Loop Industries, Inc.
Q1 2009 Earnings Call Transcript

Published: 1 May 2009

[Operator:]

Welcome to LoopNet, Inc. Earnings Conference Call for the first quarter of 2009. The date of this call is April 29, 2009. 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 Inc. is strictly prohibited. This call is being recorded. You may listen to the 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 May 29, 2009. I will now turn the conference call over to Derek Brown, Vice President, Investor Relations and Corporate Planning.

[Derek Brown:]

Thank you. Good afternoon. Thank you for joining us to discuss the LoopNet Inc. financial and operating results for the first quarter of 2009. 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 the 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 financial results and provide second quarter 2009 guidance. During the second quarter of 2009, the company plans to attend the following investment banking conferences, JMP Securities Research Conference on May 19 in San Francisco, Stephens Inc. Spring Investment Conference on June 3 in New York, and Credit Suisse Convergence Conference on June 9, Dana Point, California. Web cast of LoopNet’s presentations will be available on the investor relations section of LoopNet’s website. I would 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 filing at the SEC's website at www.sec.gov for detailed discussions of the relevant risks and uncertainties. The company undertakes no responsibility to update the information in this conference call under any circumstance. 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, reconciliation of these non-GAAP measures to the most comparable GAAP financial measures are contained in the press release distributed today, and available on the company’s website. Now, I will turn the call over to Rich Boyle, Chief Executive Officer and Chairman.

[Rich Boyle:]

