TheStreet.com Q4 2009 Earnings Call Transcript

123jump.com Staff
23 Mar, 2010
New York City

Revenue fell 5% to $16.5 million & net loss was 0.8 million or 3 cents a share. Operating expenses in the quarter were $17.8 million a reduction of 8% compared to $19.4 million in the prior-year period. Operating expenses in fiscal

TheStreet.com, Inc. ((TSCM))
Q4 2009 Earnings Call Transcript
March 15, 2010 5:00 p.m. ET

Executives

Daryl R. Otte - Chief Executive Officer
Gregory E. Barton - Executive Vice President, General Counsel and Secretary

Analysts

Randy Katz - JMP Securities
Michael Monskoff - MRM Capital

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Q4 and Full Year 2009 TheStreet.com Earnings Conference Call. My name is Derrick, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. If at anytime you require operator assistance, please press star zero and we’ll be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Daryl Otte, CEO. Please proceed, sir.

Daryl R. Otte

Well, thanks, Derrick. Hello, everyone. I’d like to welcome you to TheStreet.com’s fourth quarter and full-year 2009 earnings call. I’m Daryl Otte, the company’s Chief Executive Officer. With me today are Greg Barton, the company’s Executive Vice President of Business and Legal Affairs, and General Counsel; and Rich Broitman, the company’s Chief Accounting Officer.

Before we start, I’ll hand the call to Greg to read our legal statement.

Gregory E. Barton

Thanks, Daryl, and welcome, everyone. All statements made on this call, other than statements of historical facts, are deemed to be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, including those described in the company’s filings with the Securities and Exchange Commission that could cause actual results to differ materially from those reflected in the forward-looking statements.

Although the company believes that the expectations reflected in the forward-looking statements are reasonable, the company cannot guarantee future results or occurrences. The company disclaims any obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise. You may obtain copies of the company’s filings with the SEC at the Commission’s website, www.sec.gov. Additional information related to matters discussed today also will be set forth in the company’s annual report on Form 10-K for 2009, which we expect to file shortly.

And now I’ll hand the call back to Daryl.

Daryl R. Otte

Thanks, Greg. As we noted in our earnings release today, we are very pleased to report that we ended 2009 with favorable trends both in our premium services and in our advertising-supported businesses.

The year certainly didn’t begin that way for us or for most other companies but after bottoming out in the first quarter we saw improvement in the following quarters and our fourth quarter results are the best we’ve seen in well over a year.

Aggregate bookings for our subscription services and RateWatch businesses grew for the fifth consecutive quarter and each of the past two quarters showed double-digit percentage increases as compared to the prior year period, after having been down year-over-year in each of the first two quarters of 2009.

Bookings are the precursor to premium services revenue and the growth of bookings in recent quarters have led us to report a sequential increase in premium services revenue for the first time since the first quarter of 2008. We are pleased to be starting 2010 with this momentum from our largest revenue source.

We are also pleased to report that in the fourth quarter of 2009, our advertising revenue, which excludes the revenue from our former Promotions.com subsidiary, enjoyed the first year-over-year increase in six quarters.

We believe that the ad market for our content vertical bottomed in the first quarter of 2009 and we anticipate reporting strong year-over-year gains when we report our first quarter 2010 results in the upcoming weeks.

Our adjusted EBITDA for the fourth quarter of 2009, inclusive of our former Promotions.com subsidiary was the highest in six quarters, as was our pro forma adjusted EBITDA, excluding the impact of Promotions.com. As we previously announced, in December 2009, we sold Promotions.com, which had negatively impacted our adjusted EBITDA during each of the past two fiscal years.

Our full-year 2009 pro forma adjusted EBITDA, excluding the impact of Promotions.com was $8 million. Our full-year 2009 adjusted EBITDA, including Promotions.com was $5.7 million.

Our pro forma adjusted EBITDA margin was 20% for the fourth quarter of 2009 and 14% for the full year, reflecting both our focus on costs and the high operating leverage our business exhibits on expanding revenue.

