Loop Industries, Inc.
Q3 2010 Earnings Call Transcript

Published: 28 Oct 2010

[Operator:]

Welcome to LoopNet Incorporated’s Earnings Conference Call for the third quarter of 2010. The date of this call is October 27, 2010. This call is the property of LoopNet Incorporated and any recording, reproduction or transmission of this conference call without the expressed prior written consent of LoopNet Incorporated is strictly prohibited. This call is being recorded. You may listen to a webcast replay of this call by going to the Investor Relations section of LoopNet’s website. The webcast will be available on the company’s website until October 30, 2010. I will now turn the call over to Derek Brown, Vice President of Investor Relations and Corporate Planning. Please proceed, Mr. Brown.

[Derek Brown:]

Good afternoon. Thank you for joining us to discuss LoopNet Inc.’s financial and operating results for the third quarter of 2010. With me today are Rich Boyle, Chief Executive Officer and Chairman; and Brent Stumme, Chief Financial Officer. In addition to discussing our performance in Q3 2010 during this call, we plan to share our perspective on current conditions in the commercial real estate industry and discuss how these conditions are impacting our business. We will also provide you with updates on new investments we are making to expand the breadth and depth of the services we provide to our customers. First, Rich Boyle will provide some context for quantitative result and offer some color on our business and plans for the future. Then Brent Stumme will walk through our third quarter financial results and guidance for Q4 2010. Following these prepared remarks, we will open the lines for your questions. In Q4 2010, LoopNet has plans to meet with institutional investors in Boston and New York among other locations and we will be participating in SunTrust Robinson Humphrey’s (inaudible) conference next week followed by Credit Suisse’s Annual Technology Conference from November 29 through December 2. We hope to see you at these events but we will also make webcast 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 are 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 the 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.

[Rich Boyle:]

