Traffix Inc (Other) (425)
02 Octubre 2007 - 5:03AM
Edgar (US Regulatory)
Filed
by
Traffix, Inc.
Pursuant
to Rule 425 under the
Securities
Act of 1933 and Deemed
Filed
pursuant to 14a-12 of
the
Securities Exchange Act of 1934
Subject
Company: Traffix, Inc.
Commission
File No.: 000-27046
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
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1
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
September
27, 2007
3:30
pm CT
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Welcome,
and thank you for standing by. At this time, all participants are
in a
listen only mode. After the presentations we will conduct a question
and
answer session. To ask a question at that time, you may press star
1.
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This
conference is being recorded. If you have any objections, you may
disconnect at this time.
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I
would like to turn the call over to Ms. (Nicola Piggott). You may
begin.
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(Nicola
Piggott):
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I
am going to read some general statements to begin the call and
then I’ll
hand over to Burton Katz, the CEO of New Motion.
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Forward-looking
statements: At this press release and an extent in this conference
call
contains forward-looking statements within the meaning of the Private
Securities Litigation Reform act of 1995.
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Forward-looking
statements are statements that are not historical fact, are based
on
certain assumptions and reflects our current belief and expectations.
These forward-looking statements are subject to risks and uncertainties,
and other important factors that could cause actual results, performance,
or achievements to differ materially from any future results, performance
or achievements, discussed or implied by such forward-looking
statements.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
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The
following factors among others could cause actual results to differ
materially from the anticipated results or other expectations expressed
in
the forward-looking statements. The risk that the proposed transaction
may
not be completed in a timely manner if at all, the failure of stockholders
to approve the transaction, the failure to realize synergies and
cost
savings from the transaction, or delay in realization thereof,
the
business of New Motion Inc. and Traffix Inc. may not be combined
successfully, or such combination may take longer, be more difficult,
time
consuming or costly to accomplish than expected, operating costs
and
business disruption following the merger, including our relationships
with
third parties, general business and economic conditions, geopolitical
events and regulatory changes, the performance of financial markets
and
interest rates, and the ability to obtain governmental approval
of the
transaction on a timely basis, as well as other relevant risks
detailed in
the filings of New Motion and Traffix with the Securities and Exchange
Commission, and available at the SEC’s Internet site located at
www.SEC.gov.
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The
information set forth herein should be read in light of such risks.
The
information set forth herein speaks only of the date hereof, and
New
Motion and Traffix disclaim any intention or obligation to update
the
information contained in this press release and conference
call.
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Important
additional information and where to find it: This communication
is being
made in respect of the proposed business combination involving
New Motion
Inc. and Traffix Inc. In connection with the proposed transaction,
New
Motion Inc. plans to file with the SEC a registration statement
on Form
S-4 containing a joint proxy statement slash prospectus, and each
New
Motion and Traffix’s plan to file with the SEC other documents regarding
the proposed transaction.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
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The
definitive joint proxy statement/ prospectus will be mailed to
stockholders of New Motion and Traffix. Investors and security
holders of
New Motion Inc. and Traffix Inc. are urged to read the joint proxy
statement/prospectus and other documents filed with the SEC carefully
in
their entirety when they become available, because they will contain
important information about the proposed transaction.
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Investors
and security holders will be able to obtain free copies of the
registration statement and the joint proxy statement/prospectus
when
available, and other documents filed with the SEC by New Motion
and
Traffix through the Web site maintained by the SEC at
www.SEC.gov.
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Free
copies of the registration statement and the joint proxy statement/
prospectus when available, and other documents filed with the SEC
can also
be obtained by directing a request to Ray Musci, President of New
Motion
Inc. at 949-777-3700 extension 221, or by directing a request to
(Todd
Framer), 212-682-6300 extension 215, or (Beth Moore), 212-682-6300
extension 224 of KCSA investor relations for Traffix
Inc.
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New
Motion, Traffix and their respective directors and executive officers
and
other persons may be deemed to be participants in the solicitation
of
proxies in respect to the proposed transaction. Information regarding
the
identity of the persons who may, under SEC rules, be deemed to
be
participant in the solicitation of proxies and a description of
their
direct and indirect interests in the solicitation by security holdings
or
otherwise will be contained in the joint proxy statement slash
prospectus
and any other relevant materials to be filed with the SEC when
they become
available.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
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With
that I would like to hand over to Burton Katz, CEO of New Motion
Inc.