Looking ahead, I’d like to highlight that we believe we have the business model today that most publishers hope to achieve someday with both paid access and advertising revenue streams. We are one of the leaders in successfully implementing the pay wall on the web and we also enjoy a robust and resilient advertising business.

With that in mind, let me address those businesses one by one. First, we believe we are one of the first companies to successfully create a large-scale, consumer-focused, digital premium services content business.

We believe we have successfully built our premium service business because we have established a track record for almost 15 years of providing high-quality, independent investing ideas that have produced financial value for our readers.

Our track record provides us with a competitive advantage and we are continually seeking to enhance the value of our leading brand and our ability to monetize that value. Steps we take in this regard include the following. First, we focus on creating additional subscription products at various price points to more precisely target the needs of investors willing to pay for high quality, actionable investing ideas, analysis, data and tools.

Second, we continually refine our marketing strategy, seeking to identify cost-effective promotional opportunities with a variety of third-party media providers, as well as, improving our efficiency in promoting our offerings in our own expanding collection of properties and expanding direct sales efforts through an expanding inside sales force.

Third, we continually enhance the quality and competitiveness of our products and seek to make them available on the widest choice of digital platforms.

Next, let me discuss our advertising support properties, which include The Street, Stockpickr, Mainstreet and BankingMyWay. These properties attract one of the largest and most affluent audiences of any digital publisher in our content vertical.

We believe our flagship site, The Street, with its enviable track record as a leading and distinctive digital voice in the financial category since the early days of the consumer Internet is regarded as a must-buy for our core online brokerage advertisers and a highly effective means for other financial services companies and non-endemic advertisers to communicate with our active affluent audience.

We are able to command pricing for our advertising inventory that is strong relative to most websites. We sell display advertising exclusively through our experienced internal sales force. That is, we do not participate in display ad networks, which are typically priced at much lower CPMs. We also generate revenue from contextual and search-based advertising provided by third party technology providers.

I’m sure it is no surprise that our audience routinely is reported by third party sources such as Nielsen had planned, as having one of the highest compositions of affluent, self-directed investors of any websites. What is often overlooked is that we also are one of the largest destinations in our category.

According to comScore, Inc., based on three-month average numbers for the period ending January 2010, our network of sites have the following ranking among the top 15 sites, as measured by total unique visitors among the 134 listed competitors in their business, finance, news research category.

Our network ranked ninth in terms of the number of average daily visitors; 10th in terms of total monthly pages viewed, totally monthly minutes spent on site and total monthly visits; eighth in terms of average minutes per visit and average monthly visits per visitor and 12th in terms of total monthly unique visitors.

Our rankings in engagement and repeat business are one-third higher than our ranking for total monthly unique visitors, demonstrating the value and depth of the content we offer and the engaged audience we attract.

We are significantly larger than our competition below us; as our network of sites, we’re almost double the size of the next largest site in the category in terms of total unique visitors, according to comScore.

These -- the competitors immediately above us are clustered more closely and if our network of sites were twice as large in terms of total monthly unique visitors, we would have moved up five spots to be ranked seventh by that metric.

I would note that while we believe that comScore significantly undercounts our site traffic as measured by our own servers, we believe that advertisers and agencies often look to independent measurement data, such as that provided by comScore, in order to get a sense of performance of various sites in relation to their peer category, when determining where to allocate advertising dollars.

We are pleased to already be a top-tier player in our category but we have the desire and we believe the ability to continue to move up in the rankings and increase the scale of our advertising supported businesses.

We are intensely focused on generating additional visitors and visits to our site through a variety of efforts. First, we seek to continue deepening existing relationships and establishing new relationships with other highly-trafficked sites.

We believe our expertise at monetizing our content offerings through a variety of sources and that value we have built in our brand over the last 15 years as a leading voice in our content vertical, as well as, our independence from any larger media organization, enables us to successfully partner with a variety of high-traffic websites and portals, providing expertise in our content category under arrangements that benefits both parties.

Second, we are improving search engine optimization efforts in order to increase the visibility of our content on search engines such as Google Search and Microsoft’s Bing.