We are very pleased to report that LoopNet delivered strong financial results in the third quarter and made significant progress on a number of important initiatives intended to increase our utility to customers and drive growth in our business in the quarters and years ahead. Overall, we think these better than expected results speak to the strength of our underlying business model, our financial discipline and team’s ability to execute stabilizing industry conditions and the effective recent acquisitions among other factors. We are particularly excited to see revenue growth accelerate further and are optimistic that this trend will continue in coming quarters driven by three key factors. First, our ongoing efforts to aggregate marketing and searching activity in our commercial real estate business for sale and land for sale marketplaces. Second, expanding the array of products and services we deliver to our customers particularly some of our new information services. And third, stabilization and in some areas improvements in the market conditions in the commercial real estate and business for sale industry. We made progress and saw positive signs in all three of these areas of the business in the third quarter and on today’s call we plan to take you through each and give you a better sense of what we are saying. So let’s begin with a quick review of current conditions in the commercial real estate market to provide some context for the discussion about our business initiatives and results. In short, the industry continues to grind slow along the bottom with overall transaction activity remaining at a historically low level as we had anticipated. While signs of stabilization and modest improvement continue to emerge across many dimensions, the fact remains that most segments of the industry especially those targeting the long tail of small transactions remain extremely weak by any normalized historical standard. The volume of for-sale transactions has continued to raise throughout the year but at a fairly gradual pace. Research firm Real Capital Analytics reported recently that the total number of transactions in segments they track increased 6% quarter-over-quarter in Q3 2010. While certainly encouraging, this level of activity remains far below historical norms. For a bit of perspective on this, we note that average quarterly transaction totals through the first nine months of 2010 remain at about half of those recorded in the same periods in 2002 through 2004. So deal volume would effectively need to double from here for the industry to reach what we consider to be more normalized levels. Moreover we remind investors that industry wide improvement to the extent it has occurred has been uneven at best. For example, interest in and activity levels around higher end properties appear to have recovered faster and more aggressively than for smaller properties which are our sweet spot. This bifurcation largely reflects a flight to quality among investors and lenders, most of whom remain extremely risk averse. In the small property segment, we believe that the depressed levels of transaction activity relate to two key factors. The first is it financing for deals remains challenging to arrange and the second is that asset prices are still falling. Faced with these circumstances, buyers are watching the market closely but are understandably moving slowly in terms of pulling the trigger on a transaction. Our expectation is for these general trends to continue for at least the next few quarters. The leasing side of the industry also signs of increasing stabilization and ongoing activity increases. Overall, vacancy rates remain high compared to historical averages and rental rates generally remained soft despite segments in markets showing meaningful gains. For example CB Richard Ellis reported recently that for the third quarter of 2010, the national vacancy rates for office, industrial and retail properties each increased 50 or more basis points year-over-year to 16.6%, 14% and 13.2% respectively. At the same time, these vacancy rates were flat to down quarter-over-quarter for the first time in many quarters suggesting that the worst of the cycle may now be behind us. However, the broader economic recovery that will eventually drive improvements in rent and occupancy remains in our view very tentative and key drivers such as the unemployment rate remain at historically high levels. The bottoming out nature of the broader commercial real estate industry coupled with typical summer seasonality resulted in generally positive, tough a bit uneven results in our core marketplace. Our premium membership service remains the largest revenue contributor to our business and accounted for 70% of revenues during the quarter. Revenue for the product increased 1% over the second quarter marking the second consecutive quarter of growth in premium membership revenue and only the second quarter of sequential growth at all since Q3 of 2008. After so much industry disruption, we are clearly happy to see this product line growing again. At the same time however, we are undoubtedly aiming for higher rates of growth. Historically, the third calendar quarter has shown some modest seasonal weakness relative to the first and second quarters and this was the case again this quarter. Gross sales came in pretty close to our expectations for the quarter, cancellation dropped nicely from year-ago levels again and once again fell within our stated range of 4.5% to 6.5%. Reflecting the uneven patterns of activity across the industry as it bounces along the bottom, we did see a bit more variability than planned within various segments of our premium member subscriber base. For example, buyers and investors, who tend to use our system transactionally while looking for a building to buy cancelled at slightly higher rates in the quarter while high volume listers most of whom are full time commercial real estate brokers using our platform on an ongoing basis cancelled at steadily improving rate. Consistent with prior quarters, roughly 60% of our premium membership revenue was derived from the marketing of listing with the remaining 40% or so associated with the searching for availabilities. Overall we are confident that our online marketplaces continue to gain share of the total market activity as they grow in both supply and demand scale even in this challenging market. We believe that we are providing the most vibrant liquid online marketplace matching supply and demand in the industry. In terms of supply on LoopNet’s marketplace, total active listings increased more than 7% year-over-year. Once again, overall growth was fueled by activity in the for-lease segment, which saw a 9% year-over-year increase in the number of spaces being marketed. Encouragingly, the number of for-sale properties on LoopNet increased more than 3% year-over-year, which while modest marked the fastest growth we have seen in this segment since Q4 of 2008. And looking even further into our data, this marked the first quarter since Q1 of 2008, in which the number of new for-sale listing is being added to our marketplace has exceeded those of the year-ago period. As we have been saying for some time now, supply constraints had hampered the for-sale side of the industry and our marketplace. So we are very encouraged to see early indications of growth there once again. Turning now to the demand side of our marketplace, we are pleased to report that we again saw record levels of activity in Q3 of 2010. Continuing the trend, we began to note in the second half of 2009, bargain-hunting principals are focusing more time and resources analyzing markets and searching for potential investment properties or spaces for lease on our marketplace. They don’t yet seem willing or able to act on that interest in large quantities yet as reflected in broader industry pricing and transaction trends but they are increasing their level of market research. As a result, LoopNet.com saw a record number of listing profile views in Q3 of 2010, up 45% from year ago levels. At the same time, the number of profile views per active LoopNet listing, a key measure of overall liquidity in our marketplace increased 36% from Q3 of 2009 and 23% from Q2 of 2010. Not only was this the fourth consecutive quarter of year-over-year improvement in this metric, but it was the second highest result for this metric in our company’s history topped only by our experience in Q2 of 2006. We experienced robust demand growth in both the for-sale and for-lease segments of our marketplace, lending further credence to the view that is significant compression of pricing and increasing confidence in the economy are fueling demand side interest. Overall, our marketplace has continued to deliver unparalleled visitor traffic according to third-party traffic measurement services. For example, comScore Media Metrix reported that the average number of monthly unique visitors during the third quarter to our collection of websites including LoopNet.com, CityFeet.com, LandandFarm.com, BizQuest.com, and BizBuySell.com was 2.4 million on average during the quarter. Traffic to LoopNet.com alone was approximately 1.7 million unique visitors per month in Q3 of 2010, again, according comScore. We believe that multiple factors contributed to this significant increase in vibrancy in our marketplace, including ongoing improvements to our marketing efforts, improvements in the core search engine on our platform, the overall growth and scale of our marketplace, and ongoing indications of an incremental increase in demand side interest as market conditions stabilize. Now, I’d like to update you on areas of our business beyond our core marketplace services. We are continuing to ramp our previously announced organic investments in this area and we