Stacy Ybarra - Senior Director of IR William Lansing - President and CEO David Binder - CFO

Eric Martinuzzi - Craig-Hallum Ross Sandler - RBC Capital Markets Clay Moran - Benchmark Kerry Rice - Wedbush Securities

Good day ladies and gentlemen and welcome to the Q2 2010 InfoSpace earnings conference call. My name is Marine, I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call Ms. Stacy Ybarra Senior Director of Investor Relations. Please proceed.

Good morning and welcome to our call today. I'm Stacy Ybarra Senior Director of Investor Relations. On the call today are William Lansing, President and Chief Executive Officer and David Binder, Chief Financial Officer. During the course of this call, InfoSpace representatives will make forward-looking statements including but not limited to statements regarding InfoSpace's expectations about its online products and services, outlook for future of our business and growth initiatives, acquisition strategy, and anticipated financial performance for the second quarter 2010. Other statements that refer to our belief, plans, expectations or intentions, which may be in response to questions, are also forward-looking statements for purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act. Because these statements pertain to future events they are subject to various risks and uncertainties, and actual results could differ materially from our current expectations and beliefs. Factors that could cause or contribute to such differences include but are not limited to the risks and other factors discussed in InfoSpace's most recent quarterly report on Form 10-Q on file with the Securities and Exchange Commission. InfoSpace assumes no obligation to update any forward-looking statements, which speaks only as of the date the statement is made. In addition, during this call our management will discuss GAAP and non-GAAP financial measures. In the press release, which has been posted on our website, and filed with the SEC on Form 8-K, we present GAAP and non-GAAP results along with reconciliation tables and the reasons for the presentation of non-GAAP information. Now, I'll turn the call over to Will Lansing following his comments David will review our first quarter results and second quarter outlook, then we'll open up the call to your questions.

Thank you Stacey and good morning. InfoSpace posted a good quarter with financial metrics coming in within our expectations. Revenue was $61.8 million up 58% from the prior year and adjusted EBITDA was strong $6.3 million. Both our own and operated and distribution businesses grew nicely compared to the same period last year. However, as expected, sequentially, we saw slowdown in our distribution business. As we mentioned last quarter, we are seeing a reduction in revenue from our marketing driven partners, while the slowdown has affected our results in the short-term we continue to be optimistic about the long-term prospects of the business. We have a good day in proposition, demonstrated by the new distribution partners we signed in the first quarter. We believe that small and medium sized companies will continue to find innovative ways to drive users to their sites and applications and search is a great way to monetize those users. We serve an important role offering good monetization and providing value added by proactively working with our customers to grow search revenue and frequency. In addition to our efforts focused on helping our partners grow, we continue to seek new ways to maximize the financial performance of our search business. During the quarter, we purchased the assets of one of our largest distribution partners, Make the Web Better a privately held developer of online products used on social networking sites for $8 million in cash and potential are now payments based on financial performance. The addition of these assets specifically Tattoodle and fast browser search into our owned and operated properties allows us to increase profitability and manage better the attrition of the user base. As one would expect with the purchase of an installed base of customers, the majority of the revenue would be captured up front mostly in 2010. This deal, which closed on April 1, is a good financial transaction for us. We expect to recoup the initial investment before the end of the third quarter and anticipate a return on our investment of better than 20%. We are exploring other ways to enhance our bottom line. We are always looking for opportunistic ways to leverage our assets to improve the financial performance of the search business. Now, I'd like to comment on some of our organic initiatives. We are increasingly focused on leveraging our engineering and marketing resources on non-search initiatives and are pleased with the progress today. We told you last quarter that we have launched Haggle our first orient to e-Commerce, while it remains early to share with few operating results, I will say that we are building a business with Haggle that has an innovative operating model. Haggle has very different shopping experience for the competitive shopper. For those willing to invest time, and develop skills, Haggle represents an opportunity to get good product deals. We are continuing to refine the model and roll out new features. We anticipate in the coming quarter that we'll have a new Haggle release that adds functionality and broadens the value proposition for consumers. We have other non-search initiatives in the pipeline one that we anticipate rolling out in the second quarter is a new design of web decision, SEO Software Service. We bought this search software business in early 2009 and operated it with a view to re-launching at as SAS, software as a service model. Web position helps individuals businesses and SEO agencies monitor their search engine rankings and track how their SEO efforts are paying off. Of course the big opportunity for growth remains on acquisition front. So, I'd like to comment briefly on our efforts in this arena. The hard part about this discussion is that I cannot share with you the kinds of deals we have been working on nor do I have a deal to announce today. We remain committed to our strategy of deploying some of our cash tend for new businesses likely consumer facing and Internet and technology related. I'm pleased that we have a new Corporate Development Executive with us, Stephen Hawthornthwaite, who is a Managing Director at Sawian before joining us to lead our M&A efforts. You should take this as an indication of our seriousness about our client growth. So, to wrap up, I'm pleased with our performance this quarter. We continue to produce positive financial results through the performance of our search business while developing new products to diversify business model and position us better for growth. With that I'll turn the call over to David for more detail on the financials.