Thank you, Derek. I like to welcome all of you to the LoopNet’s first quarter 2009 earnings call. First off, I would like to welcome and introduce you all to Derek Brown, LoopNet’s new Vice President of Investor Relations and Corporate Planning. We are very excited to have Derek on the team here, and he will be an important source of company information, going forward for the investment community. We have several key topics to address on our call today. Along with discussing our recent performance, today we will also be sharing our perspective on current conditions in the commercial real estate industry, and how they are impacting our business. We will also talk about our recent strategic financing that we previously announced and provide updates on a number of other ongoing initiatives. We continued to execute effectively, and drive our business ahead of the targets we set three months ago in the face of a very challenging macro environment. Revenue for the first quarter was $20.1 million compared to our guidance of $19.7 million to $20 million for the quarter. Adjusted EBITDA for the quarter was $8.4 million, compared to our guidance for the quarter of $7.5 million to $7.8 million. Our adjusted EBITDA margin for the quarter was 41.5% consistent with our stated target range this year of high 30s to low 40s on a percentage basis. We believe that this strong profitability highlights the sound foundation of our underlying business model, and reflects favorably on the ability of our team to execute in a really tough market. We remain well positioned to capture the large opportunity in our core business, and we are moving to take advantage of the conditions created by this industry cycle to our long-term advantage. At the same time, we are actively looking at other opportunities to expand our business and set the stage for future growth. At a macro level, overall activity levels, transactions to buy and sell buildings as well as to lease spaces have continued to be extremely low during the first quarter. New York Research Firm, Real Capital Analytics reported that in the segments they track, March 2009 transactions that is the buying and selling of buildings were down 80% as compared to March 2008, which was itself down compared to 2007. This is the same phenomena that we have been seeing for 18 months now. The lack of deals is caused both by constrained credit availability and a very large gap between buyers and sellers in terms of pricing. Our business is not significantly affected by relative changes in pricing, but we are very affected by changes in the volume, and the very low level of transaction activity has continued to create challenging conditions for us, muting both listing and searching activity on our marketplace. A number of active for sale listings on our site at the end of Q1 increased 0.5% on a sequential basis, after declining sequentially during the fourth quarter of 2008. We believe the fact that the number of for sale listings in our marketplace is growing, at a time when there are many fewer listings in the overall industry, is driven by the secular shift to online marketing, and by the superior performance of our marketing platform as compared to alternatives both off-line and online. We have also seen relatively lower activity on the demand side as potential buyers watch and wait for prices to come down, while not yet seriously considering moving forward with purchases. Our belief remains that deal volume will begin to pick back up once prices fall further and this buyer-seller expectation gap is closed. We also continue to believe that the most likely catalyst for this drop in prices will be foreclosed properties and other motivated sellers mainly driven to sell by the need to refinance properties, purchased over the last few years with the unsustainable economic expectations and easy financing terms that are no longer available. And in an encouraging early development, we're beginning to see signs that both of these expected trends, falling prices and increased listings for motivated sellers are rapidly expanding. On the pricing side, the Moody's/Real Commercial Property Price Index is now down over 20% from its peak in October 2007, with January 2009 showing the largest decline ever recorded. Looking at new LoopNet listings added to our system over the last five years, the relative number of distressed listings as a percent of all new listings is up dramatically. It is nearly double what it was last year at this time and rising rapidly. Again, it is early but we believe that as prices fall further, buyers will begin to come back into the market looking for bargains, and therefore deal volume will pick back up, and our business will benefit as activity begins to grow again. On the leasing side of the industry, transaction volumes are also down, perhaps not surprisingly, keeping the lack of demand side interest as businesses reduce their size through layoffs, curtail expansion plans, and generally adopt a very conservative stance in terms of real estate commitments. There remains a baseline of activity as leases expire and tenants either renew or look to move and possibly upgrade spaces, but the overall demand levels are down. Owners of buildings are now faced with rapidly rising vacancy rates, and are highly motivated to see that the brokers working to market those spaces are doing so as effectively as possible. For example, real estate research firm Reis, Inc. reports that the overall US office vacancy rate rose to 15.2% during the first quarter, which is a 19% increase over Q1 of 2008. As vacancy rates go up and there is more empty space to be marketed, we would expect the number of for lease listings on our platform to grow, and in fact it has, and the growth rate has been accelerating. The number of spaces available for lease on LoopNet at the end of Q1 2009 increased 9.5% sequentially from Q4 of 2008 compared with a 5.7% sequential increase from Q3 to Q4 of 2008. We think that this strong growth on the leasing side is being driven by the shift online, the increasing number of vacant spaces that need to be marketed, the superior performance of our marketing platform, as well as recent efforts by us to proactively bring listings to the marketplace. As in recent quarters, premium membership in aggregate accounted for 75% of total company revenues for the quarter. Of that 75%, 58% came from brokers marketing properties and 42% was from customers using LoopNet to search for available properties. As we look forward in the immediate near-term, we expect the poor macroeconomic environment to continue. The primary impact of the broader environment on premium membership has been that we are seeing abnormally low volumes of for sale transactional listers and searches, who are simply not active in the market right now. We believe we have not permanently lost these members from our platform; rather they are using our free basic membership until they get active in a transaction again. This has in turn resulted in a continuation of the trend we have seen since late Q3 of 2007 with relatively lower sales and elevated cancellation rates. We ended Q1 2009 with 74,329 premium subscribers, which was a sequential