Exhibit 99.2
ADSTAR, INC.
MODERATOR: LESLIE BERNHARD
NOVEMBER 15, 2004
APPROXIMATELY 4:15 P.M. EASTERN TIME
Operator: Good day, everyone. Welcome to the AdStar, Inc., third quarter
earnings conference call. At this time, I would like to inform you
that this conference is being recorded, and that all participants
are in a listen-only mode. At the request of the company, we will
open the conference up for questions and answers after the
presentation. We would like to remind you this conference call
contains forward-looking statements concerning the business and
products of the company. Actual results may differ from those
projected or implied by such forward-looking statements, depending
upon a number of risks and uncertainties, including, but not limited
to, the following: historical business (as) already mature, new
online business is unproven and may not generate expected revenues,
and Internet security risks. Other risks inherent in the business of
the company are described in the Securities and Exchange Commission
filings, including the company's annual report on Form (10-KSB). The
company undertakes no obligation to revise or update any
forward-looking statements to reflect events or circumstances after
the date of this call. At this time, I would like to turn the call
over to the President and Chief Executive Officer of AdStar, Inc.,
Ms. Leslie Bernhard.
Leslie Bernhard: Thank you, Mark. And thank you all for joining us today. I have
prepared an opening statement, and following that, I've asked Jeff
Baudo, our COO; Tony Fidaleo, our CFO; and Ben Smylie, our Senior VP
of Sales and Marketing, to offer some comments (and) our third
quarter highlights in each of their respective areas of
responsibility. AdStar's (an) ASP and is positioned as the leading
provider of outsourced e-commerce services to newspapers. We measure
our progress by several metrics: ASP transaction volume, ASP
transaction value, ASP revenue, total revenue, gross margin, and
gross profit. ASP transaction volume was flat, at 115,000
transactions. This lack of increase was due in its entirety to the
recent circulation scandal that occurred during this period. Ad
transactions to one of the newspapers involved was down over 3,000
from same period last year. Indications are that the impact has
passed and volumes have returned to those anticipated. However, in
spite of this, ASP transaction value was $19.3 million - up four
percent over prior year. Our ASP revenue was $440,000 - up nine
percent over prior year. Total revenue at 1.26 million - an increase
of 90 percent. Our gross margin, 57 percent - a slight increase over
last year. And our gross profit, $715,000 - a 94 percent increase
over the prior year. In addition to these specific results, there
are several other highlights from the quarter, including the
implementation of a new sales strategy designed to accelerate sales
and leverage outside resource. AdStar becomes the provider to the
provider of systems and services to the newspaper industry. Ben
Smylie will elaborate on this, as well as our recent announcement of
a channel partnership with Atex Media Command, and also bring us up
to date on the progress with Manheim. During the quarter, we
launched an e-commerce recruitment capability for "The Washington
Post" and "The Atlanta Journal and Constitution." Both newspapers
can now effectively sell combination print and online recruitment
ads in real time, 24-7, on the Web. We entered into marketing
partnership with NMI - Northman Matrix International, located in
Oulu, Finland. NMI is a provider of mobile marketing services to
newspapers. Our intention is to couple this capability with our
e-commerce services and provide SMS solutions to our newspaper
customer base, allowing them to connect to both advertisers and
subscribers through cell phones and PDAs. In addition, our agreement
(allows) NMI to market AdStar's suite of e-commerce services to
publishers in Europe. AdStar participated at the IFRA Conference
held recently in Amsterdam. IFRA is the world's leading association
for publishing, with more than 2,000 publishing companies and
suppliers as members. All of this intended to support AdStar's
expansion into the global market, which effectively doubles our
market size. Although we pulled close to even EBITDA last quarter,
this quarter we posted a negative-$254,000. Tony Fidaleo will speak
to the components of this negative EBITDA. Our primary objective,
and what we believe will provide the greatest shareholder value, is
getting the company profitable. We have already undertaken major
cost-cutting steps which will amount to just over $1 million in the
aggregate. The effect of these steps will be evident in our Q1 2005
results. Jeff Baudo will speak to the specifics of this reduction.
We continue to make significant strides in maintaining our dominant
market position through the continued enhancement of our product and
service offering, while
maintaining focus on our financial objectives. Tony, I'd like to ask
you now, if you would, to take us through the negative EBITDA and
share with us what those components were.
