Ladies and gentlemen, thank you for standing by. Welcome to the IncrediMail first quarter 2009 results conference call. All participants are present in listen only mode. Following the management's formal presentation, instructions will be given to the question and answer session. (Operator instructions). As a reminder, the conference is being recorded, May 4, 2009. With us today from IncrediMail we have Ofer Adler, CEO; Yacov Kaufman, CFO; and Jeff Holzmann, President of IncrediMail New York. I will now hand over the call to Marybeth Csaby for the safe harbor information. Csaby, would you like to begin?

Yes, thank you, and thank you all for joining us today for the IncrediMail first quarter 2009 earnings call. Before I turn the call over to the company CEO, Mr. Ofer Adler, I would like to read the following safe harbor statement. This conference call contains statements that constitute forward-looking statements. These statements reflect the company's current views with respect to future events. These forward-looking statements involve known and unknown risks and uncertainties and other factors, including those discussed under the heading risk factors and elsewhere in the company's annual report on Form 20-F that may cause actual results, performance or achievements to be materially different than any future results, performances or achievements anticipated or implied by these forward-looking statements. The company does not undertake to revise any forward looking statements to reflect future events or circumstances. With that, I would like to turn the call over to Ofer Adler, Chief Executive Officer. Ofer, the call is yours.

Thank you, Marybeth. We had an excellent first quarter. Our top line continues to grow. We further reduced our operating expenses, bringing us to record profit. Our revenue grew 34% year-over-year due to our nearly doubling search revenues. This extensive growth was powered by significant increases in search queries with our users generating approximately 100,000,000 queries in March 2009. Our search partnership with Google and InfoSpace continues to perform well. The growth in search traffic more than offset the effects of the global economic slowdown, which did impact CPC rate and reduced product sales across industry and at IncrediMail as well. Search revenues reached 4.5 million in the first quarter accounting for approximately 70% of the quarter's revenue. This is up significantly from the same quarter last year when search contributed less than 50% of our revenue. As to our operations, the streamlining action that we put into place all through 2008 are now being fully realized reducing operating expenses by over 30% year over year and creating an EBITDA of $2.7 million, operating income of $2.5 million, and finally a very positive bottom line with net income of $1.4 million or $0.15 per diluted share. Non-GAAP net income was 1.5 million in the first quarter of 2009, more than triple the 0.5 million of the first quarter of 2008. As expected, we had a reduction in marketing expenses compared to the last quarter. We significantly reduced our media buying this quarter from the immediately preceding fourth quarter of 2008 since our instant messaging add-on HiYo had taken off fairly late last year. HiYo continues to have a strong growth rate and strong acceptance having over 5.5 million registered downloads, although introduced less than year ago. With its popularity remaining high, HiYo has not needed media buying since the beginning of the year. Downloads of other products and add-ons continue to do well and are minimally supported by media buying. During the first quarter, we invested approximately $0.5 million in media buying and we expect to continue investing in customer acquisition more or less at this rate for the rest of the year. We remain on track to launching IncrediMail 2 by the third quarter. IncrediMail 2 offers improved performance, new functionality and personalization options among other features. In addition, we are working on a new version of HiYo for additional instant messaging platforms such as Yahoo and AOL instant messengers. Like all our offerings, we plan on using this new version of our product it increase the flow of traffic for search properties, for further increasing daily searches through our search partnership. With that I would like to turn the call over to Yacov Kaufman for a review of our financials and then I will review our outlook for the year before starting the Q&A. Yacov?