Third, we are enhancing efforts to increase our presence on a variety of social media platforms. And lastly, we are focusing on increasing the engagement visitors have with our sites, measured by page views and time spent on-site and continuously seeking to improve the experience our sites offer.

We believe that the digital advertising markets particularly in valuable content verticals like ours are poised for above-market levels of growth for the foreseeable future, benefiting from a number of factors that play to our strengths.

Cyclical recovery from the bottom we saw in Q1 2009, continuation of the secular shift of advertising dollars away from traditional media in favor of digital environments and a growing discernment by advertisers favoring vertical content producers who attract high-quality engaged audiences, who are receptive to the messages they seek to deliver.

To sum up, the just-completed year reflected the brunt of the severe macroeconomic decline that followed the collapse of Lehman Brothers in September 2008. We addressed the challenges posed by this time of crisis and uncertainty in two ways.

First, we took aggressive steps to reduce our cost structure and also shed an unprofitable non-core business. Second, we utilized the period as an opportunity to strengthen our management team and our marketing and operating capabilities.

We believe we are well-positioned for success in the coming year with our strong, well-known brands, a rock-solid balance sheet and with businesses that are beginning to fire on all cylinders, exhibiting the best performance in many quarters and generating ample free cash flow. We look forward to updating you on our achievements throughout the year.

Now I’ll hand the call to Greg to discuss some of the financial metrics.

Gregory E. Barton

Thanks, Daryl. First, I’d like to note that last month, we filed a Form 10-K/A for the year ended December 31, 2008 and a Form 10-Q/A for the quarter ended March 31, 2009, to restate certain items of our consolidated financial statements for the year ended December 31, 2008 and the quarters within that fiscal year and to make certain immaterial corrections for fiscal year 2007 and the quarter ended March 31, 2009.

The results discussed following reflect the financial results reported in those amended filings. I’d also like to note that, as Daryl mentioned in December 2009, we sold our Promotions.com subsidiary and I’ll be providing consolidated results as well as pro forma information, excluding the impact of Promotions.com in the following discussion.

First, let me discuss our fourth quarter 2009 results. We recorded revenue of $16.5 million in the fourth quarter of 2009, a reduction of 5%, as compared to $17.4 million in the fourth quarter of 2008.

Operating expenses in the fourth quarter of 2009 were $17.8 million, a reduction of 8%, as compared to $19.4 million in the prior-year period. Operating expenses in 2009 included restructuring charges, a loss on disposition of assets totaling $1.3 million, as compared to an intangible asset impairment charge of $2.3 million in the fourth quarter of 2008.

We had a net loss of $0.8 million in the fourth quarter of 2009, as compared to a net loss of $1.4 million in the prior-year period. We reported basic and diluted net loss per share attributable to common stockholders of minus $0.03 and minus $0.03 respectively in the fourth quarter of 2009, as compared with minus $0.05 and minus $0.05 respectively in the prior-year period.

Adjusted EBITDA for the fourth quarter of 2009 was $3.0 million an increase of 8%, as compared to $2.8 million in the prior year period.

Excluding the impact of Promotions.com from both 2008 and 2009 results, our pro forma operating results for the fourth quarter of 2009 were as follows. First, revenue of $15.3 million, a slight increase from $15.2 million in the fourth quarter of 2008.

Operating expenses of $16.5 million, a reduction of 5%, as compared to $17.4 million in the prior year period and as noted above, operating expenses include restructuring charges and loss on disposition of assets totaling $1.3 million in the fourth quarter of 2009 and an intangible asset impairment charge of $2.3 million in the fourth quarter of 2008.

Net loss in the fourth quarter of 2009 on a pro forma basis was $0.7 million, as compared to a net loss of $1.6 million in the fourth quarter of 2008 and adjusted EBITDA of $3.1 million reflects an increase of 21%, as compared to $2.6 million in the prior-year period.

Moving on to full year results and this will include Promotions.com. We recorded revenue of $60.2 million in 2009, a reduction of 15%, as compared to $70.8 million for full year 2008. Operating expenses in fiscal ‘09 were $93.2 million, an increase of 29%, as compared to $72.0 million in the prior year period.

