Loop Industries, Inc.
Q1 2010 Earnings Call Transcript

Published: 29 Apr 2010

[Operator:]

Welcome to LoopNet Inc. earnings conference call for the first quarter of 2010. The date of this call is April 28, 2010. This call is the property of LoopNet Inc., and any recording, reproduction or transmission of this conference call without the expressed prior written consent of LoopNet is strictly prohibited. This call is being recorded. You may listen to a web cast replay of this call by going to the Investor Relations section of LoopNet’s website. The web cast will be available on the company’s website until April 30th, 2010. I will now turn the call over to Derek Brown, Vice President, Investor Relations and Corporate Planning.

[Derek Brown:]

Good afternoon. Thank you for joining us to discuss LoopNet Inc.’s financial and operating results for the first quarter of 2010. With me today are Rich Boyle, Chief Executive Officer and Chairman; and Brent Stumme, Chief Financial Officer. Today Rich will begin with an overview of the business and overall corporate strategy continued by a summary of the company’s first quarter performance and review of the marketplace. Brent will review the first quarter’s financial results and provide second quarter 2010 guidance. In May 2010, LoopNet will be meeting with institutional investors around the country. On May 10th, we will participate in the JMP Securities Research Conference in San Francisco California. On May 25th, we will present the B. Riley’s 11th Annual Investor Conference in Santa Monica and on May 26th, we will be in Manhattan for the Steven Spring Investment Conference. We hope to see you at these events but we’ll also make web casts of our presentations available on the Investor Relations section of LoopNet’s website. I would now like to bring the following to your attention. On the call today you may hear forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties. Please refer to the Company’s recent SEC filings at the SEC’s website at www.sec.gov for detailed discussions of the relevant risk and uncertainties. The company does not intend to update the forward-looking statements in this conference call, which is based on information available to us as of the date of this call. The press release distributed today that announced the Company’s results is available on the Company’s website at www.loopnet.com in the Investor Relations section, under Financial Press Releases. The current report on Form 8-K furnished with respect to our press release is available on the Company’s website in the Investor Relations section under SEC filings and on the SEC’s website. You will also hear discussion of non-GAAP financial measures. Reconciliations of these non-GAAP measures to their most comparable GAAP financial measures are contained in the press release distributed today and available on the Investor Relations section of the Company’s website. Now, I will turn the call over to Rich Boyle, Chief Executive Officer and Chairman.

[Richard Boyle:]

Thank you Derek. I’d like to welcome all of you to the LoopNet first quarter 2010 earnings call. On our call today we will discuss our performance during the first quarter and share with you our perspective on current conditions in the commercial real estate industry and discuss all those conditions that are impacting our business. Additionally we will provide you with updates on a number of other ongoing initiatives of the company. Following my prepared remarks and those of Brent Stumme our Chief Financial Officer, we will be opening the line for your questions. The first quarter of 2010 marked an inflection point for LoopNet and we are very pleased with the overall performance of our company. Among the many achievements in this past quarter we highlight the following

[Brent Stumme:]

Thank you, Rich. LoopNet’s revenue for the first quarter of 2010 was $18.8 million compared to $18.3 million in the fourth quarter of 2009 and our guidance of $18.1 million to $18.3 million. This marked the first quarter-to-quarter increase on revenues since Q3 of 2008, reflecting an increase on our base of premium members and subscribers to recent sales, the impact that recently completed acquisitions and a modest improvement in broader industry conditions. LoopNet’s adjusted EBITDA for the quarter was $6.9 million or 36.4% revenues compared to $8.4 million in the first quarter of 2009 and our guidance of $6.3 million to $6.5 million. Net income applicable to common stockholders for the first quarter of 2010 was $2.3 million or $0.05 per diluted share compared to $2.8 million or $0.08 per diluted share in the first quarter of 2009 and our guidance of $0.04 to $0.05 per diluted share. Non-GAAP net income which we defined as net income excluding stock-based compensation, amortization of acquired intangible assets and litigation related costs for the first quarter of 2010 was $4 million or $0.09 per diluted share compared to $4.8 million or $0.13 per diluted share in the first quarter of 2009. As previously announced the Company’s Board of Directors has authorized the repurchase of up to $75 million of common stock and during the quarter ended March 31st, 2010 the company repurchased 301,825 shares of its common stock for $2.9 million. As of March 31st, 2009 the company had $118.5 million of cash, cash equivalence and short-term investments and no debts. Now I would like to review some of our key operating metrics. The number of registered members which includes both basic and premium members grew to 4,121,906 during the first quarter of 2010, a 3.9% increase over the fourth quarter of 2009 and a 20% increase over the first quarter of 2009. The number of premium members as of the end of the first quarter of 2010 was 68,809, a (inaudible) increase from the fourth quarter of 2009. Embedded in this metric was an average monthly cancellation rate that was within the 4.5% to 6.5% range we began seeing two years ago. Average monthly revenue per premium member was $66.16 in the first quarter of 2010, essentially flat compared to the first quarter of 2009 and year ago levels. The number of profile views of listings on the LoopNet marketplace during the quarter was 44.9 million, a 36% increase from the first quarter of 2009. Average monthly unique visitors on the LoopNet marketplace were approximately 977,000 a 1% decline from the first quarter of 2009. As of March 31st, 2010 the LoopNet marketplace contained 754,116 listings, a 3% increase compared to December 31, 2009 and a 10% increase compared to March 31st,2009. Additionally our business for-sale marketplace contained 81,667 listings of operating businesses for-sale, a 70% increase compared to March 31st, 2009. This increase was primarily the result of our recent acquisition of BizQuest which we announced on January 26th. That brings me to our business outlook. Based on current industry dynamics and marketplace trends, the company expects revenue for the quarter ending June 30th, 2010 to be in the range of $18.6 million to $18.8 million; adjusted EBITDA to be in the range of $6.4 million to $6.6 million and net income applicable to common shareholders to be in the range of $0.04 to $0.05 per diluted share assuming stock based compensation of approximately $0.03 per diluted share net of tax benefit and our effective tax rate of approximately 38%. Thank you for joining us today. And I’ll now open up the call for questions.