Thank you, Ofer. We had an exceptional quarter. Total revenues in the first quarter of 2009 grew 34% to $6.4 million from $4.8 million reported in the same quarter in 2008. This consisted of $4.5 million of search related revenues, subscription sales of $1.1 million, and one-time fee and other sales of $0.8 million. Despite the high finance expenses and increased tax rate, net income for the first quarter of 2009 was $1.4 million or $0.15 per diluted share compared to a net loss of $0.7 million or $0.07 per diluted share for the same period last year. Non-GAAP net income in the first quarter of 2009 was $1.6 million or $0.18 per diluted share, more than triple the $0.5 million or $0.05 per diluted share from the first quarter last year. Running through the P&L, as a result of the growing portion of revenues attributable to search, which I know the record associated with it, gross margin for the first quarter increased to 94% as compared to 91% in the same period of 2008. And as search remains such a dominant part of our revenues, we can expect to maintain this level of profitability. R&D expenses decreased 24% to $1.4 million from $2 million in 2008. The decrease was primarily a result of our focusing our development efforts on our current suite of products and not on the creation of new product lines. Despite increasing customer acquisition expense year-over-year, sales and marketing expenses were less than $1.2 million, decreasing 6% compared to the first quarter of 2008. Our G&A expenses in the first quarter of 2009 were down as well, approximately $1 million compared to $1.2 million in the first quarter of 2008. This is the result of our continued effort to tightly manage our expenses. And as you…

Thank you. In the first quarter, we see the full benefit of the growth building and streamlining measures that we put into place last year. We're more than pleased, particularly in these difficult times and the result of the first quarter and in the revenues generated by our search business. HiYo continues to deliver a solid user base and we are on track with our product upgrade. If anything, the first quarter demonstrate our continued commitment to growing our business and this commitment is even more evident in our outlook for 2009, which we are revising to the upside. As a result, we believe that we will achieve and even surpass revenue of $25 million in revenue in 2009. We believe this is achievable through volumes, increased queries offsetting the average revenue per query. Moreover, we believe that given our current cost structure, we can increase our guidance operating income to $7 million in 2009. We will continue to tightly manage our costs dollars to withstand these difficult times and to help maintain a healthy operating profit. It is important to note that historically the first quarters have seasonally been the better quarter, and this has been factored into our guidance estimate. We await Israeli court and tax authorities approval for distributing the $4.6 million dividend previously announced, as well as for continuing the share buyback program. We remain upbeat and confident about the future of IncrediMail. We are a much more focused company and believe well positioned to weather and even continue growing in these uncertain times. Our business continues to unfold as planned and we have been diligent in keeping costs down. Let's now open the call to questions, please.

Thank you. (Operator instructions). The first question is from Colin Gillis of (inaudible). Please go ahead.

Yes. Good morning, everybody.

Good morning, Colin.

Can you talk a little bit about the revenue per query by month in the quarter, was there any trends you saw in the month of January, February and March?

Absolutely. We can say that we saw – before this quarter I think that we somewhat the general atmosphere was around – we were seeing was of a decline. I think that in the first quarter we saw it kind of stabilizing and this is the trend that we saw kind of late in the quarter, like stabilizing.

Okay. Well, that will lead into the next question, on a go forward basis, do you think that sequentially the stabilization is (inaudible)?

This is a very big question. I think that you can get a lot of answers to that. I personally think it is too early to tell. There are too – I really read about and hear all kinds of answers to this question, but personally I think it is too early to tell.

Okay. And talk about the increased user growth [ph], is that predominantly coming from new users or is it personal ad going to be driving more users out of the (inaudible)?

Absolutely, both. It is growth coming from new users such as HiYo and growth coming from IncrediMail web content. We're doing all kinds of optimizations and tests and all kinds of things that are getting more queries out of our users and HiYo also contributed to the new volume.

And just one last one, and I will circle back, can you give us a geographical breakdown of revenue?

Yacov, can you answer that?

Well, the revenues as we said in the core, about 70% of the revenues are coming from our search revenues and the remaining 30% are coming from our product sales. Now the graphical breakdown, they vary between those two kinds of revenues. In general, we are seeing that more than half of our revenues are coming from North America and approximately some 35% coming from Europe, with the remaining 15% coming from the rest of the world.