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Burton
Katz:
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Good
afternoon. I would like to introduce myself. My name is Burton
Katz and I
am the CEO of New Motion Inc. Present on this call with me today
is Jeff
Schwartz, CEO and the Chairman of the Board of Traffix Inc.; Andrew
Stollman, President of Traffix; Ray Musci, President of New Motion;
and
Dan Harvey, CFO of Traffix.
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Today
I am pleased to make an important announcement to our respective
shareholders, employees, partners and customers. As of today, Thursday,
September 27, the boards of both companies have approved and we
have
entered into an agreement for a stock for stock merger between
New Motion
Inc. and Traffix Inc.
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The
company will be applying to list its shares on the NASDAQ Global
Market,
with the listing effective upon closing of the merger. With this
combination, we will have resources to create a vertically integrated
mobile entertainment network that will play a major role in the
mobile
industry worldwide.
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Under
the merger agreement, New Motion shareholders will retain approximately
55% of the shares of the combined company on a fully diluted basis,
with
Traffix’s shareholders receiving shares constituting approximately 45%
of
the shares of the combined company.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
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The
transaction values Traffix’s share base upon New Motion’s Wednesday
closing price of $15.50 at $10.59, more than 100% premium over
Traffix’s
Wednesday closing price.
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Management
projects that assuming completion of the transaction by the end
of 2007;
the revenues of the newly combined entity for 2008 could reach
between
$145 and $160 million. I will lead the company as its Chief Executive
Officer. Andrew Stollman, currently President of Traffix, will
serve as
President of the combined company, and Jeff Schwartz will step
down as
Chairman and Director and continue as a consultant to the combined
company.
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The
Board of Directors of the company following the merger will initially
consist of seven persons, with three persons designated by New
Motion, two
of whom will be independent directors, three persons designated
by
Traffix, two of whom will be independent directors, and myself
acting as
CEO.
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Subject
to the customary regulatory clearance and shareholder approval,
we plan to
close at the end of 2007 or in the first quarter of
2008.
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We
aim to expand upon and solidify an innovative business model New
Motion
has created over the past year. The model evolved in part as a
byproduct
of working very closely with Traffix as a commercial partner. First,
we
are creating a true mobile entertainment network that owns a wide
range of
digital content, exclusive premium billed mobile subscription services
and
wide online distribution.
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Second,
we are well-positioned to serve the growing trend where consumers
access
digital content online, want to interact with those same or associated
services on their mobile device, and are willing and able to pay
for the
ability to do so.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
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Third,
by owning a diverse online distribution network, we are able to
lower our
effective cost for acquiring mobile subscribers while creating
a larger
audience, which we will further monetize with third party
advertising.
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Fourth,
it is relevant to note that we will have at the time of closing
a strong
and healthy balance sheet that will enable the company to actively
seek
additional accretive acquisitions.
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Significant
and defining transactions such as this merger and the digital space
are
rich with opportunities and combined synergies. We may not be able
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fully articulate or answer certain economic details about these
synergies
on this initial call, but these can and will be address in due
course and
upon closing the transaction.
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Certainly
there’s a tremendous amount of operational work and definition that will
take place in the coming months to fully realize this compelling
and
exciting opportunity for all shareholders.
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To
better introduce the strategic rationale and the economic relevance
of
this transaction, I want to first introduce my background and that
of our
respective companies. I have spent the last nine years in my professional
career involved in building and operating large and successful
global
businesses in the mobile content, Internet marketing, and digital
technology sectors.
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These
nine years, including two years as a principle in Price Waterhouse
Cooper’s telecom and Internet practices, managing global projects for
large international clients, and six years with an early stage
European
based mobile content startup, which ultimately went public and
achieved
global revenues in excess of $260 million at the end of
2006.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
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Over
the last few years I noticed an important trend specific to the
mobile
entertainment industry in the domestic US market. While broadband
connectivity and rich media experiences were not assessable on
the mobile
handset, customers still demonstrated a growing appetite to discover
and
acquire content serves online and wanted a similar interactive
experience
using their mobile device.
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This
rendered the Internet the most powerful medium for efficiently
acquiring
customers for premium billed mobile entertainment services. There
was a
clear opportunity to create new and innovative content models that
supported this trend. This notwithstanding, I believe the ultimate
winner
in this space would have to have leading Internet marketing competencies
coupled with an existing strong mobile DNA.