have made material progress in developing these products and are increasingly optimistic about the long-term growth potential we see in them. First, we are very pleased with the market’s early response to our property research database service, which we initially launched in a beta release during Q2 of 2010. As we continue building PRD’s dataset and refining its features and functionality, we are building awareness of the product and gathering important feedback from our customers. Moreover in recent weeks, we began monetizing the property research database charging new customers an incremental fee to access the service. While we are at an early stage in testing and have not yet finalized our monetization plans, the sales momentum has been strong and gives us reason for optimism as we look into 2011 and beyond. For these and other reasons, we continue to see the property research database as one of the more noteworthy new product introductions of our company’s history. Now, in addition to our members being able to search for and/or market available for-sale and for-lease properties in our marketplace and use recent sales to get information about completed sale transactions, they are able to discover, evaluate, and leverage an expansive array of information on millions of properties that may or may not be currently available. As a result, LoopNet solutions are now supporting numerous key aspects of the commercial real estate life cycle beyond marketing and searching for specific transaction. We see substantial opportunity to create and deliver even more value to our customers going forward as we build upon this early progress. In addition to property research database, I would like to highlight recent sales, which is our database of comparable sales record and which has been another focus point of internal investment for us. For example, we released a reengineered search interface to the product during the third quarter, one that is faster, simple to use and add significant new functionality. We also continued to expand and enhance the information content in the product. As a result of enhancements like these as well as stabilizing market conditions, we are very pleased to report that Q3 of 2010 was one of the strongest quarters in the history of recent sales. Very strong gross new sales of the product coupled with a stable cancellation rate resulted in accelerating growth in our base of total subscribers which also hit another high watermark in the quarter. I would also like to spend a few minutes discussing our September 2010 acquisition of LandsofAmerica.com. Based in Austin, Texas, LandsofAmerica owns and operates websites that are targeted at buyers and sellers of primarily rural land. In fact, LandsofAmerica operates the largest and most heavily trafficked online marketplace specializing in land for sale. In addition to these three primary websites, the company powers an online network of over 200 partner websites including brands such as Field and Stream and Caballos. All told, LandsofAmerica generated almost 600,000 unique visitors to its website in August 2010 according to Google Analytics and will contribute a significant lift to LoopNet’s overall traffic. Moreover LandsofAmerica.com substantially expands LoopNet’s overall share of active land-for-sale listings. Combined LoopNet owned websites now feature more than 200,000 active land listings for sale across LoopNet.com, LandsofAmerica.com and LandandFarm.com. In our view, the land-for-sale category is the one of the largest sub-segments in the entire commercial real estate industry. As a result, we see meaningful opportunity for growth and expansion in this area as we integrate the platforms and innovate to provide new marketing, searching and information services to our customers in this sector. Another area of investment is our work to integrate the tools of recently acquired Reaction Web into our overall marketing platform. We continue to make strong progress towards that goal and expect to begin bringing new product market as a result of that work next year. We have also continued to work Xceligent, a provider of research based information services to the commercial real estate markets in which we have a minority investment. Following up on the successful of their service in Omaha, Nebraska earlier this year and Birmingham, Alabama recently, they are continuing to rollout their services to new markets including some top 40 population MSAs. They have been making very strong progress in finetuning their model and processes to operate effectively and in partnership with us and we are excited about continuing to work with them to launch additional cities in the coming quarters. We believe that a substantial portion of the expected revenue growth in our business will come from expanding the range of services we provide the users already on our platform, allowing us to generate higher revenue per customer by cross-selling new services to existing customers and also by expanding our ability to convert otherwise free-users and the paying customers by broadening our services to address the CRE, the commercial real estate lifecycle more broadly. With this in mind, we introduced two new metrics to your last quarter, aimed at increasing transparency into our business and providing you with a more comprehensive view of our footprint with our customers in the commercial real estate industry. We ended the third quarter of 2010 with 88,505 total unique paying subscribers up from 83,137 at the end of the second quarter. These subscribers were paying us on average $57.30 per month. To be explicit, the commercial real estate subscription products and services we offer that are now included in the above mentioned metrics are premium membership, both property marketing and property searching, recent sales, professional profiles, LandandFarm, LandsofAmerica and property research database, all of these subscriptions fall directly into the core focus areas of our strategy in support of commercial real estate customers marketing and searching for transactions or in search of information about the market. All told, LoopNet’s total commercial real estate related subscription revenue was $15.2 million in Q3 of 2010, representing 77% of total company revenue in the quarter. Looking forward, we intend to continue building on this positive momentum, expanding our core marketplaces and increasing the scope of services we provide our customers. We have been actively scaling our investments to enhance longer term growth through the first nine months of this year, yet it has clearly taken us a bit more time than we had originally planned to put these investment dollars to work. Nonetheless the opportunities we see ahead of are exciting and the results today from new services like property database have been extremely encouraging. So expect us to invest even more aggressively in our business well into 2011 targeting our efforts in three key areas. First, we continue to devote considerable time, attention and money to increasing both the scale and activity around the marketing of and searching for available listings in our core marketplace. Additionally we are focused on delivering new and increased functionality to our marketplace customers, for example, by integrating the reaction web suite of services on the marketing side of our marketplace with our groundbreaking mobile access solutions on the searching side of the platform. Second, we are focusing substantial resources on the development and enhancement of information services we deliver to a broad set of industry participants. In addition to continuing to increase the breadth, depth, timeliness, utility, and accuracy of the data we deliver in our property research database, we plan improvements to our recent sales solution and are committed to building our recent sales team. Additionally we will continue our investments in Xceligent and our market trends offering and plan to introduce entirely new services to customers in coming months. Third, we continue to explore new potential acquisitions and push the ball forward upgrading, integrating and expanding the offerings from some of the acquisitions we have done in the past. We believe that these small tuck-in acquisitions have been very effective at expanding our marketplaces or expanding the tools we can provide to core customers. The three tuck-in acquisitions we have completed so far this year BizQuest, Reaction Web and LandsofAmerica, have been very productive for us and we will continue to seek more like them. Above and beyond these areas of investment, we have made it clear that we would seek to appropriately use our cash to enhance stockholder value as conditions dictate. We will continue evaluating this option as we move forward as well. In conclusion, we are very pleased with LoopNet’s performance in Q3 of 2010. We made solid progress aggregating the core marketing and searching activity of this industry on our marketplace, despite still challenging market conditions. We are very excited about our efforts to develop and deliver new services to our customers and we completed yet another acquisition that expands our footprint. Moreover we have done all of the above while maintaining a margin and cash flow generation profile that would be the envy of most companies, with a pristine balance sheet that carries over $87 million in cash and no debt. We believe that we are making excellent progress towards our previously stated medium-term goal of building a $200 million revenues business with over 40% adjusted EBITDA margins and look forward to providing updates on our progress in coming quarters. Thank you and now I will turn the call over to Brent Stumme, our Chief Financial Officer, to walk you through our third quarter financial results guidance for Q4 of 2010.