Operating expenses in 2009 included charges of $28.1 million, comprising goodwill and intangible asset impairments totaling $22.6 million, a write-down of the carrying value of a long-term investment of $1.5 million, restructuring and other charges of $3.5 million and a loss on disposition of assets of $0.5 million and that compared to charges of $2.3 million for an intangible asset impairment in the prior year period.

We had a net loss of $47.4 million in fiscal year 2009, as compared to net income of $0.5 million in the prior year period. Our net loss in fiscal 2009 reflects the impact of $28.1 million in charges as described above together with the recording of a $16.1 million valuation allowance against our deferred tax assets. No such valuation allowance was recorded in the prior year period.

We reported basic and diluted net loss per share attributable to common stockholders of minus $1.56 and minus $1.56 respectively in fiscal year 2009, as compared with net income per share of penny and penny respectively in the prior-year period. Adjusted EBITDA for fiscal year 2009 was $5.7 million, as compared to $10.6 million in the prior year period.

Excluding the impact of divested Promotions.com subsidiary from 2008 and 2009 results, our pro forma operating results for fiscal year 2009 were revenue of $55.6 million, a reduction of 14%, as compared to $64.3 million in fiscal year 2008.

Operating expenses of $86.3 million, an increase of 36% as compared to $63.2 million in the prior- ear period and as noted above, the 2009 figures reflect aggregate charges for goodwill and intangible asset impairments, write-down of the carrying value of a long-term investment, restructuring and other charges and loss on disposition of assets and the deferred tax valuation allowance totaling $44.2 million, as compared to $2.3 million of charges in fiscal year 2008.

The net loss in a pro forma basis for full year 2009, excuse me, was $45.2 million, as compared to net income of $2.8 million in fiscal year 2008. And pro forma adjusted EBITDA was $8.0 million, as compared to $12.8 million in the prior year period.

Now, we also wish to let everyone know that tomorrow, we will be filing for a brief extension of time to file our Form 10-K. We expect to have the 2009 10-K on file shortly and in any event, within the 15-day extension period, so that the filing will be deemed timely for SEC and NASDAQ purposes. The brief delay is due to our auditors requiring a few extra days to complete their sign-off procedures.

As you can expect, the audit work for 2009 commenced later than originally planned due to the need to focus on completing the review of the Promotions.com accounting, restating our 2008 financials and getting our second and third quarter 2009 Form 10-Q’s on file in February 2010 in time to meet our listing standard deadline.

In addition, as is often the case when a company files restated financials, the SEC has commenced an investigation and these results in a heightened level of review for the current year audit.

As a reminder, our restatement of 2008 related only to the accounting of our now divested Promotions.com subsidiary and did not impact our cash or marketable securities balances.

As demonstrated by the fact that we have issued our earnings today, we are very comfortable with the accuracy of the financial results we have disclosed in the release and on this call and you can imagine that our auditors are as well. We look forward to making our subsequent filings on time without any need for extensions and we thank you for your understanding.

Now I will turn the call back over to Daryl.

Daryl R. Otte

Thanks, Greg. Again, we’re excited that the many actions we took during the uniquely challenging year that just ended are generating such positive results. As I did on our last call, I’d encourage everyone to visit our sites to take advantage of the great content we are producing and to see the improvements to the user experience we are rolling out. Those that would like access to our content behind the pay wall can be in touch with our IR team and we’ll make arrangements.

Finally, we thank our staff and contributors for their tremendous work, our partners for their continued support of our success and thanks to you, our investors and the analyst community for your interest and support.

With that, I’ll open the call up to questions. Derrick?

Question-and-Answer Session

Operator

At this time, ladies and gentlemen, if you wish to ask a question, please press star one. If you think your question has been answered or you would like to withdraw your question, press star two, questions will be taken in the order receive.

I have a question coming from line of Sameet Sinha with JMP Securities. Please proceed.

Randy Katz - JMP Securities

Hi, guys. Great quarter. This is Randy Katz in for Sameet. Daryl, just a couple of high level questions. You’ve been in the position for about a year now, including your time as Interim CEO.