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In
late 2006, I joined New Motion Inc. as its CEO. New Motion has
grown from
$5.9 million in net revenues in 2005, its first full year of operation,
to
$18.7 million in 2006, and continues to grow in 2007. This leads
us to
today and the merger with Traffix.
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Traffix
is one of the few complete interactive online marketing companies.
The
company owns a network of Web property that receives that over
25 million
unique visitors per month, which is driven by its own valuable
content
that ranges from free legal music downloads to its own proprietary
games.
They also operate an affiliate network that syndicates third party
advertising offers through 5,000 individual publishes, and a search
engine
marketing company that bids and manages approximately 2 million
search
terms per day.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
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The
combined company by owning and controlling content and online distribution
will be able to drive millions of visitors to exclusive subscription
based
offers, while monetizing those visitors with ad supported content.
Management of both New Motion and Traffix believe this is a unique
business model that provides scalability and sustainable growth
over
time.
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First,
the combined company will be positioned to address the growing
trend where
consumers are transitioning from accessing digital content on the
Web to
the portability of their mobile handset. We have the battle tested
technology, the unique products, proprietary content and vast distribution
to serve this growing market with both premium billed subscription
and ad
supported services.
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Second,
the combined company will be well capitalized and have a strong
balance
sheet with no debt and a significant cash position. In addition,
management projects the combined company to provide growing positive
free
cash flow in the first quarter following the closing.
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As
a stand-alone entity, Traffix has consistently delivered earnings
and its
core business is expected to continue doing so. Now Motion, with
limited
financing, grew its business from a mere concept to an $18 million
plus
company, while producing earnings in both 2005 and 2006, the first
two
years of its existence.
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In
2007, New Motion has and continues to invest aggressively in growing
its
subscriber base and building a scalable infrastructure where it
expects to
have up to 1 million monthly billable subscribers during the first
quarter
of 2008. We also plan to grow that subscriber base substantially
next
year.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
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New
Motion’s subscription base reoccurring revenue model is nearing an
important inflection point, where net revenues minus fixed cost
is
expected to exceed its monthly acquisition expenses with a gap
between the
two that should widen in 2008.
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The
synergy I will detail will demonstrate how we amplify this noted
gap
between new customer acquisition cost and recurring revenue from
our
installed customer base. Management believes that New Motion’s current
cost for acquiring a single subscriber is up to 50% below the competitive
market based on published competitive rates offered on affiliate
networks.
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In
the online industry, it’s common for affiliate networks and their
associate affiliate to earn combined margins between 40 and 50%.
Today,
Traffix owns a competitive affiliate network that syndicates offers
to
third party publishers, a network of Web properties that receive
an
average of 25 million unique visitors per month, and a search engine
marketing company that specializes in performance based search
engine
marketing and optimization.
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By
combine this vast distribution engine with New Motion’s diverse set of
mobile products, we expect to reduce our effective CPA even further.
I
believe it is important to note, this lower CPA will further drive
growth
where we expect to have additional operating cash to reinvest and
grow the
business.
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Fourth,
we believe we can create a competitive barrier to entry by effectively
owning proprietary content, exclusive premium billed mobile offers
and a
wide online distribution targeting unique and differentiated sets
of
customer audiences.
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In
the digital entertainment sector, content typically creates an
audience
and community. We have shown working alongside Traffix that we
can
successfully take that content and convert it into premium billed
subscriptions to the same ever expanding consumer audiences and
communities.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
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We
have worked hard in the past year to create innovative and compelling
content services covering mobile and the fixed Internet. Already
working
closely with Traffix as a commercial partner, we have successfully
demonstrated we can reach a unique demographic audience that is
willing
and able to pay for premium mobile services.
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It’s
important to note, the early adoption of the fixed Internet was
fueled by
a younger audience, and ultimately it took a broader demographic
to create
ubiquity and critical mass. We have experienced a similar trend
in mobile
entertainment. Today, New Motion’s primary customer is between the ages of
28 and 50 years old. Our targeted content services to this demographic
are
focused today on three primary categories; casual games, interactive
contests and digital music.