[Brent Stumme:]

Thank you, Rich. LoopNet’s revenue for the third quarter of 2010 was $19.8 million compared to $19.4 million in the second of quarter of 2010, $18.8 million in the third quarter of 2009 and our guidance of $19.2 million to $19.4 million. The revenue growth was due to the impact of recently completed acquisitions and increase in our base of subscribers to recent sales, outperformance in more volatile areas of our business such as advertising and a modest improvement in broader industry conditions. LoopNet’s adjusted EBITDA for the quarter was $7.4 million or 37.2% compared to $7.8 million in the third quarter of 2009 and our guidance of $6.6 million to $6.8 million. Adjusted EBITDA margin was higher than planned and above our stated target range due largely to timing issues associated with our hiring and product development efforts, coupled with revenue upside from advertising and other high-margin sources. Net income applicable to common stockholders for the third quarter of 2010 was $2.7 million or $0.06 per diluted share compared to $3.7 million or $0.09 per diluted share in the third quarter of 2009 and our guidance of $0.04 to $0.05 per diluted share. Non-GAAP net income, which we define as net income excluding stock-based compensation, amortization of acquired intangible assets, and litigation related cost and recoveries for the third quarter of 2010 was $4.4 million or $0.11 per diluted share compared to $5.5 million or $0.13 per diluted share in third quarter of 2009. The effective tax rate in the third quarter of 2010 was 34.8% compared to 26.1% in the third quarter of 2009. The lower rate in the third quarter of 2009 was due to a favorable tax credit. LoopNet repurchased 465,269 shares of its common stock during the quarter ended September 30th, 2010 for $5.5 million. Since February 2010, the company has now repurchased 2,756,300 of its common stock or 7% of total shares outstanding for $31.7 million. As a result, $43.3 million remains on our previously announced authorization for repurchase of up to $75 million of common stock. As of September 30th, 2010 the company had $87.5 million of cash, cash equivalents, and short-term investments, and no debt. 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 4,462,554 during the third quarter of 2010, a 4% increase over the second quarter of 2010 and a 19% increase over the third quarter of 2009. The number of premium members as of the end of the third quarter of 2010 was 69,363, essentially flat compared to the end of the second quarter of 2010. Embedded in this metric was an average monthly cancellation rate that was within the 4.5% to 6.5% range we began seeing since the end of 2007. Average monthly revenue per premium member was $66.92 in the third quarter of 2010, a 1.3% increase compared to the third quarter of 2009. The number of profile views of listings on the LoopNet marketplace during the current quarter was 64.2 million, a 25% increase from the second quarter of 2010, and a 45% increase over the third quarter of 23009. Average monthly unique visitors, as reported by comScore Media Metrix during the third quarter of 2010 to LoopNet-owned websites including LoopNet.com, CityFeet.com, LandandFarm.com, BizQuest.com, and BizBuySell.com was approximately 2.4 million, a 14% increase over the second quarter of 2010. Average monthly unique visitors, as reported by comScore during the third quarter of 2010 to LoopNet.com alone were approximately 1.7 million, a 13% increase over the second quarter of 2010. The number of unique paying subscribers to one or more of our commercial real estate related services as of the end of the third quarter of 2010 was 88,505, a 6.5% increase compared to the end of the second quarter 2010. The average monthly revenue per unique paying subscriber during the third quarter of 2010 was $55.30, a 4.1% decline compared to the second quarter of 2010. The increase in unique paying subscribers and the decline in the average monthly revenue per unique subscriber is primarily related to the addition of the LandsofAmerica subscribers, which has a lower average monthly price. As of September 30th, 2010 the LoopNet marketplace contained 779,083 listings, a 2% increase compared to June 30th, 2010 and a 7% increase compared to September 30th, 2009. Additionally, our business-for-sale marketplace contained 83,083 listings of operating businesses for sale, essentially flat compared to June 30th, 2010 and a 77% increase compared to September 30th, 2009. This increase compared to September 30th, 2009 was primarily a result of our acquisition of BizQuest in the first quarter of 2010. That brings me to our business outlook. Based on current industry dynamics and marketplace trends, coupled with normal end of year seasonality, the company expects revenue for the quarter ending December 31st, 2010 to be in the range of $19.7 million to $19.9 million, adjusted EBITDA to be in the range of $6.9 million to $7.1 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 net of tax benefits, and effective tax rate of approximately 38%. Thanks for joining us today. I will now open up the call for questions. Question-and-Answer Session

