InfoSpace Inc. (INSP)

Q1 2010 Earnings Call

May 5, 2010 09:00 am ET

Executives

Stacy Ybarra - Senior Director of IR

William Lansing - President and CEO

David Binder - CFO

Analysts

Eric Martinuzzi - Craig-Hallum

Ross Sandler - RBC Capital Markets

Clay Moran - Benchmark

Kerry Rice - Wedbush Securities

Presentation

Operator

Good day ladies and gentlemen and welcome to the Q2 2010 InfoSpace earnings conference call. My name is Marine, I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call Ms. Stacy Ybarra Senior Director of Investor Relations. Please proceed.

Stacy Ybarra

Good morning and welcome to our call today. I'm Stacy Ybarra Senior Director of Investor Relations. On the call today are William Lansing, President and Chief Executive Officer and David Binder, Chief Financial Officer.

During the course of this call, InfoSpace representatives will make forward-looking statements including but not limited to statements regarding InfoSpace's expectations about its online products and services, outlook for future of our business and growth initiatives, acquisition strategy, and anticipated financial performance for the second quarter 2010.

Other statements that refer to our belief, plans, expectations or intentions, which may be in response to questions, are also forward-looking statements for purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act. Because these statements pertain to future events they are subject to various risks and uncertainties, and actual results could differ materially from our current expectations and beliefs.

Factors that could cause or contribute to such differences include but are not limited to the risks and other factors discussed in InfoSpace's most recent quarterly report on Form 10-Q on file with the Securities and Exchange Commission. InfoSpace assumes no obligation to update any forward-looking statements, which speaks only as of the date the statement is made.

In addition, during this call our management will discuss GAAP and non-GAAP financial measures. In the press release, which has been posted on our website, and filed with the SEC on Form 8-K, we present GAAP and non-GAAP results along with reconciliation tables and the reasons for the presentation of non-GAAP information.

Now, I'll turn the call over to Will Lansing following his comments David will review our first quarter results and second quarter outlook, then we'll open up the call to your questions.

Will iam Lansing

Thank you Stacey and good morning. InfoSpace posted a good quarter with financial metrics coming in within our expectations. Revenue was $61.8 million up 58% from the prior year and adjusted EBITDA was strong $6.3 million. Both our own and operated and distribution businesses grew nicely compared to the same period last year.

However, as expected, sequentially, we saw slowdown in our distribution business. As we mentioned last quarter, we are seeing a reduction in revenue from our marketing driven partners, while the slowdown has affected our results in the short-term we continue to be optimistic about the long-term prospects of the business.

We have a good day in proposition, demonstrated by the new distribution partners we signed in the first quarter. We believe that small and medium sized companies will continue to find innovative ways to drive users to their sites and applications and search is a great way to monetize those users.

We serve an important role offering good monetization and providing value added by proactively working with our customers to grow search revenue and frequency. In addition to our efforts focused on helping our partners grow, we continue to seek new ways to maximize the financial performance of our search business.

During the quarter, we purchased the assets of one of our largest distribution partners, Make the Web Better a privately held developer of online products used on social networking sites for $8 million in cash and potential are now payments based on financial performance. The addition of these assets specifically Tattoodle and fast browser search into our owned and operated properties allows us to increase profitability and manage better the attrition of the user base.

As one would expect with the purchase of an installed base of customers, the majority of the revenue would be captured up front mostly in 2010. This deal, which closed on April 1, is a good financial transaction for us. We expect to recoup the initial investment before the end of the third quarter and anticipate a return on our investment of better than 20%.

We are exploring other ways to enhance our bottom line. We are always looking for opportunistic ways to leverage our assets to improve the financial performance of the search business.

Now, I'd like to comment on some of our organic initiatives. We are increasingly focused on leveraging our engineering and marketing resources on non-search initiatives and are pleased with the progress today. We told you last quarter that we have launched Haggle our first orient to e-Commerce, while it remains early to share with few operating results, I will say that we are building a business with Haggle that has an innovative operating model. Haggle has very different shopping experience for the competitive shopper. For those willing to invest time, and develop skills, Haggle represents an opportunity to get good product deals.

We are continuing to refine the model and roll out new features. We anticipate in the coming quarter that we'll have a new Haggle release that adds functionality and broadens the value proposition for consumers. We have other non-search initiatives in the pipeline one that we anticipate rolling out in the second quarter is a new design of web decision, SEO Software Service. We bought this search software business in early 2009 and operated it with a view to re-launching at as SAS, software as a service model.

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