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I
began my remarks by noting this transaction represents an important
milestone for our respective shareholders, employees, partners
and
customers. In summary, the benefits of the transaction are: First,
we will
have a different business model than almost anyone else in the
mobile
entertainment space. We will not be dependant on accessing space
on the
carrier deck like many other companies in the industry. Our broad
reaching
proprietary content will enable us to attract potential subscribers,
while
identifying their target interests in the process.
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Because
of the scale that we have already achieved, we can create niche
premium
billed mobile communities that can be formed and operated profitably.
These communities can cater to interests that will appeal to any
group
where we can acquire suitable compelling
content.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
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Second,
the metrics of our business are superior to those that currently
exist. We
believe our CPA’s are lower, our average revenue per users are higher than
others in the industry, resulting in a reduced payback period and
a higher
lifetime value per subscriber.
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Third,
the US market for mobile entertainment services and online advertising
have, and is expected to continue enjoying strong growth rates.
Our goal
for 2008 is to become an extremely competitive and market-leading
mobile
entertainment provider, measured by the quality of our services
and the
number of active subscribers that we have.
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Fourth,
we will have a well-capitalized business generating positive cash
with a
clear opportunity to both invest in both organic and acquisitative
(sic)
growth.
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Fifth,
we have a seasoned management team with deep direct marketing,
online and
wireless backgrounds, as well as experience and demonstrated success
in
starting, operating and leading companies in a public
environment.
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Sixth,
it is important to note the two companies working together already
have
proven an ability to generate hundreds of thousands of new mobile
entertainment subscribers monthly with an innovative, scalable
and
sustainable business model.
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Thank
you for your attention and participation, and we hope you share
our
enthusiasm as we embark on this extremely compelling and exciting
opportunity the new enterprise affords us all. As I mentioned,
there are
many open operational and transitional issues that we have yet
to totally
define, and there is understandably much to accomplish as we work
to
complete our combination. With this in mind, I would like to turn
the call
over to the moderator and we will attempt to answer any and all
questions
at this point in time.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
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Operator:
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If
you would like to ask a question, please press star 1. Your name
will be
announced when your line has been opened. Please state your company
name
prior to asking your question.
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To
withdraw your request, you may press star 2. Once again, to ask
a question
please press star 1 on your touchtone phone.
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Our
first question comes from (Carter) (unintelligible).
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(Carter):
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Hey
guys, how are you doing?
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Man:
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Hi,
how are you doing?
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(Carter):
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I’m
doing very well. You broke out the roughly 1 million users right
now; I
was wondering what a realistic growth expectation would be in ’08 and
looking forward with that?
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Burton
Katz:
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As
I stated we will, as we file our S4, send out the joint proxy statements
and get close to closing the transaction, we will be providing
additional
guidance. What I would point you to is effectively taking that
1 million
billable subscribers and looking at New Motion’s growth rate quarter over
quarter since its inception, and try to work it back from
there.
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We
will again be providing more clear guidance as we get closer to
closing
the transaction, but at this point in time we’re not disposed to providing
that.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
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(Carter):
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Okay,
great, and then a quick follow-up. Do you guys break out churn
or the
actual CPA or ARPU numbers?
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Burton
Katz:
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We
do not, as we deem that highly competitive information.
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(Carter):
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Okay,
that you very much.
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Operator:
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Our
next question comes from Ali Mogharabi. Please state your
company.
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Ali
Mogharabi:
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B.
Riley.
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Burton
Katz:
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Hey
Ali, how are you?
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Ali
Mogharabi:
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Hey
guys. A couple of things, one Jeff, I see that you have the flexibility
to
sell around 1.2 million shares between now and the closing of the
deal?
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Burton
Katz:
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I
will allow Jeff
–
or ask Jeff
to answer the question.
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Jeff
Schwartz:
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Ali,
I think the actual correct number was one million shares, but I
have given
myself that flexibility and it’s not an absolute, but it is an option that
I’ve left myself.
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Ali
Mogharabi:
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Okay,
can you give us an idea why, and also I mean, I just noticed this.
I
haven’t been able to look it up, but what percentage of your total current
holdings is that one million?
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Jeff
Schwartz:
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Well
fully diluted it will come in to about less than 50% [sic
10%].
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Ali
Mogharabi:
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Less
than 50% [sic 10%] of yours, okay.
