May 12, 2011
Operator
Thank you, gentlemen. Ladies and gentlemen, at this time, we will begin the question-and-answer session.
(Operator Instructions). The first question is from Nick Halen of Sidoti & Company.
Please go ahead, sir.
Nick Halen
Hi guys. First question I had is in terms of the non-search growth that you guys mentioned in the quarter and I was wondering if you can give us a little bit more color on what exactly – what products or what’s your overall growth in the first quarter 2011?
Josef Mandelbaum
Sure. First of all, hi Nick.
Nice to have you on the line. The basic growth came from two areas, which Yacov mentioned.
I’ll maybe just in little more details. One is on the premium products which we said before we’re putting a little more focus on.
It takes time to see those revenues come in because it’s basically mostly subscription base model. But as we said that you should start seeing deferred revenue go up.
And in fact in this past quarter, the deferred revenue went up not by luck, but it went up. The second one is in advertising revenues up until last year.
We do really have a toolbar solution for any of our product and we did institute in the last November in that timeframe, downloading – giving toolbars that are related to the products people are downloading so they can search better, get access to the product better through search through a toolbar. And on the toolbar we actually have put in some advertising.
And frankly just because of our install base, as more and more people has adopted the toolbar, our advertising revenues went up. That was part of our strategy.
It was one of those I think quick wins I mentioned earlier going back a few months, and it’s having some very positive results for us.
Nick Halen
Okay. And also one more question I had just is kind of a housekeeping question with the model.
In terms of the tax rate just going forward, is – I’m assuming this is a one-time thing that we saw in the first quarter. And, going forward, we’ll see similar to what we’ve seen historically around the 27%, 28% range for taxes.
Is that fair?
Josef Mandelbaum
No, as I’ve mentioned and let me – allow me to clarify again. We had very low tax this quarter.
The very low tax this quarter was a combination of two factors. Number one, our basic inherent tax rate has gone down and revenue is being – compared to close to 30% in prior years, we’re expecting it this year and going forward to be below 20%.
That was the first effect. Besides that we also had a one-time tax credit of about $0.6 million.
Yacov Kaufman
So just to make sure. Going forward then, Nick, to answer the question just exactly, we would expect to have a lower tax rate than the previous quarters we’ve had in the previous years.
So if it was 27%, 28%, 29%, we will expect to see below 20%.
Nick Halen
Okay. So each quarter you’re expecting it to be low 20%, okay.
All right, that’s all I had. Thanks guys.
Josef Mandelbaum
Thank you.
Operator
The next question is from Aram Fuchs of FertileMind Capital. Please go ahead, sir.
Aram Fuchs
Yes, few different questions. You have seen a lot of capital come into these small internet companies again.
You’re hearing $3 million, $4 million, or $5 million for nothing more than a business plan. I’m just curious how that’s impacting your acquisition goals and what that might entail if this continues, will you change your capital allocation strategy?
Josef Mandelbaum
First of all, thanks for joining the call, and good question. We are certainly seeing and feeling the influx of capital coming into the markets once again.
But I think as I mentioned earlier it seems acting a little bit, because it can’t not impact the overall industry, but not as much for us. As I mentioned in probably some earlier calls, we’re really not going after the startups.
I’m not going after somebody who, as you said, has an idea nothing more maybe a mockup or a prototype and they’re getting $5 million of funding and they have evaluation of $10 million or $15 million or $20 million. We’re really looking for companies that frankly may have been there, companies six or seven or eight years ago, but today are frankly a good solid companies who are probably not going to be the billion dollar Googles of the world or Facebooks, but are still a very good company that for us given what we’re looking for and the uniqueness of our strategy complement us very nicely, both in terms of a demographic fit, in terms of a product portfolio fit, and in terms of a revenue fit whether that’s revenue diversification, because they have premium sales or transaction or advertising based sales, and we can add our expertise to them or whether just gives us more volume and search.
Either of those things we’re looking at. We are seeing some slight increase which definitely affects the multiples and we’re being very disciplined about that.
But it’s probably not affecting us as much as it is affecting probably other people who are looking to buy that young startup who has the potential of being a Facebook. Unfortunately only half a percent of those actually become the Facebook.
Aram Fuchs
I know you’re seeing sometimes during these peaks or follow-ups with every one column, the – yesterday’s top companies actually get cheaper, it doesn’t sound like you’re seeing that. It sounds like they’re getting slightly more expensive, but you’re able to see some interesting things.
Is that a fair assessment?
Josef Mandelbaum
It’s a fair assessment. We’re obviously seeing too many things out there.
I would say – correct, I don’t think anything is getting cheaper. I mean if it’s getting cheaper, the question is I’m not sure we want to buy, because it means there is something else wrong with it.