[Operator:]

(Operator Instructions). Your first question today comes from the line of John Blackledge with Credit Suisse. Please proceed.

[John Blackledge:]

Hi, thanks for taking the question. Just a question on the premium numbers; so the net ads were kind of flat to maybe down very modestly. So just wondering what the driver was there and what do you think about – how we can think about the fourth quarter and heading into 2011 on that metric? Thanks.

[Rich Boyle:]

Sure. Hi, John, this is Rich. Yes, you’re right, it was basically flat sequentially from Q2 to Q3. And couple of issues there; the first is if you look back historically, there’s always been some seasonality or two. Q2 to Q3 transition tends to be a little software, so Q3 being a little bit softer. And then, secondarily, I think just bouncing along the bottom volatility in the overall market what we saw in some of the sectors and in particularly and investors looking to buy is some underperformance in that segment vis-à-vis our original expectations or kind of what had happened in Q2. And it was offset a little bit by some out performance in some of the more professional segments, the full-time commercial real estate market, brokers’ market came in a little bit better than expected, but that lack of investor commitment right now is probably the biggest challenge. As we kind of look at in Q4, I think dramatically we’re seeing it is somewhat the same. Q4 tends to be seasonally our weakest quarter. We’re still looking at a market that overall is pretty choppy in terms of investment activity in the commercial real estate market. We do see it stabilizing and improving over a longer period of time. It’s tough to see exactly when the momentum really picks up steam. So as we get into 2011, I think we’ll have in a more detailed commentary as we get a little more visibility there.