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HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
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Jeff
Schwartz:
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And
as to the why, I think it’s sort of obvious. I’m beginning to start my
quote, retirement, and I’ve elected to pass the baton to Burton who I
think is probably the best guy that I’ve met to date to run a combined
enterprise like this, and I think the company needs some fresh
blood and
fresh ideas and the kind of energy that only a guy Burton’s age can bring
to the equation.
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Ali
Mogharabi:
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Gotcha.
You still sound like you got a lot of energy Jeff.
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Jeff
Schwartz:
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I
got a lot of energy Ali, but compared to this guy who sleeps about
three
hours a night I’m a laggard.
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Ali
Mogharabi:
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Alright,
and then Burton, I think you mentioned in the first quarter you
expect to
be free cash flow positive? Did I hear you right?
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Burton
Katz:
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That’s
correct, and New Motion as a stand alone company would expect to
be so and
obviously in the combined entity with the historic results that
Traffix
has delivered, as a combined company we’ll fully expect
to.
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Again
as I noted in the press release as well, we fully expect this transaction
to be accretive to Traffix’s shareholders.
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Ali
Mogharabi:
|
|
Gotcha,
okay and then one more thing. I just want to make sure I’m on the right
track here. As you may know, I’ve followed Traffix for awhile. For my
estimates for next year for revenues I’ve got around $82 million, so with
that guidance - let’s take the low end of the guidance of 145. Let’s say
I’m right, then it sounds like we expect New Motion to generate revenues
around let’s say over $60 million.
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Burton
Katz:
|
|
Ali,
we’ll be updating between now and the closing as we disclose more
public
information on exactly what that will look like, and we will reflect
both
the New Motion revenue that will be part of it, as well as the
Traffix
revenue that will part of it.
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
15
|
Ali
Mogharabi:
|
|
I
see. I guess Burton, what I was trying to get an idea about was
that - is
assuming a 35, 45, maybe even 50% top line growth at least in the
next
couple of years, is that realistic?
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Burton
Katz:
|
|
Well
what I would suggest, or what I look at now prior to actually providing
the specific information, is that if you look at New Motion over
the past
three quarters, and you look at our year over year growth, we have
actually hit top line growth between 78 and 83% year over year
over the
past three quarters.
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And
I have made comments in my latest Q that we believe that we will
continue
to consistently deliver results as such.
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Ali
Mogharabi:
|
|
Gotcha.
That helps. I appreciate it, thanks.
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Burton
Katz:
|
|
Thank
you.
|
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Operator:
|
|
Our
next question comes from (Melvin Sanback). Please announce your
company
name.
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(Melvin
Sanback):
|
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(Sanback).
Listen, I have a concern and a couple of questions. My concern
is that as
I see this chart in front of me, New Motion stock sold at $120.12
a share
in November of last year. It dropped to $4 a share within six months.
It
says 5/7/07 it was $4. That’s $116 a share drop in six months time. My
concern is what could possibly have happened that would warrant
a
profitable company like Traffix that’s paying a dividend to
merge?
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Burton
Katz:
|
|
I’m
going to defer it to the President of New Motion, Ray
Musci.
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
16
|
Ray
Musci:
|
|
I
can’t necessarily comment for the chart that you’re looking at. New Motion
actually had reversed into a shell earlier this year. We raised money in
it. There was a significant share exchange so - and again, in terms
of the
chart that you’re looking at with reference to the price, I really can’t
comment on that. I think that the value of New Motion in the current
market, if I find the market to be fairly efficient we find the
most
(unintelligible).
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(Melvin
Sanback):
|
|
Hello?
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Burton
Katz:
|
|
Yeah
and just to expand on Mr. Musci’s commentary, the process that unfolded
was New Motion was a private enterprise and went public. They’re doing a
reverse merger in a public shell that had been through
bankruptcy.
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So
some of the
–
I can’t
comment specifically on the chart that you’re looking at other than to say
that after the reverse merger into this public shell, and then
effectively
raising around $20 million of gross proceeds in a private placement,
we
then did a reverse stock split for 300 for one. I believe it’s in the
public filings. I believe it was around February of 2007 this
year.
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(Melvin
Sanback):
|
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One
other question. Hello?
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Burton
Katz:
|
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Yes?
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(Melvin
Sanback):
|
|
With
most of the funds, it appears to be coming from Traffix to get
that good
balance sheet. What does that do to the possibility of the continuance
of
the dividend?