I mean sometimes that could be to our benefit if there is something we can fix easily. But in my experience, 18 years doing this, it’s difficult to do a turnaround for a company that’s really in trouble that you can get on the cheap, especially for a company like frankly IncrediMail who doesn’t have that much experience yet in acquisitions.
So we’re – at this point in time really focused on turnarounds where you could probably get a really cheap deal. We are focused on good quality companies that we believe have a lot of potential but they’re not startups when you’re trading on paper.
Aram Fuchs
Okay. And then just one other question, you mentioned this risk in your filings and I see it in my day-to-day life that email is continuing to move to the web, and with Yahoo!
coming out with the major upgrade of their mail service, I’m curious if that trend worries you even more now?
Josef Mandelbaum
So the answer is no, does not worry us more. Most – I mean I think if you understand how our business works, anybody who has our client has to have an email address from somebody else, Yahoo!, Google, or Microsoft.
So they have access to it. To using our client for a specific reason which the other guys don’t give which is they wanted on their desktop, they wanted to have it on their computer as opposed to OS in the cloud, that’s number one.
Number two is, I think we mentioned before, but we know we are working on a webmail version for our audience as well in a mobile version, so they can have portability. And I would expect within the next four months to six months we will have something to announce on that as well.
Aram Fuchs
Great, thanks for your time.
Operator
The next question is from Kenneth Miller of Nokomis Capital. Please go ahead, sir.
Kenneth Miller
Hello gentlemen. Congratulations on great results.
Josef Mandelbaum
Thank you, Kenny.
Kenneth Miller
I wanted to ask about one comment you made during the prepared remarks that I was surprised by. You mentioned Q2 and Q3 as being seasonally weaker.
I – looking back at my model over the last few years is that your Q2 has always been sequentially up from Q1, and Q3 has been more of a mixed bag and the December month is slower, but for the most part you’ve been flat to up over Q3. Do I take your remarks and think you will be down in Q2 of this year, because of this kind of surge in revenue is not going to repeat or do you think it will follow more normal seasonal patterns of the past?
Josef Mandelbaum
I think it’s difficult it to analyze IncrediMail’s past because – from the outside and that is because there are numerous factors and the timing of introduction of different things that we introduce to the market that will affect our numbers. If we introduce a new product in a given quarter; for instance in 2009, we introduced a high yield search, so there was something from – that was related to the model that affected the Q2 numbers.
Now, these factors could always affect any quarter. We’re talking about all things being equal.
And that is if you take a given model and there are no other outside things affecting the model then there is seasonality and Q2 is weaker than Q1. In the past, that timing we’ll have is, we have had all kinds of other factors that were affecting the numbers and more than offsetting that seasonality.
It’s difficult to say if there is going to be any such factors in Q2 this year. But assuming there are none, then those seasonality will kick in and we can expect it to be slightly weaker.
Kenneth Miller
Well, search and advertising and other, or just search.
Yacov Kaufman
Actually on both. This – the internet in its totality is weaker in the summer quarters than the winter quarters.
It’s not something that is specifically unique to IncrediMail. Within IncrediMail to the sense we’re talking about product sales, the product sales per se are even more weaker than the search sales, but the search sales can also be expected to be slightly weaker.
Josef Mandelbaum
I mean, I think Yacov [ph] having said that, we still expect to see significant year-over-year growth on a quarter-over-quarter basis.
Kenneth Miller
Okay, but it sounds like I should expect Q2 and Q3 to be sequentially down. Is that what – is that what I should takeaway from this question?
Josef Mandelbaum
We’re not giving quarterly guidance so I don’t think we’re going to answer that. So I think we’ve given what we think is the appropriate mix balance of what we believe was going to as we look at throughout the year.
So you guys can model as you see fit.
Kenneth Miller
Okay, thank you very much.
Josef Mandelbaum
Thank you.
Operator
(Operator Instructions). There are no further questions at this time.
Before I ask Mr. Mandelbaum to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available in three hours on the company website at www.incredimail.com.
Mr. Mandelbaum, would you like to make your concluding statement?
Josef Mandelbaum
Yes, thank you. Just wanted to say one more time – first of all thank you all for joining us on our conference call.
It has been an exciting quarter and it’s very exciting to see how our plan is unfolding and we look forward to updating you in the subsequent quarters on the progress we’re making in the company. Thank you very much, everybody, and have a nice day.
Operator
Thank you, gentlemen and thank you, ladies and gentlemen. This concludes the IncrediMail’s first quarter 2011 results conference call.
Thank you all for your participation. You may go ahead and disconnect.