IncrediMail Ltd. ( MAIL)

Q3 2010 Earnings Call

November 4, 2010 10:30 a.m. ET

Executives

Josef Mandelbaum – CEO

Yacov Kaufman – Chief Financial Officer

Ofer Adler – Founder and CPO

Analysts

Nick Haylen [ph] – Sidoti & Company

Abba Horwitz – Old School Partners

Kenneth Miller – Nokomis Capital

Michael Prouting – 10K Capital

Lyle Primer [ph] – Bishop Rosen

Walter Ramsley – Walrus Partners

Jane Widman [ph]

Victor Halpert – Halpert Capital

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from Nick Haylen [ph] from Sidoti and Company. Please go ahead, sir.

Nick Haylen [ph] – Sidoti & Company

Good morning, guys.

Yacov Kaufman

Good morning, Nick

Nick Haylen [ph] – Sidoti & Company

My first question I have is about the new contract you guys said you signed with Google. I was wondering if you can give us a little more details regarding that and specifically, I don’t think it’s exact pricing, but would the pricing be somewhat similar to the original contract we saw?

Yacov Kaufman

Two things. What we said earlier, we received the term sheet from Google, and we expect to sign hopefully before the end of the year. So that’s just to clarify that specific comment.

In terms of, as you know, there’s confidentiality agreements in most of these – in all of these contracts, especially in the Google contracts, so I really can’t comment on specifics. But I think as we said, we do not expect to have a material impact on – negative impact on the company and its revenue streams to date.

Nick Haylen [ph] – Sidoti & Company

Okay. Now also, I know in terms of margins, you mentioned that as a result of the expense that you’re going to take on expanding your business, just you could see a little bit of pressure from the margins that we’ve seen now and I was wondering if maybe you can give us a little bit of a range in terms of what maybe we can expect going forward on that front?

Yacov Kaufman

Well, if you go a little bit back into the company’s past, you know, in 2008 for instance, we as such invested intentionally in muni bonds [inaudible] and then we improved back on those. And in 2009 they went up about 1 ½ to $2 million a year. That’s just one example of investment that we plan on doing in the future so to warp up our growth in investing and acquiring new customers.

In addition, some of the things that was mentioned was that we’re going to be putting a bigger emphasis on market research and getting to know our customer so that we can have a product that’s better for their needs.

Nick Haylen [ph] – Sidoti & Company

Okay. Thank you. And just one more question. I noticed that your selling and marketing expenses were down a little bit in the third quarter. I was wondering if you could give us just a little insight to how you plan on marketing the non-search related products and also if you plan on continuing to depend on viral growth in terms of the search-generated revenue?

Yacov Kaufman

I’ll just reply on this quarter, then I’ll give it over to Josef for the plan for the future. The decrease this quarter was for – it wasn’t something that can be translated. It was something that was happening in this quarter, mostly in regards to compensation expenses. With going forward – Josef?

Josef Mandelbaum

I mean, going forward, Nick, I think our plans, first of all in general, obviously we want everything to be ROI positive. So you always do tests to see how that works, but over spending significant dollars, we always do things that we think are ROI positive. So when you talk about margins before, you know, everything’s viral today. So obviously, when you do anything in spending money, it’s going to have an impact on the margins, but with ROI positive, we believe that, you know, the margins will still be healthy margins in the business going forward.

In terms of the funnel, it’s really a typical, classical, premium funnel model. We’re going to – with our viral we have and with expanding our acquisition base, customer acquisition base, we can increase the funnel. And what will happen is people coming into the funnel will monetize a large portion and research and then a much smaller percentage of them, of our users who will actually convert to some type of premium model like we do in IncrediMail today.

The issues in the past for these two-plus years is IncrediMail hasn’t paid attention to the product sale and their search was growing significantly. I believe there’s a really opportunity there to help grow the business and balance out our revenue streams to diversify them in a more meaningful way and sustainable way in the future.

Nick Haylen [ph] – Sidoti & Company

Great. Thanks guys.

Operator

The next question is from Abba Horwitz, Old School Partners. Abba, please go ahead.

Abba Horwitz – Old School Partners

Hi. Good afternoon. First of all, I applaud the dividend cut. I think that’s a very, very smart move here. My question I think is for you, Josef, is back to the margin issue for let’s say 2011, can you give us a sense of minimal profitability for 2011, what you’re looking at assuming no acquisitions and I assume right now whatever organic growth you’re looking at current as opposed to new organic growth. Can we get a sense of that? Do you assume more of the same next year in 2011, pretty much similar EPS?

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