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Burton
Katz:
|
|
We
haven’t commented and haven’t made a determination of that at this point
in time. What I can say is that Traffix in its last quarterly conference
call did state its usual policy as far as issuing dividends and
making
those decisions on a quarterly
basis.
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
17
|
(Melvin
Sanback):
|
|
Well
I understand that, but okay. Yeah, thank you.
|
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Burton
Katz:
|
|
Thank
you.
|
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Operator:
|
|
Our
next question comes from (Aaron Fuque). Please state your
company.
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(Aaron
Fuque):
|
|
It’s
(unintelligible) Capital. I was wondering, I have a couple of questions.
In your recent 10-Q, New Motion’s 10-Q, it talks about that you have a
very significant customer, 85% of your revenue for the six months
in 2007
came from one customer.
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Burton
Katz:
|
|
Yes.
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(Aaron
Fuque):
|
|
Maybe
just what is the customer (unintelligible)?
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Burton
Katz:
|
|
Let
me provide some clarity for you. That’s a very good question. In the
mobile content business, the way the payment structure works is
that we
have connection through a third party biller with the actual telco.
So
effectively, the telco charges the customer on their phone bill,
and then
they pay our third party biller who then remits funds to
us.
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At
the time of the Q, 85% of our revenues flow through one third party
billing aggregator.
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(Aaron
Fuque):
|
|
Oh,
okay. So it’s not
–
it’s really
not like a –
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Burton
Katz:
|
|
Yes,
it’s more of a – it’s a very good question, but it’s more of just a
supplier.
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
18
|
(Aaron
Fuque):
|
|
Okay.
|
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Burton
Katz:
|
|
And
it’s very typical in the mobile content space for people to use one
supplier for the majority of their revenues or their volume of
transaction, and then use either one or two other ones to back
bill.
|
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|
(Aaron
Fuque):
|
|
Right,
okay. That makes sense. And then another question, looking at the
volume
it’s actually more liquid than Traffix’s, which is not that liquid, and I
was wondering just being new to your company, if you could just
give me
some color on the (flow) and the (unintelligible). Anything you
can give
just to have some straight numbers would be helpful.
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Burton
Katz:
|
|
Can
you repeat the question?
|
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(Aaron
Fuque):
|
|
Sure.
Looking at your historical pricing and trading data, the stock
is usually
selling one or two or 3,000 shares per day?
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Burton
Katz:
|
|
Yes.
|
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(Aaron
Fuque):
|
|
And
so I was just wondering if there’s any color you can give us on who
(unintelligible).
|
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|
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Burton
Katz:
|
|
What
I would suggest is if you look at the
–
obviously
at the public filings, it does state the different percentages
of
beneficial ownership of the larger shareholders. Having said that,
I
believe that – a color that I will – the color I will provide you is that
in our particular shareholder base, we have investors from some
very large
funds, typically hedge funds that own the majority of our closely
held
stock.
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
19
|
|
|
As
far as describing who those funds are and who those investors are,
I would
point you to the public filings.
|
|
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|
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(Aaron
Fuque):
|
|
Okay
and lastly, I was wondering, you say that your CPA, the way you
calculate
it is about half of what your competition is. Can you give us as
much
color as you feel comfortable giving in a public forum?
|
|
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Burton
Katz:
|
|
What
we do know and what I did state was that typically published rates
on
affiliate networks for mobile content services in the US market
range in
the area of $15, and we effectively – our effective CPA’s are well south
of this at this point in time. What we hope to – and I think this is
really the power of the transaction and what we’re actually trying to
create here moving forward, rather than looking at both companies
simply
by the numbers today.
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In
a sense Traffix, who provides a number of leads and customers to
competitors in the overall space, if we’re able to take the margin out of
that distribution chain, we effectively reduce our CPA’s even further. And
when we do that, we’re then able to take the excess – effectively the
excess operating profits, and continue to reinvest that in the
business.
Because the business is effectively a lifetime value sort of a
business
model, rather than the – say on your Traffix business model which is a
transactional one.
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That
obviously is very meaningful because it allows us to gain a lot
of
leverage in terms of investing in our user base at a faster pace
without
sacrificing profitability.
|
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|
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|
|
(Aaron
Fuque):
|
|
Okay,
and the other thing, and this is more of a comment than a question.
The
merger consideration (unintelligible). If it’s based on yesterday’s
closing price would value Traffix’s share at
$10.59?