decline of 3.8% from Q4 of 2008. The biggest factor that we believe will return us to revenue growth on the premium membership service is an increase in deal volume in the for sale side of the market; and as we highlighted previously on this call, the rapidly increasing volume that motivated sellers in the market, and on our system coupled with the accelerating decline in prices in the markets, and on our system maybe the leading indicators that the expected preconditions from this activity are developing. Looking at some of the areas besides premium membership, some of our products related to information services and software tools have been performing well. In the recent announcement of industrial leader, Cushman & Wakefield, has adopted our LoopNet platform for marketing their listings as an exciting step in broadening the long-standing relationship we have with them. We have also been continuing to expand the points of integration between the core LoopNet platform in both REApplications as well as both LandAndFarm.com, two businesses that we acquired last year. For example, the seamless exchange of listings between loopnet.com and LandAndFarm.com came online during the first quarter. We are working towards further integration points, and will continue to tie the platforms more closely together over time, with the eventual goal of following users a seamless process to efficiently market their listings and share information across all of our services. We have continued to expand our online network of distribution partners providing unparalleled opportunities for commercial real estate brokers to put their listings into the LoopNet platform and have them distributed to over 150 partner websites. We recently expanded or renewed our relationships with the Wall Street Journal, the New York Times, American City Business Journals, to cite just a few examples. As a result of the strong native traffic on loopnet.com, our broad distribution to these many online partners, and the added distribution we provide for listings on the major search engines such as Google and Yahoo, we believe listing on LoopNet is clearly superior to any of the marketing channels in terms of the marketing exposure that we deliver. We also continued to invest in the business in an effort to accelerate our growth and expand our franchise in the future. We are making these investments across many areas, but I wanted to highlight a couple of initiatives. We have continued to make numerous ongoing enhancements to the core LoopNet marketplace, as well as to the BizBuySell platform. One of my favorite examples is the recent addition to LoopNet of a ‘Watch This Property’ feature. This is a capability that many of our users were requesting. What it does is allows a user to save a watch on a given property, and they get notified via e-mail when changes occur. For example, if the price is lowered or a new space for lease gets added to a building, or when a recent sales record gets added that is similar to a building they are interested in buying. That is just one small example among many, the point being we are continuing to get great feedback on improvements from our user community, and are continually adding features to make our core services more effective and valuable to our users. Our initiatives to gather more first-time listings on to LoopNet from commercial real estate brokers, marketing properties in the off-line world are going well. These efforts are primarily focused on the leasing side of the business, and we continue to believe that as the market slows and vacancy rates climb, it will be a very good time for be focused on aggregating more market share of available spaces for lease. While the amount of proactively aggregated listings is small compared to the user generated content on our platform, we have been finding the proactive method to be very effective in accelerating our aggregation of new listings in specific market segments. We have also continued our work with Xceligent, our partner based in Missouri. Xceligent provides a fully research information service to the commercial real estate community with a focus on building inventory and current availability. As we stated earlier this year, we're moving into the next phase of our partnership with them providing two-way data exchanges between our services. By providing Xceligent information from our historical databases, we can help them research markets more efficiently. In addition, as Xceligent researches the properties in the market and keeps up-to-date with among other things, current space availabilities, they can offer to the commercial real estate brokers marketing those properties, the opportunity to automatically send the information to LoopNet for more marketing exposure on loopnet.com and our broad distribution network of partner sites. Next, I wanted to provide some information on the strategic investment we recently closed. It was announced in late March, but technically closed after Q1 of 2009 ended. So net proceeds from the deal do not show on our balance sheet as of the end of the quarter. It was a $50 million investment led by Calera Capital as well as two other board representative investors, Trinity Ventures and Rustic Canyon Partners. Jim Farrell of Calera has joined the LoopNet board, and we are very excited about the expertise he brings to the company in general, as well as his specific background in the real estate industry from his experience on the Calera Board of Directors. As we had said at the beginning of the year, we think that this environment is creating some interesting opportunities for us, and the new investment coupled with the resources we had previously puts us in a very strong position to exploit those opportunities, to add to our business, and create shareholder value over time. In addition to ongoing investments in our core business, we will continue to explore acquisitions, which can add to our business. Importantly, our overall acquisition strategy has not changed. We remain focused on businesses which can add to the strength of our core market place in the form of more supply and more demand, as well as businesses that provide tools and/or information related to the transactions on the marketplace. The management team we have in place currently has successfully executed five M&A transactions over the last several years, which have added to the strong organic growth of the business. We believe that there are opportunities to further expand our business via M&A, and we are going to be exploring some of them, while maintaining our execution focus and our financial discipline. Our view of the long-term opportunity in this space has not changed, and our medium-term business plan goal continues to center on creating a business, which grows to $200 million and beyond in annual revenues with an adjusted EBITDA margin in excess of 40%. While current market conditions have certainly slowed our progress towards the revenue goal, we have no doubt that we will achieve it over time through a combination of organic growth and productive acquisitions. And now Brent Stumme, our Chief Financial Officer, will take us through the quarter's financial results.