[Operator:]

(Operators Instruction) And our first question will come from the line of Ian Corydon from B. Riley and Company.

[Ian Corydon:]

Thanks. The Q2 revenue guidance implies that revenues could be down sequentially, which seems little odd given the trend and your kind of overall outlook. Is that conservative, or what’s kind of the reason for that?

[Brent Stumme:]

This is Brent. I guess sort of a couple of things. We do have a decent model of revenue that is not subscription based like advertising and some of those products are little bit hard to predict. So, that is a little bit conservative in there given some of those non-subscription products.

[Ian Corydon:]

And the other revenues, was that down year-over-year organically?

[Brent Stumme:]

Probably it will be down slightly organically, that’s correct.

[Ian Corydon:]

Are you going to provide annual guidance for what BizQuest and Reaction Web are doing?

[Brent Stumme:]

Yeah we haven’t so far and I’d say that we don’t intend to.

[Ian Corydon:]

Last question is on profile views per lifting, they were up year-over-year but down sequentially is that seasonality or what could be the reason for that?

[Rich Boyle:]

Its not really seasonality and this is Rich, easily the demand which is a little bit different and I think the biggest issue we think is going on is that Q4 saw a lot of activity of people sort of in effect developing new investment strategies in advance of this year. It has always been by the way a little bit of volatility in that number from quarter-to-quarter, so it does bounce around a little bit but then it was just probably mostly around people looking in Q4 sort of for the first time that had been called some pent up research that hadn’t been done for year and a half while people were waiting.

[Operator:]

And our next question will come from the line of Steve Weinstein from Pacific Crest.

[Steve Weinstein:]

The last question I am a little confused by the Q2 guidance as well, because it does seem like everything is on a growth track here, which is with Reaction Web. Is that going to contribute revenue in Q2 that’s incorporated in your guidance?

[Brent Stumme:]

Yes, there is some revenue there but I’d say its definitely non-material, non-revenue. And the other thing on the, the area of question about the sequential revenue in the guidance is which you have to remember is that given that we do have a subscription model although we were positive 400 or some subscribers is that that doesn’t increase revenue that much as you can imagine so it takes a while subscription business to get the thing moving up again.

[Steve Weinstein:]

Just two more questions, you highlighted the factors that led to the upside to your guidance I think you said, acquisitions, new product and just industry trends. Could you maybe weight those a little bit and help us understand little bit more where the upside came to your guidance? Because, normally you have really strong visibility into it. And then if you have any plans to kind of change the business models for the companies you recently acquired, I’d be curious?

[Rich Boyle:]

Sort fairly our performance in Q1 (inaudible) there was a few $100,000 of revenue from acquisitions. So that’s clearly added to it and it’s inorganic in that quarter. And then the cancellation rate was a little bit favorable to what we expect to them the overall sales was a little bit favorable of what we expect, I am speaking specifically about premium membership there. And then in the other products category you know both seems like recent sales as well as the few with non-subscription things like some of the advertising on the platform was also a little bit favorable though. It wasn’t really one big key driver, it was a number of relatively small things the like-for-like connection. And then in terms of the question about business model changes. The interest we had over time, we do intend to make stuff. I think the greater example would be you know Reaction Web in particular is a pretty small business today. The work they do really involves kind of focused on higher end properties with a fair amount of customization and what we think is the really interesting opportunity is to create a more productized version of what they do and just scale it up pretty dramatically. So its tools for marketing properties beyond just simply marketing on diluting that marketplace we have variety of other kind of online channels. And with the productized version of what they do has great application to a large number of users. But it will require some work and our current investment in our part as well.