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
20
|
Man:
|
|
Yes.
|
|
|
|
|
|
(Aaron
Fuque):
|
|
And
obviously it closed at $6.04. I’ve never seen a merger discount like that,
so I think the market doesn’t understand or maybe there’s something, some
more information you could give out that might be –
|
|
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|
|
Burton
Katz:
|
|
I
think the commentary is very fair. Obviously there’s not a lot of
information out there at this point in time, and it is our intention,
hope
and goal to begin providing that information as we file our S-4
in the
next two to three weeks, and then we actually get out in front
of
investors with more detailed information. Not just about the business
today, but about the power of the two businesses
together.
|
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|
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I
will say that working very closely with Traffix as a commercial
partner in
the past six months, we have information where we feel – that we feel
demonstrates how powerful that could be on a go forward basis in
advance
of my quarterly filings as well as Traffix’s quarterly
filings.
|
|
|
|
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|
|
Obviously
we would both retain bankers that actually gave fairness opinions
on the
actual transaction, and we are confident that as we demonstrate
the value
of the two businesses as a combined entity moving forward, that
the
valuation is quite a fair one.
|
|
|
|
|
|
(Aaron
Fuque):
|
|
Great,
thanks for your time.
|
|
|
|
|
|
Burton
Katz:
|
|
Thank
you. I appreciate it.
|
|
|
|
|
|
Operator:
|
|
Our
next question is from (John Schwartz). Please state your
company.
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
21
|
(John
Schwartz):
|
|
(Parvus)
Asset Management. My only question is whether the combined company’s stock
will trade on NASDAQ or kind of what’s going to be done to facilitate
that?
|
|
|
|
|
|
Burton
Katz:
|
|
Just
to give some background, the short answer is absolutely yes. In
the press
filing I believe we stated that we will be on the NASDAQ – we expect to be
on the NASDAQ Global Listing as the combined company. It obviously
meets
all of those requirements.
|
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|
|
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|
|
As
a stand alone company, we had actually in the process of this transaction
were already filing for a global market status, where we as a stand
alone
company had met those requirements as well. Obviously with this
transaction pending, it delayed us in executing on that
filing.
|
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|
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|
|
So
we do (unintelligible). We fully expect the company to be trading
on
NASDAQ Global.
|
|
|
|
|
|
(John
Schwartz):
|
|
Okay
great, thanks.
|
|
|
|
|
|
Burton
Katz:
|
|
Thank
you.
|
|
|
|
|
|
Operator:
|
|
Our
next question is from (Trevor Guldy). Please state your
company.
|
|
|
|
|
|
(Trevor
Guldy):
|
|
RBC.
It looks like based on the current growth rates that you could
do
approximately, combined it’s about 115.20 this year and the press release
said 145.60 next year, and that you have around $40 million in
cash, so a
very solid balance sheet. You can extrapolate out a pretty solid
profit
for 2008. Can you give us any guidance on potential savings when
the two
companies are merged?
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
22
|
Burton
Katz:
|
|
It’s
a great question and we are working on that. I believe that there
are
absolutely some material cost synergies between the two companies.
We will
absolutely begin detailing and outlining that as we go though this
process
prior to closing and update the public market
accordingly.
|
|
|
|
|
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|
|
In
addition to that, I think that this combination, it really complements
your initial statement. It’s really more about the power of the two
companies together from a growth perspective. So while there’s certainly
material cost synergies that we expect fully to extract from the
businesses, this opportunity is really about creating a new business
model
in what is a red hot sector, the mobile entertainment services
industry.
Coupling that with the online advertising industry which is also
a high
growth market, and putting the two things together to really try
to
supercharge a powerful combination that will provide top line growth
that
is better than industry forecasts.
|
|
|
|
|
|
(Trevor
Guldy):
|
|
You
gave some comments on New Motion’s top line growth going forward. Will
this synergy sort of turbo charge Traffix’s top line
growth?
|
|
|
|
|
|
Burton
Katz:
|
|
Go
ahead Jeff.
|
|
|
|
|
|
Jeff
Schwartz:
|
|
You
know, I really want to answer that because this is extremely advantageous
to Traffix, because by having a proprietary subscription model
built into
our Web properties and our distribution channels, it gives us the
ability
to maximize space that was either not used at all or marginalized
and
increases our return on visitor to any of our sites, which allows
us to
drive more traffic to our site and gives us much more proprietary
exclusive content and offers to syndicate through our affiliate
network.
