage association but we see a great opportunity there to expand the advertiser activity. Inventory…

Q - Kit Spring

Actually the inventory question I was referring to the online.

A - Douglas McCormick

Oh well online is great. I mean, we seem to be having great traction with advertisers on online and Parenting so the inventory hasn’t been an issue there. So we continue to be able to drive what appears to be a nice premium CPM for a great environment.

Q - Kit Spring

Okay great. Then on the acquisition environment, the merger environment out there?

A - Douglas McCormick

You know, we, from time to time are looking at things, the problem with - I guess all we can say is if we look over our shoulder at the three that we have done we’ve been very pleased with that, and we’ve set up a very good criteria to make sure all these things are successful when we make an acquisition, and so as a result we are, I think we tend to have a very disciplined look and that’s about all we can say.

Q - Kit Spring

Thank you.

A - Douglas McCormick

Thank you.

Operator

Thank you our next question is coming from Bill Morrison of JMP Securities

Q - Bill Morrison

Hi guys, thanks. Couple of questions, one as Steve pointed out, you were about a million above revenue guidance for the kind of well in the EBITDA guidance and just curious if there were some investments you decided to accelerate in the quarter I think Steve you mentioned I kind of missed but you said there was lawsuit that can - of this quarter and that was included, which line that was included in. But your sales and marketing in product development cost was a little bit higher and we were expecting so I was just curious if you accelerated investments there something unexpected happened? And second on the pricing side I was wondering if you can give us an update on where you are in implementation with Rapt and whether or not you are seeing any kind of meaningful uplift in revenues that are addressed by their software? And lastly Steve if you could tell me just couldn’t find any way maybe there - what the CapEx was in the quarter in free cash flow if you got that?

A - Steven Elkes

In terms of the increase in expenses coming in at about 17 with a little extra revenue. You are right, we had about $500,000 in one-time legal expense primarily associated with a litigation regarding that trademark intellectual property issues, which though you know the winning or losing is in critical to the results of the company. It’s important that we withstand our intellectual property when appropriate. And then in addition in terms of sales and marketing we had a little more barter than we probably anticipated. We found some good opportunities with due some barter at favorable rates, and it accounted for some of the revenue upside. Initially we are looking to a barter of 3 to 500, we ended up closer to one million so that bumps up with sales and marketing line and kind of bumps the revenue without the corresponding increase in EBITDA. And in terms of CapEx for Q1 that was about a million, a million in the quarter. I mean sorry, in Q4.

Q - Bill Morrison

And Doug could you maybe address where you guys on the implementation with Rapt, how that’s going on?

A - Douglas McCormick

We like Rapt, it a implementation that has been, I guess that began in the fourth quarter and it’s ongoing, there have been a couple of trips out to, you know in seminars both at the company base and a lot of interactivity, we expect it to be, I guess, completed by the end of the second quarter, we will be running in full harmony with them. So, it’s going well, it’s company that has made some, we feel, has been in someway contributing to our fourth quarter even though it was lightly implemented there, and will be part of our going forward pricing and planning structure, we feel very good to have that tool on behalf

Q - Bill Morrison

Thanks a lot.

A - Douglas McCormick

Thank you.

Operator

Operator Instructions Our next question will be coming from Jordan Rohan of RBC Capital Markets.

Q - Jordan Rohan

Hi guys, great quarter, should be commended for the great revenue growth, even including the extra barter revenue, even if you include, that is pretty expensive.

A - Douglas McCormick

Well thanks a lot that sounds like a good headline to me.

Q - Jordan Rohan

That said, and you know, it can be 100% positive, I just I need a little clarification on
8-K that was filed in late December. Doug, you decided to waive your right to the cash bonus that you, so obviously deserved for 2005. It appears from the filing that you correlated into an at least 170,000 shares of restricted stock, the tangent on share price in the future. Can you talk about some motivation for that, were there any other people of the executive management that made this type of deferral or decision like that and for Steve, I am assuming that, there had been bonus accrued all year long for this cash bonus payments that Doug earned, was that reversed in the fourth quarter numbers?

A - Douglas McCormick

First of all, let me answer the question. It wasn’t 170,000, it was 70,000 and from where I stand, I like having the equities in the company and that was really the motivation behind it and this is, I prefer, as you saw from my, when I renewed, I had a nice, part of a compensation was in equities in the first place.

Q - Jordan Rohan

Of course.

A - Douglas McCormick

And so, but it wasn’t and I am glad, if your says 170, then I will be a little richer but it’s 70,000 but I will let Steve answer.

A - Steven lkes

In terms of the bonus accrual and reversal, there was, we had this small amount that we would have accrued, it was probably offset by the non-cash charges associated with the various equity instruments, that are part of those contract as well as the stock price in a way it fluctuated. So, towards the end of the day, there is no material benefit to the company on a quarter for, and the most important benefit was that, Doug’s interest is aligned with the long-term interest of the company and there is no immediate benefits to signing the contract.

Q - Jordan Rohan

That’s great news, thanks for the clarification.

A - Steven lkes

Thank you.

Operator

Thank you, at this time we have no further questions. I’ll turn the floor back over to the management for any closing remarks.

Douglas McCormick, Chairman and Chief Executive Officer

Well, thank you for spending time with us this afternoon, we look forward to coming back to you with 2006 first quarter results, next time we chat. Thank you, good afternoon, bye bye.

Operator

Thank you. This thus concludes today’s conference; you may disconnect all lines at this time and have a great day.

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