And last year, pretty successful in turning around the sub business, was hoping you could lay out perhaps a list of priorities for 2010. And obviously, you’re providing less information now and if you can give us a sense of how we can measure some of that success as we go throughout the year?

Daryl R. Otte

Randy, thanks. My one-year anniversary was actually last Saturday. So, surprised, it seemed both a long time and a very short period of time. The -- were you asking specifically with respect to the subscription business?

Randy Katz - JMP Securities

You know, actually overall, in terms of the subscription business got turned around last year, perhaps things that you’re doing and making priorities, aside from a cyclical recovery in the advertising business perhaps things that you’re doing to accelerate growth there, as well as, new initiatives on the subscription business would be helpful.

Daryl R. Otte

Right. Well, I think that I’ll take them each. On the subscription business, I think that we’re looking to heighten the user experience over the next year that our subscribers have with the products that we offer and we’re also expanding additional distribution channels.

So, traditionally, the company has looked largely to its own network to promote our paid products and we’re exploring alternatives beyond that both, so we’re having -- we reach a wider audience with our subscription services.

With respect to the advertising side, I think that we’ve spent a lot of time over the last year making sure that we have the highest quality audience attracted to our sites. And we are working, as I referred to in my script with the partners to find active investors in the retail space who have a strong affinity for our content.

We believe really strongly in the vertical publishing model and the virtuous cycle that that creates and that we can create the right high-quality content, which as I noted, we’re been doing for 15 years and offer that to the folks that are most interested in this content that we can serve them well, attract the right advertisers who will pay a premium to reach our audience. And in addition, we have the opportunity to sell those users premium services.

So we think there’s kind of a virtuous cycle which is established here and we’re going to work on taking best advantage of that.

Randy Katz - JMP Securities

Yeah. Sure.

Daryl R. Otte

Does that answer your question?

Randy Katz - JMP Securities

Yeah. That’s helpful. Two questions as it relates to the sub business and Kikucall. I guess, first is, can you talk about the integration there is going, I mean, I think there was 10 or so employees that you guided. Are there any other expenses that we would expect as you bring that business on in 2010, wondering what things that you’re doing to help the subscription business.

And also, along those lines, are you doing any kind of remarketing to legacy subscription customers who have canceled? If you can give us any impact of success rates you’d had with bringing them back onboard and if this is something that perhaps Kikucall can help with?

Daryl R. Otte

Yeah. I think that Kikucall brought in a whole new layer of sophistication to our online subscription and marketing efforts and they are systematically going through each of the opportunities, one of which you described but which there are dozens, frankly and applying their expertise and their technology against the great pool of assets that we have here.

And so I think that the success, I know that the success we’ve seen so far over the last couple of quarters and I believe the success that you will see in the future will be directly attributable to getting them involved, marrying our terrific assets with their core expertise.

With respect to any incremental expenses and the rate of integration, they are fully integrated into the organization now. I would expect no incremental expenses whatsoever.

Randy Katz - JMP Securities

Okay. Just one housekeeping question before I turn it over. You provided the total page service revenue line. Did you breakout the subscription portion of that this quarter?

Daryl R. Otte

No.

Randy Katz - JMP Securities

Okay. So that’s just part of going forward in terms of your more limited metrics?

Daryl R. Otte

You had asked me, actually, I forgot to respond to that, you had asked me kind of what I would ask you to hold me or hold us to. And I think that on the premium services and subscription side, it’s really the bookings quarterly result, that demonstrate the current level of business that we’re doing and I think you should look to us to be delivering good results there.

Randy Katz - JMP Securities

Sure. And well, along those lines, within the last two quarters, we’re talking double-digit growth in bookings and double digits is a pretty big range and from third and fourth quarter, that could easily be an acceleration or deceleration. Can you give us a sense of how that trended from third to fourth quarter, so a little bit more color than just double-digit growth?

Daryl R. Otte

You mean, historically?

Randy Katz - JMP Securities

I’m sorry?