[John Blackledge:]

Great, thank you.

[Rich Boyle:]

Yes, thanks Tom.

[Operator:]

Your next question comes from the line of Ian Corydon with B. Riley & Company. Please proceed.

[Rich Boyle:]

Hi Ian.

[Operator:]

Mr. Corydon, your line is open.

[Ian Corydon:]

Sorry about that. So, I guess first I’m just looking for your latest thoughts on monetizing the property research database, and how you monetize that and who you market that to as well?

[Rich Boyle:]

Yes, so – hi Ian, this is Rich. We did flip the switch on the initial monetization right at the beginning of October, so we’re in the early stages of charging for it now. It will start to have some modest impact even this current quarter as we run some tests. And then I think really begin to ramp-up into the full production mode after we get into the first part of next year. You can – on our website, at the moment, you can see that the list prices listed is $59.99 per month. We have some different prices that are being tested in different combinations right now. But as an example one of the offers right now is a 1999 bundle if you buy it with some of our other products. So it gives you a flavor for kind of some of the initial thinking and what we’re testing right now and we’ve been really pleased with the initial feedback from customers and the initial uptick as we’re beginning the test marketing. We have not yet gone into what I would call a full marketing mode. We haven’t kicked it off in a full-scale marketing and sales effort to all of our existing users on our platform. We’re doing it somewhat selectively as we’re in these early test stages. But we’re pretty happy with initial traction.

[Ian Corydon:]

Okay. And that charge for now is only to new users, is that correct?

[Rich Boyle:]

Yes, it’s correct. What we’re doing right now is offering for new people signing up for premium membership now or recent sales now, the opportunity to buy this bundled upgrade with the property database. And we are testing some different combinations and different price points. And I will say it’s not said and stowed at this point, you’d expect it to see some variability between now and say the first quarter. This is the pattern we followed in the past as we’ve watched in recent sales a few years ago or even all the way back to when we first launched premium membership. We’ll do some test and gather some data before we make our final decisions.

[Ian Corydon:]

Okay. And the second question is just on the EBITDA margins. Obviously, the investments that you’ve been making have yielded some fairly exciting new products. How do you look at the ability to get EBITDA margins over 40% if you look out to say 2011 as you continue to make these investments?

[Rich Boyle:]

Yes, we have a track record in the business of having a wonderful margin profile and we feel very confident in terms of our longer-term ability to manage it to that 40% plus level. That said, yes, we’re still in the ramp phase of the investments. I think it’s a high-class problem to have, but I think going into Q3, we were preferred to put more dollars to work. We’re pretty excited about what we think is the return on these investments and we’re committed to keep doing it. So I think right now I would expect to see margins actually go down a bit from where they are right now as we continue to ramp-up investment dollars in the next two quarters. We haven’t – I guess we’ll talk about 2011 in more detail when we get there. But in the near term, we’re going to continue with the investment program.

[Ian Corydon:]

Got it. Thank you.

[Rich Boyle:]

You bet.

[Operator:]

Your next question comes from the line of Brett Huff with Stephens. Please proceed.

[Brett Huff:]

Good afternoon.

[Rich Boyle:]

Hi Brett, how are you?

[Brett Huff:]

Good. How are you guys doing? Question, just a follow-up question on the last one. When you all think about the long-term goals of $200 million in revenue in the very good margins that you had in the past and I think can have in the future versus the timeline it will take to do a lot of that organically versus M&A, when you all raise that money I think a lot of us expected that there was going to be a bigger, bigger chunks of M&A, but it seems like the focus at least so far has been on organic. Can you just give us your thoughts on how far away are we away from the I guess kind of the finish line in terms of achieving some of the product development that you were talking about and when do we see the revenue growth reaccelerate or accelerate faster as a result of that?