[Brent Stumme:]

Thank you Rich. LoopNet’s revenue for the first quarter of 2009 was $20.1 million compared to $20.6 million in the first quarter of 2008 and our guidance of $19.7 million to $20 million. The decline in revenue was primarily due to lower premium member subscribers and lover advertising revenue, as a result of the challenging marketing environment that Rich just highlighted. Partially offsetting those factors, the company experienced a 12% year-over-year increase in the average monthly price of premium membership, resulting in an average monthly price of $66.18, reflecting the shift to a volume-based pricing structure for listers, which the company began to implement towards the end of 2007, and has now fully implemented. LoopNet’s adjusted EBITDA for the quarter was $8.4 million or 41.5 of revenues compared to $9.6 million in the first quarter of 2008 and our guidance of $7.5 million to $7.8 million. The company has reported adjusted EBITDA, which we define as EBITDA, excluding stock-based compensation and litigation related costs because management uses it to monitor and assess the company's performance, and believes it is helpful to investors in understanding the company's business. GAAP net income for the first quarter of 2009 was $2.8 million or $0.08 per diluted share compared to $4.9 million or $0.12 per diluted share in the first quarter of 2008. Non-GAAP net income, which we define as net income before stock-based compensation and litigation related costs, for the first quarter of 2009 was $4.6 million or $0.13 per diluted share compared to $6 million or $0.15 per diluted share in the first quarter of 2008, and our guidance of $0.11 to $0.12 per diluted share. As of March 31, 2009, the company had $68.7 million of cash, cash equivalents and short-term investments and no debt. In addition, please note that on April 14, 2009, the company received $48 million, net of transaction costs, from the private equity investment that the company announced on March 30, 2009, which was not included in the cash balance as of March 31, 2009. As part of the private equity investment, the company issued convertible preferred stock that is convertible into 7,440,476 shares of the company’s common stock. The preferred stock does not pay or accrue any dividends. 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 3,421,023 during the first quarter of 2009, a 23% increase over the first quarter of 2008. The number of premium members as of the end of the first quarter of 2009 was 74,329, a 16% decline from the first quarter of 2008. Embedded in this metric, was an average monthly cancellation rate of 7.1% during the quarter. The number of profile views of listings on the LoopNet marketplace during the current quarter was 33 million, a 25% decline over the first quarter of 2008. Average monthly unique visitors on the LoopNet marketplace were approximately 992,000, a 5% increase over the first quarter of 2008. As of March 31, 2009, the LoopNet online marketplace contained approximately 687,000 listings, a 15% increase compared to March 31, 2008. BizBuySell contained approximately 48,000 listings of operating businesses for sale, a 6% decline from March 31, 2008. That brings me to our business outlook. Based on current industry dynamics and marketplace trends, the company expects revenue for the quarter ending June 30, 2009 to be in the range of $18.8 to $19.1 million, adjusted EBITDA to be in the range of $7.2 to $7.5 million and non-GAAP net income to be in the range of $0.08 to $0.09 per diluted share, assuming a fully diluted share count of approximately 43.2 million, and an effective tax rate of approximately 42%. The company expects stock-based compensation to be approximately $0.03 per share, net of tax benefit, in the quarter ending June 30, 2009. The adjusted EBITDA and non-GAAP net income guidance for the quarter ending June 30, 2009, exclude stock-based compensation and litigation related costs. Thank you for joining us today, I will now open up the call for questions.

[Operator:]

(Operator instructions) And our first question comes from the line of John Blackledge with Credit Suisse. Please proceed.

[John Blackledge:]

Thanks for taking the question.

[Rich Boyle:]

Hi John.

