Registry services revenue represents commissions earned from our retail partners.
- During the third quarter registry revenues declined by $200,000 versus the prior year’s quarter as a result of the general weakness among retailers in this economy.
- For the nine months ended September 30, 2008 registry services revenue was $8.5 million down slightly from $8.8 million in the prior year.
Publishing and other revenue for the third quarter amounted to approximately $3.8 million compared with $3.6 million last year.
- For the first nine months of 2008 publishing and other revenue was $13.1 million versus $13.6 million in 2007.
- Local print revenue was up slightly for the nine months of 2008 compared with 2007 primarily due to revenue from The Bump guides.
- However, revenue from national print was down approximately $400,000 primarily due to lower designer and national advertising pages in The Knot Weddings magazine.
The operating expenses for the recent quarter totaled $19.1 million or approximately 71% of net revenues and represented a sequential quarterly decrease of approximately $1 million.
- As the growth rate slowed in the second and third quarters, the management immediately began to reduce spending in targeted areas.
- The company expects that operating expenses in the fourth quarter should approximate third quarter levels.
- Stock-based compensation was $549,000 in the recent quarter compared with $626,000 in 2007 and was $2.4 million and $1.7 million for the nine months ended September 2008 and ’2007 respectively.
- The outlook for stock-based compensation expenses amounts to approximately $3 million for all of 2008.
Cash generated through operations for the quarter of 2008 was approximately $4.4 million and amounted to $18 million year-to-date.
- The CapEx for the first nine months of 2008 was $4.7 million and should approach $6 million for the year.
- The 2009 CapEx outlook returns to the historical levels of approximately $2 million to $3 million following the completion of the major portion of the technology upgrades commenced in 2007.
- The company ended the quarter with $69 million of cash on the balance sheet.
- This was an increase of $6.6 million from June 30, 2008.
- As of September 30, 2008, the management continued to classify the additional investments in auction rate securities of $48.9 million as long-term investments.
- The company recorded a temporary impairment charge of $3.2 million in stockholders’ equity with respect to these securities.
- This represents an additional charge of $100,000 in the current quarter compared with the second quarter and is primarily due to changes in the discount rate used in the valuation model.
The management reported that based on a settlement between UBS and other governmental entities, UBS is offering its customers at zero cost, auction rate security rights.
- Assuming the company accepts the offer, it will have the right to require UBS to purchase its auction rate securities at PAR + accrued interest.
- That would be effective starting in June of 2010.
- The UBS settlement agreement can be viewed as fixing the value of the auction rate securities at PAR value and providing a path to liquidity for these securities.
- In the meantime, the company is currently receiving interest payments on these securities.
- According to the management, none of the interest payments are in default.
- Both the company and UBS will continue to seek buyers for these securities.
- The company advised that $1.9 million PAR amount of these securities was redeemed by an issuer at PAR during the third quarter.
Business Outlook:
- The management is reducing outlook for percentage revenue growth for the full year 2008 to 5% to 7%.
- This is based on the weakness in print advertising, registry sales and risks associated with national online advertising.
- The overall gross profit percentage remained at approximately 81% for each of the three and nine months ending September 30, 2008 and 2007.
- The estimated effective tax rate for 2008 is now approximately 38% reflecting a decrease from the first half of the year of 1% point.
- The decrease is primarily due to the increasing impact of tax exempt interest income from the auction rate securities.
Key questions and answers from the third quarter fiscal 2008 earnings call conducted by The Knot Inc. on November 6, 2008.
Jeetil Patel (Deutsche Bank Securities): On the registry side, what are your retail customers or partners doing in terms of spending activity to potentially drive the registry business?
David Liu: We have seen some pullback and some of the advertisers and retail partners are really re-examining their fourth quarter spend. Some of them have really pushed their commitments. Interestingly enough, we are actually seeing a decent amount of demand for 2009 media inventory. We continue to receive a large volume in response to our large volume of RFPs. Thus on the one hand, while I think they are pulling back a log of their marketing for their general merchandise sales, for bridal we seem to be still weathering the storm well in context.
Jeetil Patel (Deutsche Bank Securities): As it relates to visibility on the national ad front, things are changed but what percentage of the quarter is booked at this point in the quarter especially in light of October which seems to have been generally weak?
John P. Mueller: We basically have a pipeline in advertising revenues probably $1 million or $2 million which represents maybe 15% that we don’t have booked at this point. Thus 85% of it is locked in.
Jeetil Patel (Deutsche Bank Securities): As it relates to the local side of the business, you’re looking at variable pricing models. How many different pricing buckets or pricing schemes have you come up with at this point as you go to market?
David Liu: The test on both the high and the low end has been very encouraging. However, keep in mind the challenge that we’re still working with in the old system is that when you implement this one price strategy, it is universal for all categories in all markets. The reality is there is a significant difference between the geographies and between categories.
Thus we really have looked at the local transition to being from right now a matrix of six prices given their (a), (b), (c) territories and core and non-core categories to an enormous number. When you think about how Yellow Pages slices and dices pricing by category and by market, we are looking to emulate a pricing model and a rate card that has that level of complexity.
Richard Ingrassia (Roth Capital Partners LLC): You were able to get more than a week’s commitment out of your premium unit trials let alone three months. Can you speak about the trend in average spend and length of commitment in your legacy ad units?
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