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Edited Transcript of TST earnings conference call or presentation 14-May-19 12:00pm GMT

Q1 2019 TheStreet Inc Earnings Call

NEW YORK May 28, 2019 (Thomson StreetEvents) -- Edited Transcript of TheStreet Inc earnings conference call or presentation Tuesday, May 14, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eric F. Lundberg

TheStreet, Inc. - CEO, CFO & Director

* Margaret de Luna

TheStreet, Inc. - President & COO

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Conference Call Participants

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* Mark Nicholas Argento

Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst

* Michael John Grondahl

Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for your patience in holding, and we apologize for the delay. We now have your presenters in conference. Thank you for joining TheStreet.com's First Quarter Conference Call. (Operator Instructions) It is now my pleasure to introduce our first presenter, CEO, Eric Lundberg.

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [2]

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Good morning, and thank you for joining us to discuss TheStreet's financial and operating results for the 3-month period ended March 31, 2019. Joining me on the call today are Margaret de Luna, our Chief Operating Officer; and Jared Verteramo, our General Counsel. And again I'd like to apologize for the delay in the call. I'm not sure exactly what happened, but we will get to the bottom of it. Before we begin, I'd like to remind you that management will make forward-looking statements during the course of this call. And our actual results could differ materially. Some of the risks and uncertainties that could impact our business are included in our 10-K, which was filed in March of this year. In addition, our presentation will include non-GAAP financial measures and we have provided reconciliations to the most comparable GAAP measures in our earnings release, which is available on our website.

We continue to be very busy here at TheStreet, having recently made good on our promise to return value to you, our shareholders, as well as position the remaining consumer business for positive growth. As you all know on February 14, we closed the sale of our B2B business to Euromoney and received gross proceeds of $87.3 million and promised to distribute a substantial portion of the net proceeds along with a portion of our current cash on hand to our stockholders. On April 22 of this year, we made good on that promise and distributed approximately $94.3 million or $1.77 per share to stockholders of record on April 15. The Form 8937, which provides stockholders with the relevant information related to the treatment of the distribution, is posted on our IR site at investor-relations.thestreet.com/form8937.

In connection with the distribution in order to maintain our NASDAQ listing, we initiated a 1-for-10 reverse stock split, which went effective prior to the opening of trading on April 26, 2019. We also changed our fiscal and tax year to a March 31 year-end with the company's next fiscal year running from April 1, 2019 through March 31, 2020. Our 10-QT to be filed represents the transition period from January 1, 2019 through March 31, 2019. Finally, as a result of the sale of our B2B business, The Deal and BoardEx have been reclassified as discontinued operations in our financial statements. Accordingly, the results I'm about to discuss reflect continuing operations of our consumer business unless otherwise indicated. So in summary, we closed the sale of half of our business in February. We completed our year-end audit. We filed our 10-Q. We completed the 1-for-10 reverse stock split. We changed our tax year and our fiscal year. And we recorded B2B as disc ops in our current financials. Oh, and the consumer subscription business continues to perform extremely well. With that, I'd like to now turn to discuss the operating performance of our consumer business.

For the 3 months ended March 31, 2019, which I will refer to throughout as the stub period, we generated $6.69 million in revenue from continuing operations, an increase of $18,000 from the prior year. To put that in context, when we compare that to Q1 2018 to Q1 2017, i.e., the year previous, revenues were down $1.2 million or 15% in the consumer business. So you can see we continue to make substantial progress. Subscription revenue in the stub period increased $267,000 or 6%, as a result of a 6% increase in the average number of subscriptions. Average revenue recognized per subscription, ARPU, remains steady compared to the same period in the prior year. In addition, premium deferred subscription revenue grew $800,000 in the stub period or an increase of 7% over the same period last year. Advertising revenue declined $200,000 or 9% compared to the same period in the prior year due to a decline in page views. While we have seen an increase in monthly users, more of our traffic is coming from mobile particularly AMP, which impact page views per session. In addition, licensing and syndication revenue decreased by $98,000 or 33% compared to the same period in the prior year due to the cancellation of certain content licensing agreements.

Turning to operating expenses. Operating expenses for the period totaled $15 million as compared to $9.4 million for the same period in the prior year primarily the result of noncash compensation and restructuring charges. The noncash comp of $2.9 million was driven by the acceleration of RSUs due to the change in control provisions as a result of the B2B sale. The restructuring charges also happened to total $2.9 million for the period and consisted of severance costs and the abandonment of office space, which were also related to the B2B sale. Excluding all of the noncash comp and the $2.9 million restructuring, total operating expenses decreased by $55,000 in the stub period compared to the same period last year. With the reduction due -- in headcount due to the B2B sale, actually there are less expenses. Remember, we eliminated many corporate staff effective at the close of the sale of the B2B business. While we recorded their severance and restructuring charges, their actual salary, benefits, costs, et cetera, for the almost 2-month period until we sold B2B are contained in our operating figures above. We continue to evaluate our expenses and costs and expect further efficiencies to be realized as we turn the corner and solely focus on the remaining consumer business. The most recent cost-saving initiative we have undertaken is our engagement of Newmark to find a short-term sublease for the space in our offices here at 14 Wall Street that was vacated as the result of the B2B sale and our general excess capacity.