[Rich Boyle:]

Yes, so you touched on a couple of things. I mean, the first in terms of achieving the $200 million revenue goal. Yes, we definitely think of that as a medium-term thing, not a long-term thing, and I guess it’s all definition to some degree. But it’s something that we think of it as a more near-term target for us. In terms of the big M&A versus small M&A, I would say we definitely have an appetite for both when we raised some capital I guess over a year-and-a-half ago now we were thinking about some bigger opportunities. Obviously we haven’t gotten done. I wouldn’t say that the door has closed, but evidence would suggest that we’re more likely to be doing more small things than big things right now just because we couldn’t make them happy. That said, I think when you look at the aggregation of smaller things that we’ve done, I think it’s been I guess seven acquisitions now in the last several years in our kind of over the last – over our history. We’ve been really pleased with how those worked out and our ability to execute following up on them. So I think we’re contained to do to do those. And then in terms of when we expect to see the revenue reacceleration, I think we’re seeing it already getting up to the 5% top line growth is clearly not where we want to be, but it’s – it turns the corner we believe and is really kind of accelerating in the right direction. So as we look forward in the relative near term, I think the combination of us getting more scale in our core marketplace business and driving monetization there, getting some of these new products out like property database and reinvesting in recent sales, as well as hopefully, but we’re frankly not banking on them in the near term a reacceleration in overall market activity, that accommodation we think will return us to very strong top line growth in the not too distant future.

[Brett Huff:]

And one question on the metric, and I want to make sure that I’m understanding it. The active or the views – profile views for active number, to me that’s a really important one. And does that – how do you define the active member in that particular cases, it paying or not paying, or how do you distinct – or is there a distinction in that?

[Rich Boyle:]

Well, it’s the – I think its profile use proactive listing it was what we talked about in the call.

[Brett Huff:]

Okay.

[Rich Boyle:]

So I don’t know if you’re doing your own ratio.

[Brett Huff:]

No, that was it. I was just thinking it was an active member. Okay that helps.

[Rich Boyle:]

Yes, it is. And that would be a listing that’s currently on market. And it’s – they’re specifically to the LoopNet commercial real estate platform, it would not include the business-for-sale listings for example.

[Brett Huff:]

Okay. And then last question from me is on Xceligent, can you just give us a sense of how many total cities they’re in on a sense of how many you think they can kind of put on in the near term, maybe annually something like that?

[Rich Boyle:]

Yes, I believe they’re in now probably in the mid 20s in terms of current cities that they operate in with their, what I would call kind of the partnership model with us. I think they have a few legacy markets where they have a little bit different of approach. But in the sort of current markets, it’s up in the order of mid 20s. And they’ve been rolling them out at – it varies a little bit by scale. They can do a few to a several per quarter if they’re relatively small markets and a lower number right now if it’s in the top MSA market which they’re starting to work on some of those. So I think over the last few years, they’ve probably launched in the order of five to 10, over the last maybe year and a half or so, so something along that pace.

[Brett Huff:]

Okay. And then, I guess last question on Xceligent, how – is the property database that you’re developing linked at all with Xceligent in the data gathering that they’re doing?

[Rich Boyle:]

Part of the partnership is we do do some information sharing between the platforms as they go into a market, we can share with them information about our history of data, about not just current availabilities, but buildings as well which lowers their cost to enter new market and makes them more efficient. And then as they do research on maintaining availabilities in some of the in particular the bigger multitenant lease type properties they can send us that information to expand the footprint of our marketplace. So, yes, they are linked together in the markets where we’re cooperating and that provides leverage to both of us.

[Brett Huff:]

Great. That’s all I needed. Thanks for your time.

[Rich Boyle:]

Thank you.

[Operator:]

Your next question comes from the line of Jim Wilson with JMP Securities. Please proceed.

[Jim Wilson:]

Thanks, good afternoon, guys.

[Rich Boyle:]

Hi Jim.

[Jim Wilson:]

I was wanted just little further on the pricing. So I guess if a new subscriber if any of the services wants the entire bundle, is that basically this $59.99 plus a $19.99 for the entire bundle. I was just trying to get a little bit handle on sort of how overall pricing –

[Rich Boyle:]

Yes.

[Jim Wilson:]

With all the new products.