Thanks Will and good morning. I'll start today with a review of our performance in the first quarter including an overview of the trends in the business, key income statement and balance sheet items. I'll end my comments with our outlook for the second quarter including the impact of our acquisition of Make The Web Better asset. Total revenue in the first quarter was $61.8 million. This represents an increase versus the same quarter last year of 58% and a decrease from the prior quarter of 12%. In the quarter, our distribution business represented 78% of revenue compared to 81% in the fourth quarter and 69% in the first quarter of 2009, while both our owned and operated and distribution businesses grew when compared to the first quarter last year, the majority of our growth came from distribution. We saw higher revenue across most accounts most newly added and legacy and across all types of partners. Most of our revenue growth has come from partners that rely on marketing campaigns to drive users to their sites in order to generate the majority of their search revenue including the use of downloadable applications and tool bars. As expected revenue from the distribution business declined in the first quarter, when compared to its performance in the fourth mostly driven by a pullback from these types of partners. Revenue from our owned and operated sites grew by 9% versus the same quarter last year driven by our non-search initiatives most notably the competitive auction site Haggle. Compared to the fourth quarter revenue from owned and operated was relatively flat. Gross profit in the quarter measured as our total revenue less payments to our distribution partners and content providers was $20.7 million equal to 34% of revenue compared to the first quarter of 2009, gross profit was up by $2 million or 11% and down sequentially versus the fourth quarter by $1.9 million. Adjusted EBITDA in the first quarter was $6.3 million equal to 10% of revenue. Calculated in this total, our cash operating expenses of $14.4 million, which are lowered than the first quarter of 2009 by 500,000, compared to the fourth quarter, our cash operating expenses grew by 3 million. The majority of this increase is due to a one-time benefit in the business taxes we recorded in the fourth quarter of $2.4 million. Net income in the first quarter was $1.5 million equal to $0.04 per diluted share. This compares to a loss of $5 million in the first quarter of 2009. Our average fully diluted share count for the first quarter was $37.1 million and we ended the period with $35.7 million shares outstanding. On the balance sheet, cash and short-term investments totaled $231.4 million up by $5 million from the prior quarter and equal to $6.49 per share. Now, for our outlook, in the second quarter of 2010, we expect revenue to be between $51 million and $55 million, adjusted EBITDA to be between $9.5 million and $10.5 million and net income to be between $2.5 million and $3.5 million or $0.07 to $0.09 per diluted share. Our guidance reflects a continuation in the trends we saw in the first quarter from distribution partners, specifically from companies that rely on online customer acquisition for the lion share of their revenue, while we expect the revenue associated with this category of partners to be down in the first half of the year, the performance at the beginning of the second quarter has stabilized. Our guidance also reflects a sequential increase in adjusted EBITDA and net income from the purchase of the Make The Web Better business. In the quarter, we expect these assets to contribute an incremental $6 million in adjusted EBITDA, which is reflected in our overall guidance of $9.5 million to $10.5 million. It is important to note that the purchase of Make The Web Better was for an installed base of searcher which without new customer acquisition is in the natural state of attrition. We paid $8 million in cash plus earn out base on future financial performance that we anticipate to be worth an additional $5 million. As contemplated, when we valued and completed this deal, revenue and adjusted EBITDA associated with this business continues to decline, while we are exploring ways to reverse the trend and grow the business, we expect the total incremental contribution toward deduction of EBITDA in 2010 to be approximately $11 million and as I mentioned earlier $6 million of that total to be achieved in the second quarter. Given these trends, we expect the total return on the purchase price in excess of 20%. With that I'll turn the call over to the operator to take your questions.