Turning to the balance sheet. On March 31, 2019, the company held cash and cash equivalents, restricted cash and marketable securities of $120.3 million primarily the result of the net proceeds from the B2B sale, offset slightly by a net loss in cash of $1 million as a result of operating activities from continuing operations in the period. This compared to $2.4 million positive cash generated for the same period in the prior year. However, as discussed on April 22, 2019, we made a special cash distribution of approximately $94.3 million or $1.77 per share to stockholders of record on April 15. As a result, the company currently holds cash, cash equivalents, restricted cash and marketable securities of approximately $24.2 million as of May 3, 2019. We continue to evaluate the best use of our cash going forward with the ultimate objective of creating value for you, our stockholders.

Before we wrap up and open the call for Q&A, I'd like to spend a couple of minutes to discuss what else we've been up to. We continue to be encouraged by the positive trends we are seeing in key operating metrics, including renewal rates, which show that once we onboard a customer, we keep them. Our first time renewal rate in the stub period was 72%, up from 62% for the prior period. Our 2-plus renewal rate was 79%, up from 70% a year ago. And our efforts to expand our funnel to attract new users has proven effective as new users have increased 17% in the first 3 months of this year. But we have also learned that the way we've been marketing our subscription offerings are not optimized for a new audience who are interacting with TheStreet brand for the first time. This has led to lower-than-expected new orders in the stub period. However, we identified the issue and adjusted our efforts accordingly and expect to effectively usher new users through the customer journey beginning with registration; enticing with a free trial; and ultimately, inquiring a paid subscriber, which, as I just mentioned, we feel confident that once we gain a subscriber they'll stay with us year-after-year.

In fact, due to the adjustments made in recognition of new users to our platform, we've already seen an immediate increase in our average daily acquisition numbers. Registrations are up 5%. Free trials have increased 43%. Straight paid orders have increased 27%. Total orders, which are free trials plus straight paid, have risen 37%. And order conversion has increased 30%. Mind you, this is only in the last 2 weeks since we began to roll out these changes. We will continue to adjust and target our efforts to accommodate this new audience. We believe we will naturally improve acquisitions as well going forward. Those of you that follow our company closely already know that the premium subscription revenue is approximately 74% of our total revenue. Net bookings, conversion rates, renewal rates, subscriber count and deferred revenue are important metrics for this business. We are extremely encouraged by the positive trends we've been seeing in our increased average order price, renewal rates and overall booking, which reaffirms that our products and pricing are attractive and well received. We have had a softening in acquisition in the stub period, as I just mentioned, due to the large number of new users at the top of our funnel. But as I also mentioned, we've quickly identified how to effectively capture this new audience and have them become part of TheStreet community. From a deferred revenue perspective, bookings and paid count drove premium-deferred revenues up $800,000 or 7% at March 31 this year compared to the prior year. We continue to work to maximize the efficiency of the newsroom. In fact, we published the same number of stories in the stub period compared to the same period last year and up substantially from Q4 2018 but with fewer people. And we are in constant communication across all business lines so that we're all working together. After the B2B sale, we physically moved our personnel closer together. So editorial is next to SEO, which is next to acquisition, which is next to marketing, et cetera. And we now have a space that promotes better communication and more collaboration and the results are apparent. People are talking to one another more frequently. People are excited and it will only benefit the business going forward. There will be missteps along the way, but we are learning together. We're able to recognize our deficiencies, create accountability and improve performance quickly and constructively. I will end the call with a few recent highlights, which illustrate what you can expect from us going forward.