[John Blackledge:]

Hi how are you guys? I just want to ask a couple of things, one on the capital injection. Just wondering, I know you talked briefly about the rationale, and given the cash you had at the end of the quarter plus the $40 million, how much of that do you think could be allocated towards acquisitions and if you could just touch on private market values or multiples if they come down as of the last, you know 3 to 6 months? Thank you.

[Rich Boyle:]

Sure. So the strategic rationale and we discussed this a little bit, we had a brief announcement at the time of the deal. Basically, we think the way the market is moving right now, overall there are some opportunities that are being created to both investing in our core business and look to expand what we do through some potential acquisitions, and without necessarily on the second part of your question, you know I think the exact amounts are not necessarily predictable at this point, but there were definitely scenarios that we think could play out where the capital that we had in our balance sheet was potentially going to be a constraint to some of the things that we wanted to do and therefore the reason for preemptively raising the new capital, so we had the flexibility to pursue those options if we see them develop. We are not at this point, and I think partially timing on these things is very difficult to predict, ready to give a specific break down in terms of where we think it may go or when it may happen we wanted to be prepared to be opportunistic, given what we think of the conditions that are developing in that ties into the last part of your question, John, which is the, yes, I think in the private market world prices are certainly much slower to adjust than they have been in the public world, but we have – we believe seeing some expectations adjusting, and I think it is a combination of the businesses are being affected, a combination of passive liquidity for a private company right now is substantially more challenging, and their view on valuation is, I think, gradually being brought more in line with those of us in the public markets. So you know, we definitely think there are some interesting opportunities coming up. That said, you know we intend to be as we have been all along in our acquisitions very patient and very disciplined how we approach it.

[John Blackledge:]

Thank you very much. I appreciate that.

[Rich Boyle:]

Sure.

[Operator:]

And our next question will come 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 wondering, I don’t know if you’ve given this color, but (inaudible) you brought it up a lot on the leasing side of things. Can you give kind of a split of your total listings, profit listings of what are the lease percentage versus the for sale percentage roughly?

[Rich Boyle:]

Yes. It has been shifting. It will used to be fairly well in balance. You know, if you went back before the credit crunch here in this most recent cycle, but that was very close to a 50-50 split, and so we just sort of left it at that. It has been shifting recently. Obviously, sale has been growing at a pretty slow rate and the lease space has been growing very quickly. So, you know, at the moment I would say it has shifted, you know, at least probably is, I know it is ballpark of 60-40, I would guess.

[Jim Wilson:]

Okay.

[Rich Boyle:]

Lease space is probably in the order of about 60%.

[Jim Wilson:]

Okay, and then I guess if you look at the change, I think I did the math here, but if you look at the change and putting in subscribers and are you still seeing, I guess over a period of more that the buyer side is stepping off as opposed to the lister side or the selling side?

[Brent Stumme:]

Well, we started to see I think mid-2008 that it was impacting the people doing, in particular the one-off for sale listers what we refer to as kind of some of the transactional listers. So if you look at the big picture segmentation, it absolutely began with buyers of investment properties, and you know the way our business works, there are no long-term contracts. So it shows up in the business very quickly and it started too in Q4 of 2007. Then as you went into 2008, the low-volume listers, just because there is the lack of listings in the for sale markets, we are impacted pretty well also. The higher volume listers, the sort of more well-established professionals in the market that are more likely to have listings on a full-time basis and to be a little bit spread in their business between, you know, little bit of leasing, a little bit of sale are the least impacted right now, and those patterns are still very true.

[Jim Wilson:]

Okay. All right, Brent that is really helpful, and I guess in there, did you find any changes even (inaudible) with the likely activity in the leasing side compared to wholesale property at least in the near term of any pricing incentives to those in the leasing market or anything you could discuss or (inaudible)?

[Brent Stumme:]

No the pricing right now, I mean our pricing model doesn't differentiate between the two, and for somebody who is listing on LoopNet, particularly in the segments in the industry, where we really see a lot of traction would be what I would refer to as generalists who do a little bit of everything. So our pricing model for listers is and the volume-based, model-based number of listings doesn't differentiate between a for sale listing and for lease listing for example, and we don't anticipate in the near term really changing the pricing model.