(Operator Instructions). Your first question comes from the line of Eric Martinuzzi of Craig-Hallum Eric Martinuzzi - Craig-Hallum: Thanks for taking my question. I'm concerned about the sequential decline obviously seasonally I would expect flat to maybe down a little bit but this fall-off, I guess, if I better understood the relationships with the partners, maybe I can understand it better. Can you provide any insight there regarding the social networking and marketing type partner fall-off?

Thanks Eric. So, you are right in that the fall-off is specific to the distribution business and within that specific to the partners, who rely on marketing campaign. What we are seeing in the second quarter is a continuation of what happened in the first quarter and in part that the drop in the first quarter was a partial period. We started to see the fall-off in some cases around when we issued our guidance, which was the mid-point of the first quarter. So, it's a continuation of that effect. And one thing that I did say in my prepared comments is that while it's down sequentially first quarter to second quarter, in this cohort of partners and traffic we are seeing the revenue stabilize at this point. Eric Martinuzzi - Craig-Hallum: Okay. And then, the switch back on the profitability, we go from 10% adjusted EBITDA margin in Q1 up to 19% based on the mid-point of your guidance. What is driving that?

That is primarily driven by the acquisition we did of assets associated with Make The Web Better. So, we are taking a group of traffic that was distribution and had a margin profile that is related to the distribution business and by buying those assets, it's now an owned and operated business. So, we have the control, we can't be feel like we have the ability to best monetize search, manage the attrition and work towards investment opportunities to grow the business. It also improved the margin profile of that traffic. Eric Martinuzzi - Craig-Hallum: Okay. And can you give us any insight on what it was for 2009 either as just a standalone company its revenue and profitability or maybe its contribution to InfoSpace in 2009?

So, we are not breaking out specifically the financial performance of Make The Web Better. I will say that it was our largest distribution partner in the fourth quarter and has been a top five distribution partner if you look at it over the course of the year. Eric Martinuzzi - Craig-Hallum: Thanks.

Thank you. Your next question comes from the line of Ross Sandler, RBC Capital Markets Ross Sandler - RBC Capital Markets: Hi guys. Thanks for taking the questions. I've got, I guess, four questions. So, I'll just go one at a time. First, can you talk about the trends in RPS and volumes in the quarter and then how they are looking in April?

Sure, Ross. This is David. When we look at RPS, we try to segment out the different portions of our business and the area that we have got the greatest visibility is in our organic owned and operated sites mostly what we see on dogpile.com and I would say that the rates have stabilize and they are showing a slight improvement. We are seeing a little bit of growth back to the trends that we saw around 2006, 2007, moving more towards those trends. As we become more concentrated towards the distribution business this is become a less of a direct driver in our financial performance. So, we were seeing rates come up. We are guiding to lower revenue in the second quarter and that's really a volume issue around the distribution business. Ross Sandler - RBC Capital Markets: Okay. And that was my second question. So, what's driving the volume decline from distribution partners that are working on the social networks and what specifically changed that caused the slowdown that you saw on 1Q to now stabilize this is positive changes from the broken and other social networks or can you just talk about the dynamics that are driving that?

Sure. And I want to make it clear that in part its customers, who have acquired users of social networking sites and related applications but that is not the entire picture. It's really any marketing campaign driven company whether or not the customers are coming off of the social networking sites and what we've seen is a variety of activities that have stopped or slowed down. It's not a policy issue. We don't really comment on policy decision that have or have not been made by Google. In some cases, it's an ROI measures that hasn't been working. In some cases, we are working with our advertising partners including Google and Yahoo with the partner to make changes to their site to improve the quality of traffic or the user experience and we made these changes with a long-term view to keep the quality of the traffic in our network very high and the user experience very positive. So, in some cases there's been changes that we have requested of our partners that have caused a slowdown in their ability to acquire traffic. In some cases, it is just campaigns that are being pulled back for seasonality or because the ROI metrics have changed for external reasons. Ross Sandler - RBC Capital Markets: Okay. Third question. You mentioned that Make The Web Better is slowing currently. What do you think you can do that they are not doing already to kind of re-grow, is it a volume issue versus an RPS issue? What's the plan there?