Tony Fidaleo: OK. As you mentioned, we went from negative-10,000 EBITDA in Q2 of
'04 to approximately 254,000 negative EBITDA at the end of Q3 '04 -
a deterioration of approximately $244,000. The reduction or the
deterioration is primarily comprised of a - of a reduction in net
revenues of $125,000 and a net increase in operating expenses of
$119,000. The decrease in revenues is primarily related to
customization (and) other, a one-time decrease of $122,000. I'll let
Jeff - excuse me - I'll let Jeff Baudo speak more in detail about
the makeup of those cost revenues. And the expense side is primarily
a result of an increase in product maintenance and development cost
as a result of the reduction of capitalizing software. And that is
part of the reason we will be able to decrease costs on a go-forward
basis.
Leslie Bernhard: Tony, would you speak to some of the fees that were directly
related to Sarbanes-Oxley consulting and some of the other outside
consulting activities?
Tony Fidaleo: Certainly. Included in G&A - general (and) administrative for the
quarter - (there's) approximately $50,000 in direct legal and
accounting fees associated with Sarbanes-Oxley and another
application we're required to adhere to for our publicly traded
customers - Statement on Accounting (Standard) 70. These costs are
going to be ongoing over the next probably 12 months to a high
degree, and then - and then will be an ongoing annual cost similar
to an audit. Those costs are directly related with our getting in
compliance with Sarbanes-Oxley.
Leslie Bernhard: OK. Thank you, Tony. Jeff, will you speak (a bit) to our
reduction in operating expense?
Jeff Baudo: Yes. We took a real hard look at our operating expenses - what we
were doing relative to development and, on a go-forward basis, the
reduction in requirements for development. And as result, was really
able to take a hard look at our staff. Again, staff costs are our
single biggest expense. Moving forward next year to 2005, we'll be
reducing 6.5 full-time equivalent positions. We'll also be reducing
a part-time consultant. Along with that, we have all our employees
(in) management included, who will be experiencing a five percent
reduction in salary. In addition to that, we looked very closely at
all our ongoing costs, and have really tightened our belt in terms
of what is absolutely necessary in terms of moving forward. We were
also very fortunate in being able to renegotiate our
telecommunications contract for next year, which will offer us a
significant saving. And in looking at all those pieces, in the
whole, it roughly is a little over $1 million of operating expense
that we will not have next year.
Leslie Bernhard: Thank you. Ben, could you tell us about our new channel
strategy and some of the moves that you made?
Ben Smylie: Sure, Leslie. First, let me just address a point you raised earlier
regarding current status with Manheim. We continue to be cautiously
optimistic about our near-term prospects for revenue (from Manheim).
Current schedules call for the AdStar tab on the Manheim Dealer
Inventory System - this is a device which allows Manheim dealer
customers to place newspaper ads - to be introduced to Manheim
dealer - to the Manheim dealer environment in Atlanta before year
end. This anticipates connection between Manheim and Atlanta
newspapers' new (auto)-vertical Web product being deployed by
AdStar. It's scheduled for go-live in the first week of December.
The second point I'd like to discuss is channel partnerships. Many
of you are aware that AdStar announced last week the signing of a
channel sales and distribution agreement with Atex Media Command.
This (was) a very, very significant point. First of all, we've
become a supplier to suppliers, as Leslie said. We're providing
e-commerce services to the largest distribution channel in the
newspaper industry - that's Atex. And with over 300 newspapers
currently using their front-end products, it offers us an excellent
opportunity to have our product represented by their sales and
support organizations. We'll be able to utilize Atex's large
worldwide sales and support organization to do what we previously
had done ourselves. And this potential means that a new marketing
model will come into being at AdStar - one which reduces cost of
goods sold and reduces sales expenses at the same time, while
opening up a very, very large audience of potential users to our
product. The model will be repeated in future as we work with other
newspaper front-end vendors and other audience aggregators in the
industry. That means that our sales and marketing will shift from a
paper-by-paper orientation to a channel orientation. And with it, we
will have attendant reduction in operating expense and sales
expense. And lastly, this means that our (XML) marketing partners -
companies like CityXpress, Innovectra and NMI - will have access to
a much larger community of newspapers. This is great news because as
we move additional transactions through our gateway in order to
serve the people in this
community, we'll engender additional charges for these. So that's
the news from Sales and Marketing.
Leslie Bernhard: Good. Thank you, Ben. Mark, I'd like to open it up for
questions now.
Operator: Thank you very much. The question-and-answer session will be
conducted electronically today. If you would like to ask a question,
you can do so by pressing star one on your telephone keypad. Once
again, that is star, one, on your telephone keypad. We will proceed
in the order (that) you do signal us, and we'll take as many
questions as time allows. If you are using a speakerphone, please
ensure that your mute function is off so our equipment can receive
your signal. If you would like to take yourself out of the key -
queue, you can do so by pressing the pound key. We'll pause just one
moment to assemble our roster. Our first question today will come
from George Karutz with Karutz Capital.