[Operator:]

(Operator Instructions) And our next question will come from the line of Brett Huff from Stephens.

[Brett Huff:]

In the past, you’ve talked a little bit about foreclosure statistics or, I guess distress statistics. Do you have those? Or can you give us any anecdotal if not more systematic view of that again that was I found that very helpful.

[Rich Boyle:]

I don’t have a rate in front of me. I am happy to both provide them, we can include it in investor presentation update that will go on our website shortly but just anecdotally its trending still in that same direction. Meaning the amount of the stress is I think is still increasing pretty dramatically in the industry so looking at whether it’s new to stress listings on LoopNet. We are continuing to see the trends up in the industry in general more distressed being brought to market. It is slower than I think everybody would have predicted say 18 to 24 months ago largely due to this pretend and extend phenomena we’ve talked about where banks are extending the terminal loan and the owner is excited about that because interest rates are still low enough that the carrying costs and the building are still acceptable to them. So it’s developing. The trends are largely continuing along the same lines that we’ve seen in the past but there is not anything that’s dramatically different on the news there at this point.

[Brett Huff:]

And then on the increase in premiums, I think you detailed a little bit about kind of a makeup of that, and I think you said what you thought the main driver was, was buyers coming back. Any more detail on that in terms of how did marketers or sellers add to that? Or can you give us sort of a net up-down versus the gross up-down kind of just bifurcate that?

[Rich Boyle:]

Well it’s mostly coming on the buy side at the moment and in particular if you look at the listing side of the system, the people that are marketing for sale listings and keep in mind most of our customers that are marketing listings are sort of general lists, view lot of small deals and we don’t differentiate. When they buy the subscription it could be used to both market spaces for lease and buildings for-sale. But when you look at the actual sort of de-facto usage, there is a relative lack of for-sale listings right now. Owners are just simply not commissioning the broker to sell their properties unless they have to for some reason. We are seeing on the other hand some good performance on the searching side with principals coming in and being interested in looking for properties to buy. The manifestation of both a favorable change in the cancellation rate that we started seeing in Q3 of last year which is continued and some modestly increased sales as well that are sort of as the industry activity gradually picks up is really the driver behind all that.

[Brett Huff:]

And then the last question for me, can you just give us your thoughts or your view, you did a little bit, but the lease versus buy/sell activity. The way I understand it is and the way I heard you say it is that lease activity is starting to happen now as rates kind of, at least people think they’re getting close to a bottom. But buy/sell continues to be not really looking up yet. If that’s the right way to look at it, any additional color on that or timing or any other thoughts on that bifurcation?

[Rich Boyle:]

Yeah, I think that you got it right there is how we view and on the for-sale side, the industry dynamic is still a pretty low activity environment though it’s quick getting bad and that’s gotten slightly better but not dramatically better for the reasons we enumerated on the call. On the leasing side what’s really going on right now, if you look at it from a complete macro level, vacancy rates are still going up and rental rates are still going down which is certainly the wrong direction from our current owners point of view. However if you’re a tenant, it’s not really a bad thing so you only think of ourselves and our residential marketplace in both sides of it. So the activity increase that we are seeing on the recent churn of the market are basically existing businesses that are now increasingly confident about the state of their business and the state of the economy and they are looking around seeing in many cases higher quality space available at a lower rate and particularly anybody who is already facing a lease renewal has a great opportunity to go lock in some better space at lower rate and so activity is picking up in that renewal sector and commercial real estate brokers I think that are looking at renewals are more active than they were a year ago substantially. However net absorption is still negative. Overall vacant space is still increasing because new businesses are not coming along and existing businesses are looking for cost savings but they are not really expanding at this point in time.

[Brett Huff:]

One follow-up to that. You guys have sort of talked generally about how there was two different phenomenon drive your business from a revenue point of view. Can you give us some color on that?

[Rich Boyle:]

The marketing spaces for lease is absolutely one of the key activities that we monetize on our platform. So that overall, more space coming available on the market creates a tailwind and we are continuing to see good growth in that segment of our business. The space is for lease up 17% year-over-year. 22nd consecutive quarter of double digit growth, we feel like its going very well for us. The buildings listed for sale is probably the most challenging segment of our business right now in terms of growth, again just poor lack of listings, the value proposition is there. I think the customers are committed in using our platform just brokers don’t have as many listings as they did a year or two ago.

[Operator:]

(Operator Instructions) If there are no further questions, ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.