[Rich Boyle:]

It’s a good question. We’re looking at and testing a variety of different bundles right now. But to give you an example, the list prices for – if you’re coming in and let’s your investor who is thinking about investing in commercial real estate right now and you want to get educated as you can on the market. The three services we have at the moment that we’re charging for would be a searching membership or premium membership where the list price is $49.99, our recent sales product which is comparable to transaction records, the list price is $29.99. And then the property database product where the listed price is $59.99. If I put on my quick math challenge and do it in my head, it’s about a $140 a month if you roll all scheduled [ph] list prices. And what we are offering in terms of bundled discounts would be substantially less than that. And the other factors that are playing are basically the prepayment terms that we have often discounted for in the past. If you prepay for a quarter or a year, you get a lower price as well. So those are literally sort of what combinations customers are interested in and what combinations you yield the best kind of net revenue to us are exactly the tests that are ongoing right now. But those are the pieces that are in play.

[Jim Wilson:]

Okay, and then if I mean you’ve been making acquisition. You’re still spending for investing. I’m trying to get a sort of thing through leverage. And at the point you either stop or slow and invest your material stop and then slow it, any of the new – is there any – is basically everything incremental from their follow bottom line. That’s what I’m getting at is, is there any reason that there is a lower margin structure with any of the businesses you required and once you lay them on to your entire platform?

[Rich Boyle:]

I think some of them, yes, they’re slightly lower than our core marketplace business. I mean if you look at – or even some of the new organic products that require a little bit more investment on an ongoing basis in terms of the information content. But on a blended basis, when we look at the entire – and we think there’s a lot of leverage between these products. We feel very comfortable in our ability to hit that 40% plus EBITDA margin target. But the – if you go back to the high point in our marketplace business, I think it was close to a 50% margin, and we don’t think that some of these standalone information intensive businesses will get to that level. The margin structure will be a little bit lower when blended with our marketplaces where we think we get there.

[Jim Wilson:]

Yes, all right, great, thanks.

[Rich Boyle:]

Thank you.

[Operator:]

(Operator Instructions). Your next question comes from the line of Steve Weinstein with Pacific Crest. Please proceed.

[Steve Weinstein:]

Great, thank you for taking my question.

[Rich Boyle:]

Hi Steve.

[Steve Weinstein:]

When I listened to or read the comments from some other people in the industry, whether it be CB Richard Ellis or one of your competitors, I think their commentary on the market was maybe they see a little bit more robust than the way you’re describing it. So I was wondering if you could talk about the segment of the market that you’re really operating in. And if you know historically, has that kind of trailed or let or coincided with the commercial real estate market overall in terms of level of recovery. And also is there anything about maybe the way people use your product or who your premium members would be, that would maybe make them trailed recovery whether it’s because they add some much value from the free service or people are able to share memberships or anything like that that would be to lag and when we should have pick up in terms of premium membership growth?

[Rich Boyle:]

Yes, I think there is a couple of things that are driving our results or sort of the activity levels we’re seeing in the what’s called small property segment of the market than say CB Richard Ellis’s traction more at the high end of the market. And you can see this reflected I think even in their own reports a little bit, but data from Real Capital Analytics I think was talking about this as well. Where there is a bifurcated if not trifurcated market where at the high end, speaking kind of about the investment market right now, the high dollar value properties that are sort of the “trophy properties” are considered to be a very safe haven if you will and are attracting a lot of capital and we’re seeing a lot of activity in that segment. And, frankly, pricing has rebounded in that segment to some degree as well. But it’s a small fraction of the market on a units basis and that’s not to your question Steve is really our primary area of activity. What you see mostly of them is listed in the small property be under $1 million kind of stuff and it is just behaving differently. I think it doesn’t attract the same kind of institutional capital from an investment point of view. Financing is largely done by community banks as opposed to other financing channels and that’s a difficult environment to get deals done in right now and the investors are less interested in that segment, so I think that’s the primary difference in the investment market is on a segmentation basis. And then the other thing that I would point out is our business probably weights a little more towards investment sale transactions for sale properties as opposed to leasing transactions. And I think [inaudible] data as well. They’ve seen stronger recovery to date in their leasing environment and in their leasing activity than they have in the sales side of the market. So it’s probably those two factors primarily that are driving the difference or it will lag if you will. And then in terms of whether our market overall – it’s tough to say in whether I think looking at historical patterns, I’m not sure I would say that our market lags the market in any sort of a systemic sense. I think a large part of it has to do with this unique phenomena around the financing channels and the community banks being locked up with new loans right now.

[Steve Weinstein:]

Great, thanks a lot.

[Rich Boyle:]

Sure.

[Operator:]

Ladies and gentlemen, that concludes today’s conference. Thank you so much for your participation. You may now disconnect. Have a great day. Copyright policy