George Karutz: Good afternoon, Leslie, Jeff.
Leslie Bernhard: Good afternoon, George.
George Karutz: How you doing?
Leslie Bernhard: Good...
George Karutz:...(want to) ask you is, when do you anticipate the first revenues
from your deal with Atex? And after that, what kind of a 12-year -
12-month revenue do you think you'll get from that deal?
Leslie Bernhard: Well, we do have internal forecasts. I suppose, Ben, we could
- we could share with George when we expect first revenues. And
we're not really prepared at this time to give any guidance on the -
on the contract. But Ben could speak to numbers of papers, I
suppose, and when they - how we think we'd phase them in.
Ben Smylie: The first revenues from the Atex agreement should come early in Q1
of next year. They already have several of their domestic newspapers
(teed) up for this opportunity. So they'll be the first newspapers
that we will connect. And I wouldn't feel comfortable giving any
guidance about the first year's schedule as yet, Leslie.
Leslie Bernhard: OK. That's fine. So George, it's a little bit premature. (Just)
suffice it to say we have viewed it conservatively from the
standpoint of our sales forecast, and we're very excited to have the
- have the universe of the 300 newspapers globally available to us.
And with the combination of Atex resources - which typically is what
paces AdStar, is a lack of resource and a lack of - a lack of
support because people out at newspapers have other things to do -
we're now working directly with the system providers, and so the
level of information and the speed with which we can get it will be
the best we've ever had. And we believe that that will really
accelerate things.
George Karutz: OK. And when do you anticipate becoming cash-flow positive?
Leslie Bernhard: We - we're not prepared at this point to give you a specific
quarter. I can tell you we will be cash-flow positive and profitable
next year.
George Karutz: Both.
Leslie Bernhard: Both.
George Karutz: Profitable and cash...
Leslie Bernhard: Both.
George Karutz:... (flow) positive.
Leslie Bernhard: Yes.
George Karutz: OK. (And) your old ASP business, you know, (x'd) out your deal
with Atex, because, I mean, that's got to be ASP, too, running...
Leslie Bernhard: Yes.
George Karutz:... through your ASP.
Leslie Bernhard: That is correct.
George Karutz: But your legacy, as I guess I'd call it - not the new business
that you're - that you're signing with a joint venture - do you see
that going back and beginning to grow now that all this is passing -
the clouds over these newspapers?
Leslie Bernhard: I'm not sure I'm exactly clear. Just say that last part again.
George Karutz: Well, do you anticipate - you know, your transactions were flat
at 150,000...
Leslie Bernhard: Correct. Oh, yes...
George Karutz: And (x'd) out your new deal with Atex...
Leslie Bernhard: Right.
George Karutz:... I mean, do you anticipate that beginning to grow at a more
- at a rapid rate?
Leslie Bernhard: Absolutely. That was a one-time anomaly. And we're confident
that from what we've seen already...
George Karutz: Are you already...
Leslie Bernhard:... that that will come (back).
George Karutz:... seeing a pickup in this quarter?
Leslie Bernhard: Yes. Yes.
George Karutz: OK. And so you're going to have a lot expense write-offs in
this quarter from getting rid (of) different employees. But then
you'll be clean by the end of the year.
Leslie Bernhard: Correct. So the impact will be in the first quarter.
George Karutz: OK.
Leslie Bernhard: Yes.
George Karutz: Thank you.
Leslie Bernhard: Oh, you're welcome.
Operator: As a reminder; if you would like to ask a question today, you can do
so by pressing star one on your telephone keypad. Next, we hear from
Jonathan Ziegler with J.M. Dutton.
Jonathan Ziegler: Hello, folks.
Leslie Bernhard: Hey, Jon.
Male: Hello, Jon.
Jonathan Ziegler: ((inaudible)) I had a couple of questions, of course. You
had an exciting announcement today about the relationship with NMI.
And I don't know if you can give us any detail on how that might
ramp. Does it have application in the U.S., where I guess we're sort
of cell-phone illiterate, here? But can you give us any idea what
the - how it might impact your revenue and profit stream?
Leslie Bernhard: I can't from the standpoint of revenue and profit. I can from
the standpoint of application.
Jonathan Ziegler: OK.