[Jim Wilson:]

Okay, all right, great. Thanks.

[Brent Stumme:]

Thanks, Jim.

[Operator:]

And our next question comes from the line of Mitch Bartlett with Craig-Hallum. Please proceed.

[Mitch Bartlett:]

Hi. It sounded like you were pretty optimistic or you felt like you are beginning to see the first fees of a turn in the transactional volume. You talked about Moody’s pricing being down 20%. You see a catalyst in foreclosed property, and now are seeing a lot of distress listing. So how far away are we with the thought process starting to happen right now or...

[Rich Boyle:]

Yes. I wish my crystal ball was perfect Mitch, so we could call it by the day, but I guess the way I will describe is, what we said for I think probably over a year now is a big part of the problem. There are still this underlying credit availability issue, which we mentioned on the call as well, but the recovery in deal volume in our business is very much exposed to deal volume or really not exposed at all to asset prices.

[Mitch Bartlett:]

Right.

[Rich Boyle:]

The recovery in deal volume was going to be a two-step process with the first step being this pricing gap needed to close, and we've been watching it very carefully for the last 15 to 18 months, and the rate at which prices are dropping has accelerated pretty dramatically over the course of the last six months. So for people that are exposed directly to asset prices, you know, that's a challenging environment. For us, we think that will lead to the recovery deal volume, and what we've been believing would be the catalyst to drive prices to drop for some time with the motivated sellers faced with the refinancing event that they can’t get done or you know, in the event that it doesn't happen and things really fall out of bed foreclose sales. So we've been watching that pretty closely as well, and we are really seeing a dramatic acceleration of the number of new listings coming on to LoopNet that are distressed or marked as foreclosed properties, and we think those two are related. It has not yet translated to closed deal volume, and I think there's going to be a substantial lag there as people begin to see prices fall, eventually see prices get to where they want them to be, and I don't think we're there yet. So I think that's the first issue. Prices overall, if you look at the Moody’s Index for example, are down a little over 20%. I think if you were to take a pull of a few thousand commercial real estate brokers, the expectation would be there are going to wind up down close to 40% before it is all settled right.

[Mitch Bartlett:]

Okay, that's what I was –

[Rich Boyle:]

So I think there's a little way for it to go. It has fallen very rapidly, which is accelerating, and again we think it is driven by the distressed properties aspect, and then what we think will be the next step is as the prices begin to approach that, you know, the gap closes between the bid ask, if you will. We're going to start to see the buy-side come back and start to be more serious about looking at properties to buy, and that will lead substantially closings because they have to look, find, enter into contract and eventually close, you know, well in advance of the closing transactions being reported. But that's kind of the scenario that people have been expecting for over a year now, and we comment publicly for over a year, and what we are talking about today is really that we are seeing the first steps of that in the form of falling prices and some very aggressively motivated sellers begin to develop.

[Mitch Bartlett:]

Right. Okay, and is there anyway to kind of just talk to the number of, you’ve put a lot of muscle into trying to accelerate the number of listings on the side you’ve made two acquisitions, you’ve connected with Xceligent. Can we get a kind of an organic year-over-year, and what you’ve been able to do as far as giving listings loaded up and is there numbers that you could put to the kind of breaking down the 687,000?

[Rich Boyle:]

It’s almost all organic. The inorganic is quite small in number sense right now. So I think by acquisitions, you're referring to REApplications and LandAndFarm, which we did last year.

[Mitch Bartlett:]

Yes.

[Rich Boyle:]

In REA, we definitely are still working on the listings immigration portion of that. We have some listings, which have been uploaded from REApplications customers, but it is a fairly small number right now. In LandAndFarm, I would characterize as more of – that was more of a demand side driven acquisition. We were really attracted to more than anything that a wonderful set of organic search traffic going to their website. We had a lot more listings in native and land categories, and really the value proposition of that acquisition was to marry our listings critical mass with their demand side critical mass more than anything. So that added a little bit of listings content to our platform, really nothing significant, and then Xceligent as well, we have implemented the first couple of test markets at this point, but it is – in aggregate it would be less than 1% of our listings.