Daryl R. Otte

You’re asking me for prospective growth, I think, for the last two quarters and…

Gregory E. Barton

This is Greg. As we had discussed on the last earnings call, I believe we’ve estimated that the growth in bookings year-over-year for our subscription business plus RateWatch in the aggregate was in the range of 13%. That’s the number that we had in Q3 and Q4 was a hair lower than that between 12% and 13% year-over-year growth.

Randy Katz - JMP Securities

Okay. Great. Thank you, Greg.

Operator

As a reminder, ladies and gentlemen, please press star one if you would like to ask a question. You next question comes from line Michael Monskoff with MRM Capital. Please proceed.

Michael Monskoff - MRM Capital

Hey, guys.

Daryl R. Otte

Hi, Michael.

Michael Monskoff - MRM Capital

As far as the balance sheet, can you just discuss, the other receivables went up $2.5 million from last quarter. Is that from the sale of Promotions that you can just, as well as the accrued expenses is what I’m $2.1 million.

Daryl R. Otte

Yes, Michael. The major increase there is some notes that we took on the sale of the Promotions.com business.

Michael Monskoff - MRM Capital

Okay. And the accrued expenses?

Daryl R. Otte

The accrued expenses year-over-year a lot of that had to do with incentive compensation for management individuals as well as a restructuring accrual that is still to be paid out, basically pretty much within Q1 and Q2 of 2010.

Michael Monskoff - MRM Capital

Okay. And regarding, as far as the advertisers, the number of subs as well as pricing. I know you’re not releasing individual metrics per say. Have you seen a sequential total numbers growth over the last X amount of quarters or is it just starting now? I know you’ve talked about the bookings but as far as number of advertisers and the pricing. Can you quantify that or qualify that at all?

Daryl R. Otte

I think we’re seeing generally favorable trends across the board. I mean, you were asking me over multiple periods, over multiple dimensions that’s hard for me to answer specifically. But we feel very good that the end of Q1 really of last year, we bottomed out. And since then, we’ve seen kind of an expansion of the number of advertisers participating in the site and the depth of their buy and the diversity of the advertisers who are buying on our site.

Michael Monskoff - MRM Capital

And as far as Stockpickr and BankingMyWay, what -- out of the $15.3 million that you did this quarter, excluding Promotions, what really does that derive of the $15.3 million? Is there a…

Daryl R. Otte

Not, at this point, not a material portion, I mean, we’re not going to break it out at that kind of product level. But those I would view as kind of opportunities going forward, to where we’re probably not realizing the absolute total benefit that we could from those properties, like MainStreet and the flagship site are doing quite well.

And in 2010, that’s really a project for us is revitalizing the Stockpickr environment and finding ways for the RateWatch data to be useful in the B2C marketplace, of which BankingMyWay is one of those ways but we’re looking at others as well.

Michael Monskoff - MRM Capital

And as far as, last question, as far as Q1 ‘09, if I could just get clarification, was excluding the Promotions, Inc., did you guys do $9.5 million on the sub side and $3.2 million on the advertising side, which would be, about $12.7?

Daryl R. Otte

My schedule here says that we did $3.2 in advertising in Q1 of ‘09 and we did $9.5 in paid services.

Michael Monskoff - MRM Capital

Okay. So when you say that the, you’re expecting a sequential, let me just see something here, you talk about strong year-over-year gains in Q1 of 2010 versus obviously this coming year, so, excuse me…

Gregory E. Barton

Yeah. I mean, the Q1 was not a very good year for us last year.

Michael Monskoff - MRM Capital

Right. Well, what I’m saying is you made a comment in the second -- third paragraph of your release, that you’re going to anticipate strong year-over-year gains for this coming Q1, which you’re almost done with versus last year’s.

Gregory E. Barton

Right.

Michael Monskoff - MRM Capital

Okay. Thank you.

Gregory E. Barton

Okay. No problem.

Operator

At this time, I’m showing no further questions. I would like to turn the call back over to Mr. Daryl Otte, CEO, for any closing remarks.

Daryl R. Otte

I think that’s it. I appreciate everyone participating in the call. Thank you very much for your support and we’ll be speaking to you, I think rather soon with our Q1 results. Have a good afternoon, everyone. Thank you.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.