Dow Jones 11532.96 -109.51 5:36 am PDT, August 14, 2008 NASDAQ 2428.62 +0.00 For info, visit access.smallcapnetwork.com S & P 500 1285.83 +0.00 Change your subscription status here Russell 2000 747.69 +0.00 VOLUME 08 : ISSUE 71 Stockhouse Q2 Call: Q&A Tells More Than Results I hope you were in on Stockhouse's (OTCBB: STKH) conference all and webcast yesterday afternoon. If not, don't worry - I was on it for you. However, I don't know if I'll be able to do it justice...particularly the question and answer session. The numbers, of course, speak for themselves.  The company's total revenue last (second) quarter totaled up to $3.26 million, versus $3.7 million a year ago, and a little under last quarter's (first) revenue of $3.5 million. Ad sales fell from $1.09 million to $700K on a qoq basis. Ad sales in Q1 of 2008 were $875K.  As for earnings, second quarter's EBITDA was -$1.69 million, thanks to $3.5 million in operating expenses. For the same quarter a year ago, EBITDA was -$851K, and operating expenses came in at $2.9 million. For reference, the first quarter's EBITDA was -$1.5 million, thanks to $3.6 million in operating expenses.  What happened? More than $800K in impairment charges didn't help, but the company is still incurring a lot of one-time expenses from the new site, recent acquisitions, new systems and software, and re-arrangement or elimination of redundancies. After the call I was able to take a closer look at the 10-Q, as well as talk to some of the Stockhouse people. The 'rest of the story' came to the surface. The new Mobile StockStream product wasn't launched until July; sales of their pager-based data subscription tapered off significantly in the meantime, but weren't able to be offset until the current quarter. Subscriptions of StockStream (web-based) were actually up 43%. Point being, the comparison between then and the future may be apples and oranges. As for ad revenues, they were a little depleted in the sales (and sales leadership) ranks, and the ad-server wasn't put into place until after the quarter ended. I'm not entirely sure how that helps improve ad revenue, but it is expected to create more of it. And, that's clearly a big opportunity to recover some missing sales. I'm not saying any of this to defend the company. In fact, I think these one-time expenses are really getting frustrating - good thing the company says they're mostly out of the way. I think you just need to know the fundamental differences between the past and the future, if you're to come to a sensible expectation about Stockhouse.  With that as a backdrop, the company still expects to be profitable in Q4, though not necessarily in Q3.  The results are what they are. You'll have to decide for yourself whether they're ok or not (I don't make the news - I just report it), and you'll have to cross reference that with where they're going ...particularly with ad revenue and wireless/mobile subscriptions. Keep reading though; the real value of the call comes from the discussion between the company's management and investors after the results are reviewed.    Q&A As much as I'd like to be able to include all the questions and answers from the Stockhouse conference call, I can't. There's not enough room here, and I can't write fast enough. A transcript will be available, but that's going to be pages and pages.  Instead, I'll just paraphrase the important questions. (Also note that I omitted a lot of great questions because the question, while specific, prompted a wordy and somewhat-ubiquitous response. I really think you need to hear the call for yourself for those Q&A's to mean anything.)  Q. Your cash burn is bigger than ever [operating expenses, not cost of revenue], and sales were lower. How can you get to a positive EBITDA by Q4 at that rate?  A. Bear in mind much of that expense line was from one-time costs. Operating expenses should start to go lower after Q2, since many of the contract renegotiations took place during Q2. Q. You ended this quarter with an average number of visitors to the stockhouse.com site at about 700K per month. That total was a little higher during Q1, and reached higher than 1 million per month in Q4 of last year. How do you explain the drop off?  A. With the new site, a lot of bookmarks and back-links no longer worked. Plus, being in a bear market has hurt general interest in market-related activities. We're currently working with search engine consultants to increase traffic. Q. The Stockhouse story started out as a revenue growth story, but has since turned into a cost-cutting story. Which is it?  A. It's not one or the other. We're trying to grow [long term] profitability, but we're trying to do so profitably. We can't invest in all ventures at the same time, so we're focusing on doing one at a time, and doing it well. Q. [This is an aggregate of several question.] In the previous conference call you mentioned you expected total costs would be [on an ongoing basis] $3.6 million. Any revenue above and beyond that would be profit. Yet, we keep seeing considerably higher expenses. When is it likely to end?  A. There are several components to the answer. Yes, $3.6 million is still the break-even point; if revenue exceeds that - and if gross margins are 60% or better - we expect to turn a profit. There are still some one-time cost reductions that will be booked during Q3, but we don't expect to book any additional expenses in Q4. Thus, we still think Q4's EBITDA will be positive. There were more question, and more answers, I think you'd want to hear...especially if you're an owner. Like I said above though, some of the questions and answers spawned some tangents, that lead to philosophical discussions, and so on. To try and make sense of some of them here would just be pointless - you really need to hear the call for yourself (which you can, from stockgroup.com).  That said, if I had room for an opinion here in the newsletter about the quarter and their responses to the questions, I'd love to leave 'em here. Unfortunately, I can't in this edition - not enough room.  HOWEVER, yes, I will have some publicly-available thoughts and observations I absolutely want you to hear - from me - about this quarter and the company's future.  I'll just leave you with this teaser...this quarter was pretty much more of the same from Stockhouse - the company is still working through some growing pains. Take that however you want to. Be sure to check the blog later on today for the op-ed stuff, once I've had time to really collect my thoughts and come up with a way of voicing them succinctly.     We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Email the Editor If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 Subscribe Information is power and timely information is profitable. Become informed and profit from Small Cap Network Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the Small Cap Network Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the Small Cap Network Member List. 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