Leslie Bernhard: The use of - when we first started talking to NMI and started
seeing what they were doing in Europe and started looking at this
extension out to the advertiser through the mobile phone, we were
excited about it, thought it would be a nice opportunity to combine
with the AdStar offering and really use that to help push our
product in Europe, because Europe is so far ahead and really
requires SMS or cell-phone-technology-type messaging support for
anything they do. Since then, on October 11th, Google introduced an
SMS offering, where using your cell phone, you, in the U.S., can
query the Google database. And others are coming out of the
woodwork, (and) television ads that relate to the various mobile
carriers in this country are beginning to promote more and more the
text-messaging aspects. And so we've already had inquiries from
media companies - domestic media companies - relative to this SMS
extension. So although we initially felt that we would do something
in the European market next year with SMS, (and) 2006, we'd do an
introduction (in) the domestic market, we're going to be doing
something in the domestic market next year simultaneous with Europe.
Jonathan Ziegler: Oh, (great).
Leslie Bernhard: And that's the good news. Now, when it comes to actually
quantifying revenue and profits, it's too early for me to do that.
Jonathan Ziegler: OK.
Leslie Bernhard: But it definitely is starting at the beginning of next year.
Jonathan Ziegler: Sounds good.
Leslie Bernhard: Yes.
Jonathan Ziegler: Secondly, you had kind of a blurb in here about "The
Atlantic Journal" - "Atlanta Journal-Constitution" - and I know
Manheim's down there - but it looks like you're adding the -
you're expanding your verticals.
Leslie Bernhard: Yes.
Jonathan Ziegler: What - what's the outlook for other journals expanding the
timeframe (on) going into other verticals, as well?
Leslie Bernhard: Ben, why don't you speak to the balance of the Atlanta
commitment, and then to some of the other opportunities with the
other media companies?
Ben Smylie: Well, Atlanta has been an excellent opportunity for the company to
take its core Web-based (ad-taking) sales product and enhance it
with some of the new techniques and technology that Cox Enterprises
and its subsidiary Atlanta newspapers see as being drivers for the
market online for newspapers. So we undertook a non-recurring
engineering project in conjunction with Atlanta newspapers to build
out their four verticals. We launched a new jobs package, which has
been highly successful at forcing combination buys both on the
Internet and online for Atlanta newspapers, which will soon be
rolled out to the rest of the Cox newspapers properties, based on
AdStar's technology. In addition, we're just about to launch our
(autos) package for Atlanta, which is a new, enhanced (autos)
vertical which also contains elements of Manheim ads in it. So we're
very excited about that. (And) Cox intends to roll out that model to
their other properties, as well. In addition, by the end of the
year, we're scheduled to roll out a new real estate vertical
offering with some technologies and
user interface techniques in it at Atlanta, which will again become
a model for Cox. And then we're going to roll out, in the new year,
in the first quarter, a new general merchandise category called
"Stuff" at Atlanta, which will also contain elements of new
technology that will be used in the rest of Cox. And what we do
(and) take away from this experience is new user interface and new
technology and new workflow, which are incorporated into AdStar's
basic Web-based ad sales offering. And then, in turn, elements of
that are offered to our other customers, both new and old. So we get
to benefit across the spectrum because we pick up ((inaudible))
(engineering), as well as new services and capabilities, which we
then offer to the rest of our audience.
Jonathan Ziegler: That's great. So Cox doesn't have an exclusive right to it.
You don't have to pay them any royalty.
Ben Smylie: That's correct.
Jonathan Ziegler: Good. And then finally - I (don't know whether) Tony or Jeff,
you talked about a $1 million savings through some of your
cost-reduction programs. Do you know, next year - and I know that's
a global number for the entire year - is that something that scales
up as the year goes on? Or do you think (it'd) be pretty even by
quarter? Or any kind of input on that?
Male: For the most part, Jonathan, it's pretty even by quarter.
Jonathan Ziegler: OK.
Male: Again, because of some unusual one-time expenses this year that
would not come about next year, (it) - there may be some peaks and
valleys. But for the most part, it should be ongoing reduction.
Jonathan Ziegler: Got you. Thanks very much, guys.
Leslie Bernhard: Thank you, Jonathan.
Male: (Righto).
Operator: At this time, we have no questions in the queue, but I would like to
briefly remind our audience, if you would like to ask a question
today, you can do so by pressing star one on your telephone keypad.
And we'll pause just one moment to see if there are additional
questions. And appears at this time, there are no questions. I will
now turn the conference back over to Ms. Leslie Bernhard for any
closing or additional remarks.
Leslie Bernhard: Thank you, Mark. And thank you all for being with us today.
And we're working as hard as we can to build as much value as we can
for all of you as well as ourselves. So thank you, again.
Operator: And that does conclude today's conference call. If you wish to
access the replay of this call, you may do so by dialing
1-888-203-1112, or area code 719-457-0820. I'll repeat those
numbers. That is: 888-203-1112, or 719-457-0820 - with passcode
310490. Again, that passcode is 310490. This concludes today's call.
Thank you for participating. Have a nice day.
END