IncrediMail's CEO Discusses Q1 2011 Results - Q&A Transcript

IncrediMail Ltd. ( MAIL)

Q1 2011 Earnings Conference Call

May 12, 2011 10:00 AM EST

Executives

Rob Fink – IR, KCSA

Josef Mandelbaum – CEO

Yacov Kaufman – CFO

Analysts

Nick Halen – Sidoti & Company

Aram Fuchs – FertileMind Capital

Kenneth Miller – Nokomis Capital

Question-and-Answer Session

Operator

Thank you, gentlemen. Ladies and gentlemen, at this time, we will begin the question-and-answer session. (Operator Instructions). The first question is from Nick Halen of Sidoti & Company. Please go ahead, sir.

Nick Halen – Sidoti & Company

Hi guys. First question I had is in terms of the non-search growth that you guys mentioned in the quarter and I was wondering if you can give us a little bit more color on what exactly – what products or what’s your overall growth in the first quarter 2011?

Josef Mandelbaum

Sure. First of all, hi Nick. Nice to have you on the line. The basic growth came from two areas, which Yacov mentioned. I’ll maybe just in little more details. One is on the premium products which we said before we’re putting a little more focus on. It takes time to see those revenues come in because it’s basically mostly subscription base model. But as we said that you should start seeing deferred revenue go up. And in fact in this past quarter, the deferred revenue went up not by luck, but it went up.

The second one is in advertising revenues up until last year. We do really have a toolbar solution for any of our product and we did institute in the last November in that timeframe, downloading – giving toolbars that are related to the products people are downloading so they can search better, get access to the product better through search through a toolbar. And on the toolbar we actually have put in some advertising. And frankly just because of our install base, as more and more people has adopted the toolbar, our advertising revenues went up. That was part of our strategy. It was one of those I think quick wins I mentioned earlier going back a few months, and it’s having some very positive results for us.

Nick Halen – Sidoti & Company

Okay. And also one more question I had just is kind of a housekeeping question with the model. In terms of the tax rate just going forward, is – I’m assuming this is a one-time thing that we saw in the first quarter. And, going forward, we’ll see similar to what we’ve seen historically around the 27%, 28% range for taxes. Is that fair?

Josef Mandelbaum

No, as I’ve mentioned and let me – allow me to clarify again. We had very low tax this quarter. The very low tax this quarter was a combination of two factors. Number one, our basic inherent tax rate has gone down and revenue is being – compared to close to 30% in prior years, we’re expecting it this year and going forward to be below 20%. That was the first effect. Besides that we also had a one-time tax credit of about $0.6 million.

Yacov Kaufman

So just to make sure. Going forward then, Nick, to answer the question just exactly, we would expect to have a lower tax rate than the previous quarters we’ve had in the previous years. So if it was 27%, 28%, 29%, we will expect to see below 20%.

Nick Halen – Sidoti & Company

Okay. So each quarter you’re expecting it to be low 20%, okay. All right, that’s all I had. Thanks guys.

Josef Mandelbaum

Thank you.

Operator

The next question is from Aram Fuchs of FertileMind Capital. Please go ahead, sir.

Aram Fuchs – FertileMind Capital

Yes, few different questions. You have seen a lot of capital come into these small internet companies again. You’re hearing $3 million, $4 million, or $5 million for nothing more than a business plan. I’m just curious how that’s impacting your acquisition goals and what that might entail if this continues, will you change your capital allocation strategy?

Josef Mandelbaum

First of all, thanks for joining the call, and good question. We are certainly seeing and feeling the influx of capital coming into the markets once again. But I think as I mentioned earlier it seems acting a little bit, because it can’t not impact the overall industry, but not as much for us. As I mentioned in probably some earlier calls, we’re really not going after the startups. I’m not going after somebody who, as you said, has an idea nothing more maybe a mockup or a prototype and they’re getting $5 million of funding and they have evaluation of $10 million or $15 million or $20 million.

We’re really looking for companies that frankly may have been there, companies six or seven or eight years ago, but today are frankly a good solid companies who are probably not going to be the billion dollar Googles of the world or Facebooks, but are still a very good company that for us given what we’re looking for and the uniqueness of our strategy complement us very nicely, both in terms of a demographic fit, in terms of a product portfolio fit, and in terms of a revenue fit whether that’s revenue diversification, because they have premium sales or transaction or advertising based sales, and we can add our expertise to them or whether just gives us more volume and search. Either of those things we’re looking at.

We are seeing some slight increase which definitely affects the multiples and we’re being very disciplined about that. But it’s probably not affecting us as much as it is affecting probably other people who are looking to buy that young startup who has the potential of being a Facebook. Unfortunately only half a percent of those actually become the Facebook.

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