Stacy Ybarra - Director of Corporate Communications William J. Ruckelshaus - Chief Executive Officer, President and Director Eric M. Emans - Chief Financial Officer and Treasurer

Clayton F. Moran - The Benchmark Company, LLC, Research Division Anthony McCready - Northcoast Research Unknown Analyst Michael Millman - Millman Research Associates

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 InfoSpace Earnings Conference Call. My name is Regina, and I will be your conference operator for today. [Operator Instructions] Today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Stacy Ybarra, Senior Director of Investor Relations. Please go ahead, ma'am.

Good afternoon, and welcome to InfoSpace's First Quarter 2012 Earnings Conference Call. On the call today are Bill Ruckelshaus, President and Chief Executive Officer; and Eric Emans, Chief Financial Officer. Before we begin, I'd like to remind you that 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 products and services, outlook for the future of our business and growth initiatives, and anticipated financial performance for second quarter 2012. Other statements that refer to our beliefs, plans, expectations or intentions, which may be made 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 annual report on Form 10 K on file with the Securities and Exchange Commission. InfoSpace assumes no obligation to update any forward looking statements, which speak only as of the date the statement is made. In addition, during our call, our management will discuss GAAP and non GAAP financial measures. In this 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 our presentation of the non GAAP information. We have also provided supplemental financial information to our results on the Investor Relations section of our corporate website at www.infospaceinc.com. Now I'll turn the call over to Bill. Following his comments, Eric will review the first quarter results and second quarter outlook, and then we'll open up the call to your questions. William J. Ruckelshaus: Thank you, Stacy, and good afternoon, everyone. Today we are pleased to discuss financial results for the first quarter 2012 and provide an update as we approach the midpoint of the year. Performance in both our search and tax preparation businesses exceeded our expectations with total company revenue of $115.7 million, adjusted EBITDA of $31.7 million, and non GAAP net income of $28.5 million. Our first quarter results begin to highlight the momentum, profitability and strong cash generation of our consolidated company. Let me spend a few minutes on the performance of our search and tax preparation businesses during the period. Search revenue for the first quarter was up 46% from the prior year, driven by strong growth in distributed search. Search distribution revenue posted an impressive 75% growth rate this quarter, continuing a momentum uptick that began for us early last year. We are seeing growth across the board in distribution from long standing partners, new design partners and across our partner categories. As I detailed on our last call, momentum in the distribution business reflects broader market dynamics. But also reflects the hard work and execution of our search team. Over the past year, this group has sharpened its focus on meeting the evolving needs of our global search partners. We are now seeing the benefits of this focus delivering on multiple fronts including product, search content and mobile enhancement. In products, we recently launched our new portal offering that provides ISP customers a hub of adaptable, localized content including news, weather, sports and entertainment. This information is delivered through a flexible user interface that adapts seamlessly to different devices, including mobile phones, tablets, laptops and PCs. Our new offering is being rolled out to our current portal customers and also gives us access to a new set of addressable market. To deepen our search content we've recently signed with Yandex, the leading search engine in Russia, to deliver Yandex result into our network of search properties and affiliates. Yandex adds to our long standing partnerships of Google, Yahoo! and Bing, and increases the relevance of our result sets in servicing international partner traffic. Additionally, we are extending our platform to allow partners to reach and monetize their audiences in mobile. We are encouraged by the results thus far. As the mobile search market matures, we will continue to refine our offerings here to capitalize on this significant trend. Moving now to our TaxACT business. We are pleased with the performance of TaxACT during the 2011 tax season. The team executed well and exceeded our expectations. On a preliminary basis, results for the 12 months ending April 30, 2012, showed 10% year on year revenue growth, supported by 8% growth in in-season consumer digital do it yourself e file. For the season, TaxACT generated over 5 million consumer electronic filings and grew roughly in line with the category. Including filings generated by paid preparers using the company’s professional product, TaxACT accounted for over 6.2 million e filed in 2011, up 10% over tax year 2010. The 2011 tax season and TaxACT's performance bolsters our view of the strong secular shift to digital do it yourself within the tax preparation market. Demographic trends are driving increased familiarity with the web. Software development investments are resulting in meaningful usability gains in digital do it yourself tax preparation. Sustaining marketing campaigns and education efforts by category leaders are increasing awareness of the relative advantages of DIY tax preparation alternatives. TaxACT is extremely well positioned to both contribute to and capitalize on these tailwinds. A great product, superior value proposition and an outstanding customer service. TaxACT is an online pure play, unencumbered by legacy off line or desktop software concentration, and thus singularly focused on optimizing the web based tax preparation experience for consumers and paid professionals. The market is coming our way, and we are extremely excited to be working with the great team of TaxACT in planning for the coming season and beyond. Overall, I'm