Last call, I told you how excited we were about education and our goal to provide everyone, both novice and experienced investors, with the tools and knowledge to feel confident about their financial future. So I'm happy to report that on April 3, we launched a partnership with Junction Education, a very well respected education platform to create TheStreet courses. We have initially launched 2 online courses. The first one, Personal Finance Essentials with Bob Powell; and the second one, Fundamentals of Investing with Jim Cramer. And so far, the response has exceeded our expectations bettering our first month projections by 2x. It's only 1 month of results, but encouraging nonetheless. Education is a natural opportunity for us as TheStreet is the destination for investing and financial education. It also helps extend our reach to millennials while offering a new revenue stream in this rapidly growing market. Another new initiative we undertook recently was the market research, which is the first research we've done in well over 4 years. Just one of the encouraging outputs from that was the information that the majority of their free-site readers were [viewing] younger, i.e., 25 to 45. We also put up our first ever retirement event hosted by Bob Powell recently on a Saturday in April. The event was not only sold out, but we had to add additional seating to accommodate all the attendees. What's also worth noting is this event was not tied to Jim Cramer and shows our ability to think and execute beyond our famous founder and contributor. We also ran a successful and fun campaign around March Madness. The Market Madness bracket challenge with Jim with 4 contestant winners invited to watch Jim Cramer's monthly Action Alerts PLUS call in person. As I mentioned last quarter, it's funny to think that 20 years later we're back to being what first made us a success. Once again, we are a consumer facing, financial news, information and education company that delivers exceptional coverage and analysis of the financial markets along with best-in-class subscription products and events. And now we have built a strong recurring revenue business with the technology, the team and the mindset to take us into the future. I'd like to end with an appropriate analogy and a reference to one of my favorite movies, it's Back to the Future at TheStreet. Now I'd like to open up for discussion and questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Mr. Mike Grondahl with Northland Securities.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [2]

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Congratulations on kind of moving forward past B2B the sale, the dividend, the 1-for-10. In terms of B2C, roughly was there any event revenue in the quarter? And what's kind of your outlook for event revenue?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [3]

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So we had $50,000 of event revenue in the quarter, which was exactly the same as last year's first quarter, webinar revenue. I'll remind you that 2 years ago, we had $300,000, round number, in events revenue. Last year, we had $600,000. We expect to greatly exceed that in 2019. So last year, we had 2 teach-ins with Jim. This year, our plan is to have 3 teach-ins with Jim. We've already run 1 teach-in with Bob Powell, and we expect to increase the number of webinars that we're doing as well. So we're still very bullish on events.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [4]

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Great. In -- specifically in dollars, what was the ad revenue? And is that kind of fully the softer stuff run off?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [5]

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So ad revenue for the quarter was $1.5 million, $1.6 million. It was down about 9% to $150,000. I would say that it's bottomed out for sure. Most of our ads, even the display ads are essentially sold on a CPM basis. So as we have done many things to make our user experience a better experience, we've gotten rid of pagination, we've gotten rid of autoplay. People are moving to mobile. More and more people are coming by way of search. Our page views have actually gone down, but we think it's actually a much better experience for our users, which is also good for us because over 40% of our leads for our premium subscription business come via the way of our free site. And as we pivot more and more towards driving a better subscription business, which you can see with the results in our conversion rates, our renewal rates and deferred revenue, we think it's the right course of action.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [6]

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Got it. Got it. And then lastly, as you continue to kind of make things more efficient post the sale of B2B, post RateWatch, do you think that's a gradual process throughout 2019? Or how should we just think about seeing some of those efficiencies?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [7]

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As I mentioned, this quarter contains a fair bit of costs for the corporate people primarily that are no longer here that left the business effective with the sale of B2B. Some of those corporate people actually went with the institutional business. Some of those people moved on to other companies, but we -- our salary line benefits, et cetera, is going to go down rather substantially in Q -- starting at the effective date of the sale. But we still had 70 weeks of those people in for the first quarter. We also had, in the first quarter, about $100,000 of additional rent expense that -- while we're not alleviating the cash throw off, we are right sizing it from an operating perspective. We abandoned 39% of our floor fleet here at 14 Wall Street. So we took a onetime charge for the remaining lease. And we actually moved, as I said, people around, which is the more appropriate total square footage for our office, but it's also helped us with our personnel in terms of getting people to interact on a more daily basis.

In addition to that, we continue to look for cost savings on a daily basis. We now engaged a broker, and we believe that we have a substantial chance to sublet the space that we just abandoned. On top of that, we continue to look for other ways every day and vendors that we can make to more right size the expense base of our business.

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Operator [8]

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Our next question comes from Mr. Mark Argento with Lake Street Capital Markets.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [9]

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Eric, just wanted to delve in a little bit on the burn. I know there's still that apples-to-apples or the numbers aren't really representative of where you're running at right now. But is it too much to think you could get this business to kind of break even by year-end? Or what's kind of the internal goal for trying to bring down the burn rate?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [10]

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So I think that's a very reasonable goal by Q4, Q1 for this business to be EBITDA neutral to EBITDA positive. There would still be CapEx on top of that. So I think from an operating perspective, we can get there. The CapEx on top of that would probably still have us throwing negative cash throw-off at least for the Q4 and possibly Q1. I will kind of give you some reference point though, Mark. So at March 31, it would be, say, we had $120 million of cash. We distributed $94 million so that's roughly $26 million. We still have $24 million. I can tell you that we're not really burning through our cash right now. So if the question is, are we burning cash, we're not really burning cash. Our cash balances haven't gone down rapidly. They don't expect -- we don't expect them to go down rapidly. Our expense base will be improving on a quarter-by-quarter basis. And as we expect our subscription business to continue to grow, we have a lot of our events coming in Q2, 3 and 4. We believe that the EBITDA can be substantially better later in the year. The only word of caution I'll say is that, that doesn't take into account the CapEx.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [11]