[Mitch Bartlett:]

I got it, okay. Last question. Did you fund Xceligent in the first quarter?

[Rich Boyle:]

We have since the time of the original investment in the spring of 2007, we have provided the incremental funding on an ongoing basis. I don't think we've disclosed either specific amounts or times.

[Brent Stumme:]

That's correct.

[Mitch Bartlett:]

Thanks very much.

[Rich Boyle:]

Thanks Mitch.

[Operator:]

(Operator instructions) And our next question will come from the line of Brett Huff with Stephens. Please proceed.

[Brett Huff:]

Good afternoon Mitch and Brent.

[Rich Boyle:]

Hi, Brett, how are you doing?

[Brett Huff:]

Good, how are you?

[Rich Boyle:]

Doing well, thanks.

[Brett Huff:]

Good. A couple of questions, in terms of the adjusted EBITDA for this quarter is better than I expected, and I thought you had talked a little bit about how you thought that the adjusted EBITDA would be tougher to get to that you know, above 40% range, but can you talk a little bit more as you think maybe just beyond the next quarter to. You talked about a long-term goal of 40% plus. Can you give us your current thoughts on the medium-term between now and the ultimate goal in terms of adjusted EBITDA.

[Brent Stumme:]

Well, so our goal this year I think remains that we expect it to be in the high 30s to low 40s, and it came in towards the upper end of that range certainly in this quarter. I think more than anything, I would probably chart it up to a little bit of timing type issues. We did make in early Q1 some expense adjustments, just trying to manage the business well in a pretty challenging environment, and then there are some of the areas where we are making investments, probably you know, on the margin, we were able to either be a little bit discretionary or maybe a little more conservative in some of the estimates we gave. And in some of the areas, where we are still hiring some people and expanding into some new things, it’s maybe a timing issue, being a little bit more – taking a little bit larger than we expected, or just being a little bit more careful about how we go through certain planning processes. So, you know, I guess I would target up to two or three relatively small things drove that to the high end of the range we expected in Q1, but the overall factors that are creating a more challenging environment this year, meaning high 30s to low 40s margin instead of mid-to-high 40s margin we were operating in last year, are very much still in play. So I think that getting back up to the margin structure we were in, say in, you know, 2007-2008 is going to be a function of when the macro environment gets a little bit better.

[Brett Huff:]

In a related question to that, are you – did you anticipate sort of, obviously you're getting leaner and trying to be more conservative, whether it is full-scale or around the edges, did you anticipate a quarter or two of ability to absorb business or top line revenue or other transaction increases without having to increase spending, and do you think you will see a blip in margins for a period of time as you take up any slack?

[Brent Stumme:]

Meaning, if revenue reaccelerates relatively sharply is their leverage in the business as we lay back [ph] any expenses. Is that –

[Brett Huff:]

Yes, as you kind of drag your feet or if you do on that?

[Brent Stumme:]

Yes, I guess what I want to say, maybe the way I would reply to that is the way our business works, given the subscription nature of the business as you really don't see big swings either way, and so I think as it begins to re-accelerate it probably would be more gradual such that the two will stay in line. But yes, I think maybe said another way, as we start getting the recovery, you know, I think we tend to be fairly conservative about how we manage, and so we'll wait to make sure that things are truly solid before we go back into some of the discretionary spending areas.

[Brett Huff:]

Okay, and then can you talk a little bit about last call, and it was really helpful. What are you hearing as you talk to banks or commercial real estate owners or other players, what is actually happening as the, you know, the billions of dollars of commercial real estate that needs to be refi-ed is coming due with banks or other folks who are holding those loans. Are they being worked out or delayed or you know, what is actually occurring, because I presume that the refinancing you know is fairly ratable over the year?