pleased with our performance this quarter and I believe you are just beginning to tap our true potential. We have an efficient corporate entity coupled with 2 great businesses in growing markets. Our strong cash flow profile will allow us to pay down our debt promptly, reinvest in our businesses and selectively evaluate further options for enhancing value for shareholders. In closing and to mark our transition this year, we have selected a new name for our company, Blue Cora [ph], we believe that the Blue Cora [ph] name provides an umbrella under which we can build a unique and strong corporate identity and allows us to create separation between the parent company and our individual business units. Our existing operations, InfoSpace and TaxACT, will retain their current branding. We plan to rollout the new name in June following our shareholder meeting scheduled for May 31, 2012. With that, I'll turn the call over to Eric for more details on the financials. Eric? Eric M. Emans: Thanks, Bill, and good afternoon. Before I get into the details, I'd like to note that with the acquisition of TaxACT, we will now present the business in 2 segments, search and tax preparation. The segment income from these 2 businesses less unallocated corporate operating expenses comprised adjusted EBITDA. With that, I will start with an overview of the consolidated performance, then talk a bit about our segment results and begin with our second quarter 2012 outlook. Our first quarter 2012 financial performance includes results from TaxACT for February and March, as the transaction closed on January 31. As Bill mentioned, consolidated revenue for the first quarter was $115.7 million and adjusted EBITDA was $31.7 million. Non GAAP net income was $28.5 million or $0.70 per diluted share. It should be noted that with the acquisition of TaxACT, we have revised our non GAAP net income and EPS methodology to exclude certain additional noncash items. GAAP net income was $11.4 million or $0.20 per diluted share, and was impacted by a onetime stock based compensation charges of $5.2 million associated with the TaxACT acquisition. Our consolidated results are up significantly on an absolute dollar and percentage growth basis versus the first quarter 2011, due to the continued growth in our search business and the acquisition of TaxACT. As a reminder, TaxACT is a highly seasonal business, which contributes the lion share of its revenues here in the first 4 months of the calendar year. On a trailing 12 months basis, including TaxACT, and ignoring the impacts of purchase accounting in certain nonoperating expenses, we generated pro forma consolidated revenues of $336.4 million, adjusted EBITDA of $76.8 million and non GAAP net income of $64.3 million or $1.63 per diluted share. Pro forma levered free cash flow for the same period would have been $68.9 million. These figures highlight the underlying performance of our combined company and our ability to convert adjusted EBITDA into free cash flow. We exited the quarter with cash, cash equivalents and short term investments of $129.9 million or $3.17 per diluted share. Cash, cash equivalents and short term investments net of debt are $44.9 million. Turning to our segment performance. The search business have another strong quarter with revenue of $75.3 million, up 46% versus the prior year and up 13% sequentially. Revenue growth continues to be driven by strong performance of our distribution business, which now makes up 87% of our search segment revenue. This is the 4th consecutive quarter of accelerated revenue growth in our distribution business. Looking ahead, we expect continued year over year growth, albeit at a moderated rate. As the comparison get more difficult for us in the beginning of the second quarter of this year. Search segment income is $13.4 million, up 21% from the first quarter of 2011, fueled by distribution revenue growth. Segment income was also up 5% sequentially, again, on the strength of our distribution business. Turning to the tax preparation business, our quarterly results reflect our ownership of the TaxACT business through February and March 2012. Revenue was $40.4 million and segment income was $22.1 million. These results were impacted by purchase accounting, which reduced revenue and segment income by $650,000. Pro forma revenue for the entire first quarter of 2012 was $61.9 million, up 9% versus the first quarter 2011. Pro forma segment income was $30.6 million, up 7%. The pro forma results exclude the impact of purchase accounting and certain nonoperating expenses. Before turning to outlook, I want to touch briefly on our unallocated corporate expenses, which were $30.8 million. This figure includes professional service fees of $1.1 million recorded in the first quarter associated with the TaxACT acquisition. Now for the outlook. For the second quarter, we expect consolidated revenue to be between $92.5 million and $96.5 million, adjusted EBITDA between $20 million and $21.5 million, non GAAP net income of $16.9 million to $18.3 million or $0.40 to $0.44 per diluted share, and net income of $5.5 million to $6.5 million or $0.13 to $0.16 per diluted share. In an effort to provide some context on the consolidated guidance, we expect search revenues to be flat to slightly up and search segment income to be flat to slightly down, based on continued mix shift towards distribution. Tax preparation revenue will come down significantly from our first quarter reported revenue, which is to be expected based on the seasonality of the business. Tax preparation margin is expected to be approximately 60%, up over our reported first quarter margin of 55%. This growth is a result of expected revenue for April driven by marketing dollars spent in the first quarter, partially offset by losses in May and June as the tax preparation business will generate limited revenue and will post losses outside the tax season months of January through April. We expect unallocated corporate expenses to decrease, but will not return to pre acquisition levels as we will have modest investments in infrastructure needed to support multiple businesses at the corporate level. With that, I will turn the call over to the operator, and we will take your questions.