So, Make The Web Better is a tool bar download and application download asset base, and without customer acquisition, you find browsers resetting tool bars being over ridden by new installation. And so without customer acquisition the search volume associated with that business is naturally going to decline. Right now, we are not investing nor is Make The Web Better investing in new customer acquisition. And so, for us and specifically with these assets, it's finding ways to invest with the right user experience, the right flow of product and the right ROI, which is something we are working on. Ross Sandler - RBC Capital Markets: Okay. And then last question, which you touched on partially earlier, and it's the same question I asked on call, but we've heard from some of your competitors that Google is thinking about altering its policy around syndicating ads to companies that are in the business of resetting tool bar or home page settings, has Google mentioned any of this to you guys? If there was to be a policy change at some point, how would you manage around that? Can you find alternative monetization partners and what do you think the impact on the business will be?

So, I would say in general that we don't comment much on Google policy in particular when there hasn't been a formal policy decision. We do work very closely with them on what they are comfortable with from a user experience and traffic quality. Tool bar is a certainly part of that but we also work with them across a broad spectrum of products and user experiences and there is a fairly regular adjustments that we've been making the business we have been making for the past four to five years and working with Google just to assure that we have got a good user experience in high-quality traffic. But other than that, we don't comment specifically on policy that Google has or has not made.

Thank you. Your next question comes from the line of Clay Moran of Benchmark. Clay Moran - Benchmark: Thanks. Good morning. You noted that the change in distribution volume trends is not related to any Google policy. What about Facebook and some of the changes they've implemented in terms of standardizing ad formats and other things? Do you think that is possibly impacting your distribution business?

Thanks. That's a great question, and we actually haven't seen that be a factor in terms of the ability to buy advertising on social networking and that causing a change in ROI or conversion to the products. Clay Moran - Benchmark: Okay. And then, on the 2Q guidance, the pro-forma for the Make The Web Better EBITDA was lower than I would have thought, and I haven't been able to run the numbers yet, but is that purely a function of the lower organic revenue, or why would the margin on sort of the organic existing business be down if that's what that implies?

To clarify your question, you are removing the Make The Web Better portion from our overall-- Clay Moran - Benchmark: Yes, I think, you indicated $6 million in the second quarter. So that the existing business would be about $4 million in EBITDA. Is that purely a function of the lower revenue or something else going on there?

In part it's a function of lower revenue. It's not a pure apples-to-apples comparison because there are some costs in the core business that has been supporting the Make The Web Better volume and will continue to support that we don't specifically breakout and allocate. So, it's not a pure comparison, but I would say that the core business, as the volumes come down, we are expecting EBITDA to come down as well. Clay Moran - Benchmark: Okay. And then lastly, on that make the web acquisition, I guess, you view it as sort of an experiment given the quick return and you indicated sort of may be limited sustainability. What is your view of the sustainability of these assets and the cash flow and can you enhance it? Is there anything more than Tattoodle and then is there potential that you'll do similar deals with other distribution partners like this?

Clay, it's Will. On this subject, just to take a step back and look at what is going on just to try to provide as much as transparency as we can. We have with our organic businesses Dogpile and so on, we don't invest heavily in customer acquisition and we enjoy the margins that go with that. But that winds up having all the times of top-line implications that one would expect. We have put some energy into some of our own organic search initiatives with reasonably modest success. There are people out there like some of our distribution partners, who do a great job of acquiring customers and through innovation, they wind up doing a nice job. In general, we support partners like that through a distribution arrangement and through a web share, but there are times, when it does make sense for us to buy a cohort of customers and in this case that's essentially what is going on. We've got Make The Web Better, put together a business with customers they've acquired. We look at the web time value and understand it pretty well and if we can purchase that cohort of customers for less than web time value, it makes sense. Another way to think about it is that we've outsourced for this set of customers we have outsourced the customer acquisition effort. Now, there is a little bit of an unusual deal but it's not probably a unique deal and I think that we would continue to be interested in doing things like this where the returns are appropriate, where we have a lot of visibility and understanding of the lifetime value and the likely run-offs and so we would continue to do deals like this where we can. I wouldn't say that you should build it into your models on ongoing basis because I think it's an opportunistic kind of a thing, but we are very happy about this opportunity and I think we will be looking to do others like it.

