David Liu: On the local side we’re rigid so the commitments are minimally six months. The way most of our programs work is they’re much long term. We won’t really give people the opportunity to get in and out very quickly. If you cancel within the first six months, you still pay us for the six month exposure so you’re dis-incentivized to do that.
The lesson learned here is that we’ve always suspected that we were driving tremendous value to many of our advertisers and particularly the high value categories. Certainly the high price that we’ve been able to charge for the premium product is something that we’re looking to explore ways of creating more premium inventory on our site.
Richard Ingrassia (Roth Capital Partners LLC): Do you feel that you’re leaving any local commitments on the table by enforcing that six month commitment?
David Liu: I don’t think so. The question really becomes how precise can we get with our pricing strategy. When you think about the secondary category that we identified in the September test was really looking at the categories that were underpenetrated with the assumption that our pricing was a little too high for them. Thus introducing the $50 price point has clearly dramatically introduced and shown the demand and pent-up demand for the media.
When we started allowing for variable pricing across every single category in every market so that a caterer in New York is paying a very different rate from a caterer in Kansas City and the ice sculptors to tent rental people all have a very customized price point, we’ll be able to recapture a lot of the revenue that we’re currently not able to harvest because of the rudimentary price structures we have.
Richard Ingrassia (Roth Capital Partners LLC): The impact of the retail environment on the registry business is obviously easy to see but how do you assess your position competitively? How did your strategy in the segment change as retailers get smarter online and increasingly develop in-house registry capabilities?
David Liu: We think we’re actually working in concert with the retailers and so our goal is to drive business to them, whether it’s through registry creation, by marketing their registries on our site or through the search and purchase tool that we have. We do have a patent on this tool so nobody else can actually offer a multiple registry search tool and that is something that we’re looking to leverage and distribute more aggressively.
The challenge of the registry industry is that it is a constant state of flux and as consumers are availing themselves to more choices of both products and retailers, we have to respond by expanding our networks. One of the bigger focuses for us going into the next couple of years is to really dramatically increase the number of retailers who are able to search and incorporate into the wedding channel systems.
Meggan Friedman (William Blair & Company, LLC): Can you talk about some of the national advertisers who cancelled or delayed their plans with you in terms of the industries they represented? Were they endemic non-endemic?
David Liu: It really ran the full gamut, everything from consumer packaged goods, beauty, retail, financial services; it was broad in its scope of categories. A percentage of them have pushed in to the 2009 schedule and it’s indicative of marketers recalibrating their plans to try to maximize every dollar that they’re spending. We still believe that we’re well positioned because being online and being measurable and also addressing an audience that has such a high propensity to spend in categories.
We actually think that in industries and categories where we were originally considered too small we’ve actually become more relevant because of the high purchase intention.
Meggan Friedman (William Blair & Company, LLC): Have you had conversations with some of your national advertisers and local vendors about their budgets for 2009?
David Liu: It is ongoing discussions. What is surprising is the sheer volume of RPs that we continue to respond to and that’s a positive. However, we are very cautious with what we think is going to happen in the next six months.
Meggan Friedman (William Blair & Company, LLC): Can you talk about the phasing over the course of the quarter for national ad revenue/cancellations and delays, local vendor additions and attritions and the publishing side?
John P. Mueller: We’ll still see strong growth in the fourth quarter compared to fourth quarter in 2007 on both the national and the local side. Probably national actually growing a little bit more strongly than local. With respect to the other areas, registry will probably be flat to down a little bit primarily as it relates to the general economic conditions offset by the weddings supplies business which will probably be up 4% or 5%.
Our publishing and other, most of our local books come out in the fourth quarter and you’re going to see the impact in decline in print advertising there and that will probably be down 10% or 11%. However, all in all over fourth quarter of 2007 we’re going to be up but it’s not going to be a huge up.
George Askew (Stifel Nicolaus & Company, Inc.): How did you achieve your sequential $1 million cost cut in the third quarter? You suggested that some of the cost cuts are permanent, can you provide detail?
John P. Mueller: First of all we were on a fairly strong ramp up in terms of headcount that we were adding to pursue all of these strategic initiatives. It was a combination of attrition of people that normally left the company and then decisions not to hire as well that have helped us maintain the costs.
Additionally, we had some benefits in this quarter from lower bad debt expense which contributed to that decline as well. We also had a little bit higher legal expenses in Q2 related to a couple of the lawsuits that we had that were going on. That has cleared and it’s much lower now as well.
David Liu: We identified certain trends that had us look at throttling back some of our expenses even as the second quarter was coming to a close.
George Askew (Stifel Nicolaus & Company, Inc.): You talked about the variable pricing strategy for the secondary categories and you talk about going on a many more variable pricing option for primary categories. What’s the timing for the new pricing structures for primary categories?
David Liu: It will be unlikely that we’d be able to squeeze it in this year. One of the key choke points for us right now is actually the sales rep training. To get them transitioned on to a new platform will require a day or two of in person training, bringing them in to regional centers and we are loath to take them out of the selling process right now.
We have opportunities probably in the early part of the first quarter where we’ll be looking at scheduling some of this stuff. The other aspect of it is obviously making sure that this application is bullet proof and so we don’t want to launch with that and there’s probably even some SarbOx issues in making sure that the auditing process of this is complete.
William Morrison (Thinkpanmure, LLC): Have you done any kind of scenario analysis depending on which way the economy goes? Could you give us a range of outcomes from worse to best case scenario for next year on the top line?
David Liu: It’s probably too premature for us to actually give you any ranges or the outlook. We certainly have done a lot of sensitivity analysis towards what I would consider bad, worse and worst cases in terms of the potential deterioration of the economy. We are somewhat surprised with the resilience of the advertising side of it, the local has been a real pleasant surprise and even on the national front with regards to some of our categories where you would they are getting particularly hammered, we’re seeing commitments coming in to 2009 that are matching 2008 and so we’re pleased right now.
Again, we’re certainly very cautious in wanting to promote too much optimism but we do believe that we represent a category where the advertisers are realizing that they do need to be spending with us even to protect their own businesses.
William Morrison (Thinkpanmure, LLC): Could you clarify on the changes in operating expenses?
John P. Mueller: Q4 is maybe 1% to 2% up and you’re going to use Q4 for your run rate for 2009; therefore 2009 would be up 1% to 2%.
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