Very strong quarter guys. Congratulations.

Thank you.

The next question is from Richard Fetyko of Merriman Curham Ford. Please go ahead. Richard Fetyko – Merriman Curham Ford: Good morning, guys. Question on the HiYo ramp, I missed the comparison, seems it was downloaded you said 5.5 million downloads in the first quarter, I think. How does that compare sequentially year-over-year basis? And then, was there any revenue contribution from HiYo, are you monetizing that for search already?

Okay. HiYo, first of all, HiYo is – 5.5 is not just for the first quarter, this is the total number. And actually HiYo was started, I don't know exactly when, but I don't think it can be measured against the last quarter because I think it started less than a year ago. So we still can't compare it to previous quarters because it is still a new product. And as for revenues, we did start seeing revenues. I think we can say that at this point that it is growing nicely and according to our plan, but it is still – it is not a significant part of our revenues and our guidance. Richard Fetyko – Merriman Curham Ford: Okay. And then during the rest of the year, you mentioned you're going to roll out a new version or additional versions of HiYo for Yahoo and AOL IM. Are you going to sort – is there any sort of media buying that you are thinking of doing after that and then you mentioned something else in the third quarter you mentioned you are rolling out a new version of some other products as well?

Well, about HiYo, we, as you said, we are going to roll out probably the HiYo version first, which will be probably in the next month or two months or so, and afterwards the AOL version, and we probably won’t do any expensive media buying there, because, as we said earlier, we want to keep our expenses as tight as possible. We will try to promote it all our current channels, which are from the current users of HiYo and the current users of IncrediMail and our other products. And what was the second question, sorry? Richard Fetyko – Merriman Curham Ford: You mentioned something else about a new version of some other products coming out in the third quarter, but I missed what product you were referring to?

Yes, we're going to – in addition we are going to release a new version of the Magentic desktop enhancement program probably around Q3 or so, and at a later stage, we are going to release the next versions of Photojoy.

Most importantly, we will be coming out with a new version of IncrediMail 2 end of second quarter, beginning of the third quarter. Richard Fetyko – Merriman Curham Ford: Okay, that is helpful. And what is the new version, any new features or any highlights about the new version of IncrediMail?

Sure. IncrediMail 2 is actually what we have been working on now. We spent most of our development time, around the last actually two years or so, and it is a great improvement to what we have right now. It is about improving everything around the program. First of all it is about improving the performance and specially in – we have been getting a lot of feedback from our users are feeling something that they very much want to say from a performance direction there and this is what we do. Then the entire look and feel of the application is completely different. We redesigned everything, and we put a lot of stuff on the user interface, and we truly believe that it is much better right now. We also placed a lot of focus into making IncrediMail even more personalized in the form of personal senders and recipients, you can use their own photos when you are sending their e-mails and you can see photos of the people who send you mail, which makes it much more personalized. And we also added a layer of small effects in all kinds of places around the application, which makes it feel much better and nicer, and I think that in general it is mainly, we took a lot of small features and requests we got from our users and implemented it. So, we really think that it is a great improvement to the version that is currently outside right now. Richard Fetyko – Merriman Curham Ford: So, if you are right about some of the new improvements, what kind of – where would we sort of – what metrics should we see an impact on, in more dialogs, is it more revenue per user and how – where would you expect some of the improvements to translate?

The improvement will start obviously, hopefully with growing the number of registered downloads as time goes by, and then the amount of time each one of them is spending, and then accordingly the revenue per user. These are all three factors that we are looking into, and we believe that IncrediMail 2 can improve each of them. Richard Fetyko – Merriman Curham Ford: Okay, great. Thanks guys.

The next question is from Bransley [ph] of Cosmic [ph]. Please go ahead. Bransley – Cosmic: Yes, congratulations. Ofer, Yacov, Jeff, tremendous quarter.