So this is a win-win all around.
|
|
|
|
|
|
(Trevor
Guldy):
|
|
Okay,
thanks guys. Congratulations.
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
23
|
Man:
|
|
Thanks.
|
|
|
|
|
|
Burton
Katz:
|
|
Appreciate
it.
|
|
|
|
|
|
Operator:
|
|
Once
again, to ask a question you may press star 1. Our next question
is from
(John Gilliam). Please state your company.
|
|
|
|
|
|
(John
Gilliam):
|
|
(Point
Valley Strategic Capital.) Good afternoon gentlemen. I wanted to
see what
if any (collar) is in place. I see that the exchange is .683 shares
of New
Motion for each share of Traffix. I wanted just some color on what
scenario there would be a resetting of that target.
|
|
|
|
|
|
Man:
|
|
The
current agreement actually has no (collars).
|
|
|
|
|
|
Burton
Katz:
|
|
And
there isn’t anything at this time that would reset that ratio in the
merger agreement.
|
|
|
|
|
|
(John
Gilliam):
|
|
Okay,
so irrespective of where the trading between now and close date,
it’s
pretty much set, .683?
|
|
|
|
|
|
Burton
Katz:
|
|
That
is correct.
|
|
|
|
|
|
(John
Gilliam):
|
|
Okay.
The announcement actually said that it is subject to adjustment
under
certain circumstances, so really there’s not any circumstances that are
related to share price? Is that fair?
|
|
|
|
|
|
Man:
|
|
That
is correct.
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
24
|
(John
Gilliam):
|
|
Okay
next question. I just wanted to get an idea, and this is obviously
looking
ahead a little but what does that next acquisition look like when
you are
– when this deal is closed, assuming it closes. You mention you’ve got a
pristine balance sheet. I’m assuming it’s going to be a fairly liquid
NASDAQ stock for currency. What will that next acquisition look
like? Will
it be a content play or would it be another –
|
|
|
|
|
|
Burton
Katz:
|
|
I
think that’s a great question and probably a little bit preliminary to
comment specifically, but what I will say, in our value chain and
what
sort of – if you look at the context of our business you have both
content, exclusive mobile offers and vast distribution on the fixed
Internet as well as on the mobile handset.
|
|
|
|
|
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|
|
We
will look at transactions across any of those areas, and particularly
we
will obviously try to leverage our distribution to look at bringing
in
companies that have communities of interest that we can actually
put on
top of our vast distribution platform. In addition to that, looking
to
continue to expand our distribution by adding to what we’ve already build
as a combined company.
|
|
|
|
|
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|
|
I
think as a principle, the types of transactions that we will look
at will
be accretive in nature and provide more scale to the overall
business.
|
|
|
|
|
|
(John
Gilliam):
|
|
Thank
you gentlemen.
|
|
|
|
|
|
Operator:
|
|
Our
next question is from (Jane Lindamen). Please state your
company.
|
|
|
|
|
|
(Jane
Lindamen):
|
|
I’m
a shareholder of Traffix. Following up the previous gentleman’s question
about the exchange ratio being subject to adjustment, if there
are no
circumstances under which there will be an adjustment then why
do we have
the sentence in the second paragraph of the
release?
|
HILL
& KNOWLTON – SANTA MONICA
Moderator:
Melissa Robinson
9-27-07/3:35
pm CT
Confirmation
#5334479
Page
25
|
Man:
|
|
I
believe the question was, was there any adjustments that would
be related
specifically to either company’s trading? In which case in terms of that
(collar), there is nothing that would actually adjust the ratio
with
regard to the share price of either company. There are specific
covenants
in terms of issues that both companies I think need to address
between now
and closing which may if exceeded give rise to an adjustment, but
I would
deem those adjustments to be fairly minimal.
|
|
|
|
|
|
(Jane
Lindamen):
|
|
Okay.
Thank you very much.
|
|
|
|
|
|
Man:
|
|
Thank
you.
|
|
|
|
|
|
|
|
At
this time there are no other questions.
|
|
|
|
|
|
Burton
Katz:
|
|
Okay,
in sum thank you for the wide attendance on our first initial call.
Obviously we will look very forward to providing more information
as we
work through this process prior to closing, and we’ll look forward to
future setting and such. But thank you all for your
attendance.
|
END
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