[Brent Stumme:]

I guess our purposes particularly for those listening to the call, who are within the Wall Street community a reminder of the real sweet spot of where LoopNet operates, which tends to be the investment sale transactions that happen on our platform tend to be a lot of smaller properties in smaller markets, very often financed you know, in a manner by a local or community type bank. It might be with an operating business that has depository relationship with the banks. So there are a lot of factors that is definitely not sort of a straight, you know, CMBS or exotic Wall Street type financing you might see often, but all that said, you know, I think in general you are finding the banks on the lending side are very reluctant right now to originate to originate new commercial real estate loans. There are certainly some exceptions, and you know financing is available, but where it is available, the criteria to get out is dramatically different than it was a couple of years ago, and I think one of the big challenges on the refinancing front is people that were able to borrow money, you know, at 80% to 90% loan to value with maybe an aggressive sort of pro forma financial view of where their income strength in the property was going to be, are seeing the ground shift pretty dramatically. The building is now worth 20% less, maybe more. The loan to value ratio they can get on the refinancing is maybe 50% to 60%, and the pro forma financial they can use are, I think in most cases they are not even being allowed to use them anymore. So the terms to get new money are very challenging, which is what is leading people to realize that you know a property that they bought with a very thin income stream, expecting to make money on asset appreciation. This is simply now not going to happen. So that's what I believe driving the motivated sellers we are seeing. Though I think it is true that the foreclosures in commercial real estate right now are still very low as compared to the rates that they are running in the residential side of the world. There are increasing rapidly, but they are still quite low. But I think that is a big factor that is driving prices down now.

[Brett Huff:]

Are you doing anything about sort of short-term extensions or anything like that?

[Brent Stumme:]

Yes, in – to provide a little bit of background, I think it is true that as you know, the owner of the building who is financed by a community bank, and in general, I think it is a more common phenomena in commercial real estate than in residential. The inability to, for example, to take a commercial real estate loan that was maybe a 10 to 15 loan with a balloon payment at the end, and basically refinancing the form of extending the term, I think is much more common then you would see in the residential world, and that is something that I think we have been hearing kind of anecdotal evidence of you know, people being able to in some fashion renegotiate their terms with their banks.

[Brett Huff:]

That is all I needed. Thanks for your answers.

[Brent Stumme:]

Thanks Brett.

[Operator:]

(Operator instructions) Our next question will come from the line of John Blackledge – Credit Suisse, his follow-up question from Credit Suisse. Please proceed.

[John Blackledge:]

Thanks. Just a couple of follow-ups, in terms of premium member declines, in the fourth quarter there was over 6000, and then almost 3000 in the first quarter of ’09. Just wondering what are your thoughts are in terms of you know, does it further decelerate throughout the course of the year. Is there a chance that you know, in the back half of the year that we can actually see growth from premium members? That's one question and then just on ARPU, we saw a double-digit growth. Just wondering you know, what your expectations are on the pricing side over the course of the year? Thank you.

[Rich Boyle:]

Sure, first for the premium membership side, you know, I think our expectation is that as long as the for sale transaction volume market stays as slow as it is, we are going to continue to struggle in that part of the business. That's been true for well over a year now, and we don't see that changing. I think it will begin to be let out by the buy-side getting interested in the market as prices come further down, but when exactly that will happen and whether it will happen this year, I don't think we can predict. And then in terms of the average revenue per user that has been going up as we roll through a pricing model change that we did last year. That pricing model change still had a little bit of tailwind as it rolled through Q1, but it is effectively done at this point and so we won't see those types of pricing increase changes through the remainder of this year right now.

[John Blackledge:]

Thank you.

[Rich Boyle:]

Thanks John.

[Operator:]

And at this time, there are no more further questions in queue.

[Rich Boyle:]

Well then, I would like to conclude the call, and say thank you all for joining us and we look forward to updating you at the end of Q2.

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.