[Operator Instructions] And your first question today comes from the line of Clay Moran with Benchmark Company. Clayton F. Moran - The Benchmark Company, LLC, Research Division: Two questions on search and then one other afterwards. Bill, on your prepared comments you mentioned that the broader market dynamics are driving this search momentum. Can you sort of explain what those dynamics are? And I guess you're calling for search revenue to flatten out, IAC said similar things. Is there something within the broader market dynamics that's driving that or is it truly just the tougher comps? Secondly on search, interesting that you mentioned Yandex and international, just wondering what percent of traffic is from international sources and what percent of revenue currently? And is this a significant opportunity going forward? William J. Ruckelshaus: I'll take those questions in order. So the market dynamics that we're approaching and speaking to with respect to our search business, I provided some detail on these during our last call. It's really with respect to our distribution business, so we have over 85% of our revenue currently being generated by partners that we work with, global partners to a network of over 100 global partners that work with us for reasons related to search functionalities, search content, monetization. And there is a substantial portion of those partners that are now going through a momentum search, that's really begun for us at the beginning of last year, and we think that we are not alone in experiencing that uptick. So I think it is -- something is going on in the broader market. I think we're benefiting disproportionately because we've been in the business of servicing partners in this way for a long time and have a lot of this stuff down to a science. So I do think that we're being very optimistic and hopefully taken out greater and our fair share of this market upswing. But I do think that it's important to point out that a lot of the innovation that's going on out there that we think is behind some of the market momentum is coming from smaller partners, partners that are entrepreneurial, that in many cases aren't search players themselves but our generating content and applications that they are bringing to market in looking to search as a way of supporting that go to market and contributing revenue to that go to market. So we are enabling their business plans from a monetization standpoint through the introduction of search as it relates to the distribution of their content. And that kind of speaks to the market dynamics. As it relates to the leveling off and the moderation that Eric spoke to, I think there's nothing sinister that we're outlining there and you can sort of see it as it relates to the second quarter guidance. The momentum continues. And so really the -- see some of the issues for us here relate to the fact that this business started to uptick at the beginning of last year, so we are now having overlaps, where the growth rates aren't going to continue to increase sequentially indefinitely. And for us, as Eric mentioned, that's been 4 quarters in a row. And so it's just natural that if we start to overlap the time when the market really started to move upward, the growth rates would moderate. But nevertheless, if you look at kind of what we did in the second quarter of last year, you'll see that the momentum is still there it's just at a more moderate level. And your last question was with respect to international, and that's not something we provide. We do have a global partner base, Clay, and I think that, that's a real advantage particularly as it relates to some corners of the market that are more concentrated internationally in terms of some of this growth searches that are going on. But we don't provide breakout between domestic and international. Clayton F. Moran - The Benchmark Company, LLC, Research Division: Are we going to start to see any impact from currency swings in your search revenue? William J. Ruckelshaus: No. Clayton F. Moran - The Benchmark Company, LLC, Research Division: No. Okay. And then just getting back to the market dynamics. I think in the past you said applications have been a contributor, but not the driver of -- not the main driver, I guess, of the momentum. Is that still the case? And if so, can you give us sort of an example of what the other type of partner that's driving this momentum is? William J. Ruckelshaus: Right. So one of the things that I said earlier in my comments is that, and actually it's very favorable is that, the areas where we're sourcing growth, and I'll just take the most immediate quarter as a point of illustration, is really from every corner of our distribution network. So we have partners during the quarter who've been with us for 5 years plus, that have -- performing quite well. We have partners that we've recently signed within the last 12 months that are growing dramatically. And then we're helping do so, in some cases, in mobile environment. And we also have partners, really, across all our categories of partners. And I think as we've shared before, we work with partners that would fall into any number of 4 or 5 different categories that are all growing. So it really is -- it's not that your question is addressing whether there's a dependency with respect to one bucket or another, that's not the case. Clayton F. Moran - The Benchmark Company, LLC, Research Division: Okay. And then one more question, if I could. You mentioned you could or you would, not sure which one it was, pay down debt promptly. Can you just update us on your thoughts around the uses of cash thereafter? William J. Ruckelshaus: No. I think that really the point to be made is, I guess, first and foremost, pay down debt on time and properly. And we are now at a point where we're generating a lot of cash flow as a company, which I think puts us in a very advantageous position as it relates to thinking proactively about how it is we put that cash to work. And certainly delevering is one path and we'll do so in accordance with the schedules outlined by our creditors and reserve the right to do so in a more accelerated basis. But there are other things that we can be evaluating as well and it's just a good position to be in. Clayton F. Moran - The Benchmark Company, LLC, Research Division: Okay. And actually I'll just make one more, just because you sort of referenced it. But the taxes reported, GAAP were higher than, I assume, the cash taxes were. Can you just highlight what the cash taxes were for the quarter? Eric M. Emans: This is Eric. Obviously, we pay a much smaller amount [indiscernible] based to the P&L, just over $800,000 in cash taxes we're estimating. But that is an estimate based on a full year forecast as you get into the nuances of all the fund that goes along with the GAAP accounting and around taxes.