Thank you. Bransley – Cosmic: A couple of follow-ups. The potential dividend of $0.50 a share, can you just kind of review for what the different alternatives are there tax-wise and what the Israeli authorities are contemplating, I mean what the potential outcomes are there?

Yacov?

Yes, sure Alder. Well, right now just as I said in the call, it is right now has the approval of the Israeli court. The reason from the approval from the Israeli court is because we are distributing such a sizeable dividend. We're expecting their approval within the next couple – few weeks, and that you can't support. With regard to Israeli tax authorities, there we have to get a pre-ruling with regard to withholding tax. The withholding tax would differentiate based on the nationality of the shareholder, and kind of incorporation, whether it be private investor – private individual or a corporate company. And it can go anywhere from less than 50% to about 75%. We don’t have all participants just yet because but we are still waiting for that pre-ruling. Bransley – Cosmic: Okay. So, here in America we would get 85% and above, is that the idea?

It could be just below that, probably between 88% and 85%. But again that we still have to get the final ruling from those tax authorities. Bransley – Cosmic: Okay, as far as the business itself goes, you indicated that the volume of searches are going up, but price per search is going down, can you kind of quantify what those numbers are?

Well, actually I think that in this case was probably very similar to what happened in the general world of search and especially the Google, InfoSpace, et cetera. These are what we see in general, they are probably – mostly at the beginning of the first quarter or the end of last year. I think that in general you can say that we saw decreases from anywhere between 10% to 20% in the CPC rates. So as we have mentioned, we have been able to offset it by a very strong growth in our search query, and this is what makes us feel positive and optimistic about our 2009 guidance. Bransley – Cosmic: Okay.

We believe that for now we see the CPC rate stabilize, and we will obviously continue to monitor them constantly. Bransley – Cosmic: Okay, good. The next IncrediMail as you point out, do you see that increasing revenue potential or is it kind of business as usual?

Actually, we didn't start with (inaudible). We're going to perform a big test, in which we will give some of our users to download IncrediMail 2 and some of our users to download IncrediMail 1. And we're just checking that everything is working well, and we see all the numbers as we expect them to, so (inaudible) starting it. But if any of you is interested, you can see the version number two. It is already on our site for quite some time on the beta stage, on the download section, it is working very well. I'm personally using it for quite some time now, and I'm very pleased with it. And as I said it has a lot of new features. I also forgot to mention it also has a lot of improvements around the products to search your own e-mails, your own images in your e-mail, your own videos in e-mail, all-round a better way to look throughout your attachment in e-mail. We believe that e-mail contains a lot of attachments and some of them are more of images, some of them are videos, and I think that we gave a lot of very powerful tools for you to easily find all these kind of attachments and to find the important e-mails for you. Bransley – Cosmic: Good. So as far as the guidance is concerned, looks like the quarterly rate will continue pretty much through the end of the year but the revenues would dip a little bit over the next three quarters, is that due to higher marketing or other, what other expenses are kind of factoring in there?

Yacov, you want to get that?

Yes, sure Adler. Actually our guidance going forward is tempered by the whole economic situation, and what we're seeing is that growth in revenues could possibly be more just going forward. We are very committed to the guidance we gave, therefore we feel very confident we can achieve it, but it is very possible that we may have to have further investments in order to achieve that. And that is basically so good about media buying, with media buying is that it is a very controllable expenditure, and that to the extent that we see that we are going to invest more to increase our revenues, we will do so. To the extent we see that it is not required then we won’t make that investment. So that has been working to or model. Bransley – Cosmic: Okay, thanks so much again.

Bransley, just for you and anybody else who is interested in what Yacov just said about downloading IncrediMail 2.0, the beta version, if the links are not easily found on the website, just please go ahead and e-mail me, and I will send you one to download. It is downloadable in the beta form. Bransley – Cosmic: Okay, got it. So one last question if it is okay. The increasing customer base, has there been any noticeable change in the churn rate?