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That's helpful. And then refresh my memory, I think you -- when you guys did the regional distribution you said there could potentially be additional distributions kind of based on the performance once you got things kind of settled out. Could you just remind me what that would look like? And what would need to happen to trigger additional capital distributions?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [12]

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Great question. I think it's a question more appropriate for the entire board not just myself. There's 6 other voices on that board that would need to be heard, but I would think that they would want to see the business growing, which I think we are starting to see. As I said, subscription revenue is up almost $270,000 or 6%. The paid count is up 6% with our conversion renewal rates in the 60s or 70s and 80s. Once we onboard a subscriber, we feel pretty darn well that the lifetime value is strong. We keep those subscribers. I think they would need to see the underlying metrics of the business continuing to perform well. And with that, they will probably consider a further distribution. I don't see it happening quickly. I think it would happen later in the year.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [13]

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That's helpful. And when you say paid count's up 6%, is that paid subscribers? Or what does that metric refer to?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [14]

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Yes. Yes. Yes, subscribers.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [15]

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So net subscribers are actually up 6%?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [16]

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Net subscribers -- so think of it this way. Volume and rate. Volume's up 6%, rate's flat, which, for us, is a great thing because our conversion rates are now in the 80s -- excuse me, our renewal rates are now in the 80s. So the more subscribers we can put on our file, the longer we'll keep them that the better lifetime value for us from a subscription basis.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [17]

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So you're up 6%, but in your prepared remarks you were talking about it was a little soft from an acquisition perspective this past quarter. So in theory, we could see it move, assuming you get the funnel fixed, you guys could move that percentage rate up hopefully fairly nicely.

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [18]

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Margaret's here. She can add more color to that, but what we saw was 1 million more people in the funnel but we discovered they're coming to us in different ways, they're different types of people. We analyzed -- Margaret and her people analyzed this very carefully in the first quarter. We've made some tweaks. And at least in the last several weeks, we've seen some fairly profound changes back to what we'd seen in the prior year in terms of new waters, conversions, et cetera. So we feel pretty good about that. But in my remarks, I did say it's only 2 weeks results. But I mean hey, we continue to look at and react accordingly, which I think is really important that we're nimble and we're creative and that we think about what's going on and we adjust our approach.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [19]

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Then just the last one on the education. I think the new partnership you launched, I think it makes all the sense in the world. What's the opportunity there? I mean could that become a decent-sized business by itself? And how quickly?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [20]

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I'm going to let Margaret answer that. I think it could be a very substantial business but she's the one that brought that deal to us so...

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Margaret de Luna, TheStreet, Inc. - President & COO [21]

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Sure. So if you look at the overall online education market, I think it's somewhere around $600 million market and growing. It's a really big market. What we're seeing in our market research that Eric referenced earlier, that education, both traditional education courses as well as the content that helps you learn and understand as to what audiences are looking for. So the overall market size, we know that, that's what users are looking for, taking also with what we're seeing with the initial launch of it. I do think that it will be a significant size of our business. How quickly? We will be launching a third course this year. Like Eric said, we've come out with 2 of them. We have a third one planned for later in the year probably Q3 that will give us more insight and expand the growth. So I would say within the next year, we would see a significant growth in this and...

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [22]

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Which is exactly how we budgeted and forecasted it, right? We planned on launching 2 courses in April, which we did. We're 2x what we forecasted our budget for those 2 courses. We always intended to launch 2 and always intended to launch a third this year. But to wait to see how the first 2 were received because we didn't want to commit to which product we would launch as our third. But both the retirement and the financial investing products are doing extremely well. We think we know which course we're going to launch as our third one, but we still have a bit more work to do.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [23]

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Is it a licensed deal? Or a rev share? What's kind of the model that you guys are using?

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [24]

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It's a rev share. So we get 70% of the revenue, and we contribute a bit of the marketing expense upfront.

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Margaret de Luna, TheStreet, Inc. - President & COO [25]

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And also [providing a...]

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Operator [26]

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That concludes our allotted time for Q&A. So I'll turn it back to CEO, Eric Lundberg, for closing comments.

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Eric F. Lundberg, TheStreet, Inc. - CEO, CFO & Director [27]

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Thank you all for joining. I apologize again for the difficulty dialing into this call. We appreciate your continued support and look forward to talking to you in the coming weeks and months. Thank you.

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Operator [28]

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Thank you. Ladies and gentlemen, that concludes TheStreet.com's First Quarter Conference Call. You may now disconnect.