Your next question comes from the line of Kartik Mehta with Northcoast Research. Anthony McCready - Northcoast Research: This is Anthony in for Kartik. You indicated that your consumer DIY e files grew 8% to $5 million. In the press release it indicates that total TaxACT products assisted 6 million filers this season. How much of that 1 million difference reflects DIY decoder returns and how much is from your professional prepared returns? William J. Ruckelshaus: Yes. That's a professional difference. So the all in number is including -- TaxACT is not strictly a consumer tax preparation business, they have a professional product that is doing quite well. And the aggregate number of 6.2, I believe, is inclusive of that. Anthony McCready - Northcoast Research: Okay. So the total difference is all from professional? I just wanted to make sure of that. Okay. William J. Ruckelshaus: Yes, yes. Anthony McCready - Northcoast Research: And then, also, as far as the marketing budget goes for TaxACT, just wondering, did you increase that budget this season? And if so, how much compared to last year? William J. Ruckelshaus: Well, we're not going to get into specifics as to year on year increases in marketing. But it is worth noting that the company, which we didn't really speak to in any of the opening commentary, but not only did they perform in excess of our expectations, both with respect to filings growth as well as revenue, but the same was true with respect to their profitability during the season and in the face of that good top line growth that they were able to generate, we're also able to hold margins. So as you can imagine that an important part of that equation is marketing and marketing efficiency. So that was a good year in that regard as well. Anthony McCready - Northcoast Research: Okay. Great. And just one more, so now that TaxACT is a part of the whole company and a part of InfoSpace, what do you think you can do different next season just in terms of promoting the product? William J. Ruckelshaus: So the dust is settling on the season but nevertheless, the team is already beginning to think about the coming season and how they might prepare for it and take lessons from things that were observed during the season. So I would say -- I would address that kind of in 2 perspectives. One is, how do we see the market evolving and what's the backdrop as it relates to planning on what we want to do. So I think, absolutely, we see their trends continuing that we've seen over the last several years. So broadly, those are continued moderate growth in overall filers in the U.S., continued moving out of prepared into DIY, which we think a recent report from the IRS gives some indication as to those trends over a -- in a multiyear basis through 2010, at least. And then within DIY, growth in digital. And sort of running throughout that are some demographic shifts that we've talked about before and then others in the space that talked about the roughly 50 million millenials ages 18 to 29 years old in this country, tend to be better educated, tax savvy, online, connected and that's, in our minds, a great cohort group to be adopting DDIY tax prep solutions. So with that as a backdrop we, as I said, we're encouraged about the performance this season particularly given the inevitable distractions of an acquisition in the middle of the season, in the front end of the season. But together with the team, as we start to think about the future, we are looking to lean into the trends that we're seeing. It may go without saying, but we believe we acquired TaxACT as a high performing profitable business and this season reaffirms our thesis in that regard. And then as it relates to going forward, without getting in too much specifics and we're in the beginning stages of this, but I'll break it down schematically. So definitely, we think that there's some evolution of the product that is going to be important to address and that's going to be based on customer feedback, some of the trends that are going on in the market, user behavior, observations and so that will be front and center. Bringing in new filers due to the TaxACT product is always an opportunity in any season, further taking advantage of the shifting that we see going on, getting our message out to filers at the right time. Word of mouth is critical in this regard. Fortunately, the TaxACT product has very high Net Promoter Scores that I think positions us well as it relates to word of mouth. Search is a big piece of customer acquisition within the digital world and the good news is that InfoSpace has been in the search market for 15 years. We're already starting to have conversations about how we can bring some of those learnings to better improve the standing of TaxACT in the search channel. And then lastly, and certainly not the least, is remaining relevant and bringing increased value to long time TaxACT customers and that falls in the category of making their annual tax preparation easier, streamlining the effort involved to put their taxes together and also engaging with them in interesting ways outside of the tax season. So those are kind of the schematic buckets that we're going to be exploring and we're really excited to get started.