(Operator Instructions). Your next question comes from the line of Kerry Rice, Wedbush Securities. Kerry Rice - Wedbush Securities: Thank you. So, going back again, I'm sorry to beat a dead horse about this, but Q2 the revenue guidance and you seeing them kind of the volume decline relating to marketing campaign driven customers and I assume that's generally related to their advertising spend and I was curious whether you thought this was a macro kind of event or if it was related specifically to your customer size or your customer set because just in general it seems like advertising, online advertising has actually been picking up over the last few quarters? And then, the second part of that is do you feel like, I don't know, if you have this visibility, but this is a [trove] and we should see some improvement coming out of Q2? And then, my final question on kind of related to searches, I think, your Google and Yahoo contracts expire in 2011, while I know you can't provide much detail here, I was curious if you can give us some sort of update on your discussions with Google, Yahoo and I guess Microsoft at this point?

Hi Kerry, I think, I got your first and third and then I'm going to ask you to repeat your second. I got your second too. So, in terms of the trends that are affecting the distribution business, I think, to a certain extent there is seasonality in the macro trends that are associated with marketing campaigns. I think that a larger extent we're seeing specific tweaks to the types of campaigns that were being run or the types of traffic that we are able to acquire or our partners are able to acquire through those campaigns. So, we are more so affected by the specific nature of the type of customer acquisition that was being done less so by the macro trends. In terms of the trove question, we give guidance quarterly, so we certainly aren't going to make any definitive statement about the third quarter or the rest of the year. I will reiterate and try to give some clarity on the statement about the trends into the second quarter specifically that the distribution partners that we have that are using marketing campaign and have been, most of the ones behind the trends that have come down, we have seen that business fairly stable at this point in the second quarter and we are hopeful that we'll start to see some growth out of that throughout the rest of the year. Your third question is about our Google and Yahoo renewals and yes, they are both up at the end of the first quarter next year and we are currently in the process of renegotiating that with both of those partners. Kerry Rice - Wedbush Securities: If I can ask you just one follow-up on what you are seeing in the stabilization in the marketing campaigns or spending on those marketing campaign with customers, is that more of a function of the customers actually spending stabilizing or you guys tweaking what you guys do to better align your algorithms to new campaign or the way they've tweaked their campaign?

We are certainly trying to optimize our products to enhance the performance of our distribution partners. The bigger issue is that some things weren't working and those things have gone away. Some of them are user experience, traffic quality that wasn't high enough. So, those have been removed from the business and are no longer affecting the going forward trend. And then, in some cases, we are seeing new campaigns that are working and are providing good growth coming into the second quarter.

Thank you. You have a follow-up question from Clay Moran of Benchmark. Clay Moran - Benchmark: Thanks. A couple of more things. Does the sort of slowdown here in the distribution business, where you had great momentum, does that at all change your sense of urgency around doing a more sizable acquisition and can you talk at all about whether you sort of have anytime frame for which you'd like to execute an acquisition? And then secondly, you talk about the Google and Yahoo contracts. What about your distribution customer expirations specifically, I guess, with your more traditional distribution partners, I think in your U.K. you mentioned that most of your contracts come up for renewal this year and next. Can you talk about the concentration risk there and any thoughts around renewal of those agreements?

Clay, on the acquisition front, does the shape of the search business influence our sense of urgency around M&A. A good question, I would say that, whether the search business is going great or whether the search business is in trouble, we remain committed to deploying the cash to monetize NOLs because that makes economic sense. We will do that kind of independent of the search business. Do we have extra interest in getting something done because where we are with search? It's probably fair to say that we are as interested as ever in trying to get something done. All that said, we remain very prudent in the way we go at this. And so, we want more than you want for us to have that cash deployed in something that makes sense quickly, and we just won't do it too quickly, and not until we have the right thing. I will tell you that we have a very full pipeline and a lot of very interesting things to look at and now we have a lot of horsepower with Stephen Hawthornthwaite having joined us and I am looking forward to being able to do something in the relatively near future. But I wouldn't want you to take away the sense that we are worried about search and we are going out to do something desperate on the M&A side that is just not the way we think about it.

Clay, you had a second question on renewals with our distribution partners. We continue to have a very low voluntary turn rate on distribution and our contracts do come up in large part throughout the remainder of this year and into next year. We are not concerned about losing partners to competitors. From time-to-time we'll do trials. We'll do short-term deals that are anticipated to expire, but our voluntary turnover is very low. Clay Moran - Benchmark: Is there any upcoming concentration of distribution revenue that's due for renewal?

Well, the top five customers represent somewhere between 40% and 50% of revenue that has been a fairly constant for us over the past few quarters, some of those do come up for renewal and again we are not, it's not a concern of ours.

Thank you. There are no other questions. At this time, we would like to thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.