Actually, I think we can say that it is about the same, because what we are hoping for and we are aiming for is to see how these numbers will look after we release the IncrediMail 2, because as I said, most of the changes that we have made recently were built into IncrediMail 2, all about performance and lots of user request. So, I think that there it would be really interesting to see how it will perform, because most of our focus right now is in taking this version out and rolling it to our entire user base. Bransley – Cosmic: Okay, congratulations again. That's fantastic, thanks.

Thank you.

The next question is a follow-up question from Colin Gillis from (inaudible). Please go ahead.

Along the lines of the guidance, Yacov if you could just talk a little bit about, what is the ideal level of R&D spend for the balance of the near-term profits and future product development?

I think we feel very good about this at the current level. And that is approximately about $1.4 million. We also – we also – IncrediMail is a maturing company, and what that means is that in its initial stage it has growing investments in R&D, whereas as the company matures, there is a shift from R&D investments into marketing and sales for our more mature product. So on the one hand, we do want to maintain our current product level, but we do have plans for improving our existing products, and anything coming out with even new products, maybe further into the future, but I think that the current level of about 1.4 approximately is very reflective of what our intention is for that kind of expenditure.

You got the down, I believe, about 34% from the 2 million run rate you were at about a year ago?

That is correct. Well, of course what happened was that all through 2008, this was a major part of our strategy. We have been focusing on our base suite of products, the products that we believe they will be more successful, and the fastest in bringing revenues. HiYo, which was recently introduced and the new version of IncrediMail, and then a little bit later down the line we are going to put additional emphasis on the Magentic and Photojoy. However, a lot of these names you already recognize, which means that we have already brought them mostly to the market, and that we do have ongoing expenses, but a very significant portion of those expenses have already been completed. In addition, we already trimmed down some of the other initiatives that we had begun in the beginning of 2008 that we saw weren’t as productive and that is why we suspended them.

If I may just ask one, what are your thoughts about expansion along geographical footprint?

Could you repeat, you were cut out there?

Sure, what is your thought about expansion along the geographical footprint? Any particular country that you will be targeting right now or –

I think you can say in general that we are seeing more and more in the last few years that Europe is becoming more stronger and stronger, and I think as we did already start to do get their localization efforts into especially France and Germany and we will probably continue to do so. I think that there is a lot of room for improvement there. I think that, as I mentioned, we started already to give a few initial things, got a very nice feedback about them, and we will probably continue to do so. France and Germany are probably equal and et cetera.

But it doesn’t require the same – it doesn’t require the same R&D expense?

No, no.

It is more about – mostly more about the content and related content, which is a different kind of experience than the people who deal with it.

Just one last one, anyone compelling valuations out there on the M&A aspect?

Sorry I didn't get that?

You know, are there any compelling valuations that you are seeing in terms your acquisitions?

Not anything that we can disclose right now.

(inaudible) or are you focused right now just on the organic properties?

Active, or you are focused right now just now on the organic property? You know, right now we definitely believe that we have a lot of room for inner growth, and we are looking mostly inside organic growth, but we always keep our eyes open and if the right opportunity will come, we will obviously look into it and explore it.

That makes sense. Thank you.

Thank you.

(Operator instructions) There are no further questions at this time. I will ask Mr. Adler to go ahead with this closing statements. I would like to remind participants that a replay of this call will be available in 3 hours on the company website at www. incredimail.com. Mr. Adler, would you like to make your concluding statement?

Yes, thank you. In 2008, we laid out a series of goals that have helped guide business, and allowed to report more controlled expenses, and record revenue. Despite the challenges that all companies are currently facing, we remain on track with our business objective, and revenue guidance, and have increased operating income guidance for 2009. As always, I would like to thank you all for your continued support and interest. Thank you very much and have a good day.

Thank you. This concludes the IncrediMail’s first quarter 2009 results conference call. Thank you for your participation. You may go ahead and disconnect.