Next question is from the line of Joe Saxton [ph] with Craig Hallum.

First thing, I know it's in the press release, it looks like you said you were expecting a 10% growth in TaxACT revenue for the tax season. Now is that a number you think that can apply to the full year as well or is that just the season? Eric M. Emans: The way to think about that is TaxACT fiscal and as we look at the opportunity in the acquisition was a 4/30 year end, so we're really talking to that as the tax season and the 12 months ended April 30. And that's where we're seeing that and expecting that 10% growth.

Okay. So then, I guess, the way I'm looking at it here is you reported your $40.4 million worth through quarter end, we kind of assumed here internally, we kind of assumed about $15 million in January, which brings us to about $55 million that we're assuming through the first 3 months of the year. Now assuming that you still expect 70% to 75% to be representative of total revenues for the years to be represented in those first few months. I mean, that brings us to a total range for the year mid to upper 70s, does that sound, like I'm thinking about it the right way does that sound like a range that you're comfortable with for that segment? Eric M. Emans: Joe, we figured it was going to be a little hard to get our arms around kind of the seasonality and especially considering that we have 2/3 of a quarter here during the busiest time. So we provided some supplemental schedules out on our website that provided pro forma comparisons for Q1, year over year, as well as historical calendar quarters to help you kind of piece through that. But on a fiscal year -- calendar year ended to 2011, this business did about $78.8 million in revenue.

Right. Okay. All right, that's fine. Just then a couple more. One, do you feel like you're accelerating the rate of which you’re acquiring new partners in the distribution business? And I guess how long do you think your runway is ramping up new relationships. William J. Ruckelshaus: Yes. So this is Bill. I think that partner signings is something that we've talked about in prior calls and it's certainly an important driver of the business. But by no means, the only driver of business momentum. And as I have made reference to earlier, the quarterly -- the Q1 performance within our distribution business, within the search business overall is, has been a byproduct of long standing partners performing very well. In some cases, driven by their movement to mobile. But also new signings within the last year or -- so it's since the beginning of 2011. And there can be some variability as to revenue for a newly signed partner because, by definition, we're catching a lot of them at an earlier stage and their ability to bootstrap into a much bigger account tends to be somewhat less predictable. And so what we're actually going to move toward in the future is less of an emphasis around new signings and more of an emphasis around how's the health of the overall network and how is the pace of our revenue and performance, the contributions of newly signed partners. And the good news is that on a period to date basis in 2012, the benefits we're getting from newly signed accounts this year are actually, significantly outpacing to where we were last year, so we feel good about that.

Your next question comes from the line of Michael Millman with Millman Research. Michael Millman - Millman Research Associates: I apologize if you've discussed this, but I was wondering if in TaxACT, you've had any calls -- and what you're thinking about some of the, call it, services that TurboTax has and Block has? William J. Ruckelshaus: I'm sorry, Michael, do you mind repeating the question? Michael Millman - Millman Research Associates: I was wondering if you had -- if you're thinking about if there's some call for a line, a telephone line or a chat line to get so called professional advice with people running off with some sort of tax problem as they’re filling out their return on the web. William J. Ruckelshaus: Yes. So that's a key piece of the TaxACT business model is support. And this year was no exception. So they have a very well run call center that essentially doubled its capacity during the peak season and is integral to allowing consumers to get their filing done. I think there's another question, maybe behind your question as it relates to a broader level of advice that isn't so tax correlated to somebody's filing. And I think there's probably going to be a role for that type of consultation service going forward and certainly it's something that somebody who's not in the off line prepared world might be conjuring up as a way of introducing themselves to people who have, in prior periods, filed and prepared manner. So we see it as a trend that's probably here to stay. And the good news is the TaxACT team has a lot of experience in phone support and assisting filing customers through the process of getting their tax returns prepared. Michael Millman - Millman Research Associates: And a follow up, and again maybe you discussed this, what are you seeing any nipping from some of the smaller tax companies that have followed TaxACT? William J. Ruckelshaus: Well, it's interesting, that question has come up from time to time. And I would say that we don't. And it maybe as a point that's a little lost on people, but we think about the market we address, we think it's a very big addressable market, it's probably not all of the 140 million filers in the U.S. but it’s a substantial portion of them, ultimately, are candidate TaxACT customers. And that's really as we think about how do we perform this year or how do we grow our customer base and extend the number of filers that we're working with, we really do think of it in terms of a very broad market opportunity. But even more narrowly within digital do it yourself, which is comprised of both desktop and online filers. It is worth noting that in DDIY, TaxACT is 20% larger than the next 10 largest competitors combined. And roughly as large as the next 150 largest competitors combined in DDIY. So we don't necessarily see the nipping at the heels, as you put it in the sense that we feel like we have in DDIY it's pretty clear competitive set and I think very well established in the value segment of that.

Ladies and gentlemen, this does conclude the question and answer portion of our broadcast today. With that, we'd like to thank you for joining us. And you may disconnect at this time. Have a great day.