Loop Industries, Inc.
Q2 2009 Earnings Call Transcript

Published: 30 Jul 2009

[Operator:]

Welcome to the LoopNet Incorporated earnings conference call for the second quarter of 2009. The date of this call is July 29, 2009. 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 the 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 July 31, 2009. I will now turn the call over to Derek Brown, VP, Investor Relations and Corporate Planning. Please proceed.

[Derek Brown:]

Good afternoon. Thank you for joining us to discuss LoopNet, Inc’s financial and operating results for the second 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 overall corporate strategy, continued by a summary of the company’s second quarter performance and review of the marketplace. Brent will review the second quarter financial results and provide third quarter 2009 guidance. On August 10th, LoopNet were presented the Pacific Crest Technology Leadership Forum in Vail, Colorado. A webcast of this presentation will be 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 filing at the SEC’s website at www.sec.gov for detailed discussions of the relevant risks 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 result 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:]

Thank you, Derek. I’d like to welcome all of you to the LoopNet second quarter 2009 earnings call. On our call today, we will discuss our recent quarterly performance and share with you our perspective on current conditions in the commercial real estate industry, as well as the impact they are having on our business. We will also provide updates on a number of other ongoing initiatives of the company including our recent strategic financing. Following my prepared remarks and those of Brent Stumme, our Chief Financial Officer, we would be opening the line for your questions. With that, why don’t we get started with our discussion? During the quarter we extended our track record of solid execution by successfully driving our business ahead of the targets we set three months ago, despite an extraordinarily challenging macro environment. Revenue for the quarter was $19.2 million compared to our guidance of $18.8 million to $19.1 million. Adjusted EBITDA was $8.2 million compared to our guidance of $7.2 million to $7.5 million. Our adjusted EBITDA margin for the quarter was 42.6% at the higher end of our stated target range for this year of high 30’s to low 40’s on a percentage basis. We believe that these better than expected results when viewed in the context of the substantial headwinds facing our industry, highlight the sound foundation of our underlying business model and reflect favorably on the ability of our team to execute. Not only do we continue to outperform the industry as a whole, but we remain confident in our ability to capture the large opportunity in our core business and believe we are well positioned to capitalize on this industry cycle to our long term advantage. As has been the case since the third quarter of 2007, conditions in the broader commercial real estate industry remained extremely challenging, characterized by anemic transaction flows, rapidly falling asset prices, turmoil in the credit markets, declining rental rates and significantly higher vacancy rates. Within this framework, we remind you that our business is strongly correlated with industry-wide transaction volumes rather than asset prices. As a result, we highlight data from research firm, Real Capital Analytics, which focuses exclusively on institutional oriented properties, which shows that the number of sale transactions closed in the second quarter of 2009 declined 67% from the second quarter of 2008 levels, and a staggering 87% from the second quarter of 2007 which was the industry’s peak period. [Equally telling], annualized year-to-date transaction totals suggest that the number of closed transactions in 2009 maybe 65% lower than 2008’s already reduced volumes and 60% lower than the total recorded in 2003. The only bright spot maybe that the number of transactions closed actually increased 4% in Q2 of 2009 from Q1 of 2009, suggesting that volume has perhaps finally hit bottom, if not started a small recovery. Constrained credit availability at a very large bit outspread between buyers and sellers’ price expectations continue to be the two primary causes of the precipitous drop in for sale transaction volume industry-wide. While credit still remains very tight in most instances, there seemed to be early signs of what maybe capitulation on the pricing side of the for sale equation. The Moody’s/REAL Commercial Property Price Index which [gathers] same property round trip investment price changes in US commercial investment property markets, declined 28.5% year-over-year and 7.6% month-over-month in May of 2009, marking the second largest one month decline in the history of the index, topped only by the roughly 9% month-to-month decline in April of 2009. The index is now down nearly 35% from its peak in October of 2007. Moreover, the dramatic declines seen in three of the first five months of this year, suggest that some owners are running out of financial runway and are either being forced to sell at any price or at least becoming increasingly willing to accept current economic realities rather than risk-weighting for any near term improvements. To be clear, we still expect significant declines in commercial real estate asset prices going forward. In fact, a recent LoopNet survey conducted of our customers suggest that commercial asset prices may need to drop by an additional 10% to 20% from peak levels suggesting a peak-to-trough decline of roughly 45% to 55% in total. Look that differently, an additional 20 percentage point decline in the Moodys/REAL index would imply pricing nearly down to 2001 levels. Our recent customer survey also revealed that more than 40% of the respondents anticipate commercial property pricing will reach its lowest level by the second quarter of 2010 with the majority expecting to bottom by the third quarter of 2010. From a LoopNet center view however, we are very hopeful that a continuation of the rapid price declines witnessed in recent months will help to narrow the bid-ask spread and move our industry into that hoped for equilibrium range over the next few quarters. As prices fall towards industry equilibrium, and buyers and investors feel increasingly comfortable with the unit economics and property cap rates that they are seeing, we believe that bargain-hunting buyers will reengage, helping to drive demand side searching activity in our for sale marketplace in advance of an increase in transaction closings industry-wide. On the leasing side of the industry, transaction volumes also continue their suffer, perhaps not surprisingly, given the overall dampening of tenant-driven demand as businesses reduced there size through lay-offs, curtail expansion plans and generally adopt a very conservative stance in terms of real estate commitments. While a baseline of activity remains in light of normal lease exploration patterns that drive tenants to either renew or look to move and possibly upgrade spaces, overall demand levels are down, and nearly every market sector and property type are experiencing negative absorption. As a result, owners of buildings are now faced with rapidly rising vacancy rates and are highly motivated to see that brokers are working harder to market their spaces and are doing so effectively and broadening their reach. As an indication of just how challenging that market has become, Reis Inc, a leading real estate research firm reported that the overall US office vacancy rate rose to 15.9% during the second quarter of 2009 compared with 15.2% in the first quarter of 2009, and 13.2% in the second quarter of 2008. Equally telling Reis continues to expect the US office vacancy rate to exceed 18% in 2010, reflecting the new normal of economic activity and still rising rates of unemployment. Turning down into our business, LoopNet’s marketplace continue to outperform the industry as a whole in the second quarter of 2009 at the same time that underlying trends in the platform once again followed the broader macro patterns outlined previously. We ended Q2 2009 with 71,375 premium members. While we are clearly not satisfied with an 18% year-to-year decline in our premium member base, we think our quarterly performance reflects very favorably against the positive transactions across the entire industry. Moreover, cancellation rates which are still elevated compared with pre-credit crisis levels declined sequentially for the first time in several quarters. So we saw the fewest number of quarterly gross cancellations since the third quarter of 2007. As we have been saying for sometime now, 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 searchers who are simply not active in the market right now. We continue to believe that we have not permanently lost these members from our platform; rather they are simply retaining our free basic membership until they get more active or confidence in the market again. That said, our expectation is for industry conditions to provide ongoing near term headwind to our premium membership totals. Consistent with prior quarters, premium membership accounted for 75% of total company revenue in the second quarter of 2009, of which approximately 60% came from broker’s marketing properties and approximately 40% from customers using LoopNet to search for available properties. Total listings on LoopNet at the end of Q2 2009 stood at 713,610, up 14% year-over-year and 4% quarter-over-quarter. Of this total for sale listings approached 300,000, flat with the year-ago quarter and up about 1% quarter-over-quarter, while the number of for lease spaces on our marketplace exceeded 416,000 at the end of the quarter, up 28% from the second quarter of 2008 and 6% from the first quarter of 2009. In addition to these totals, BizBuySell headed the quarter with nearly 48,000 listings, virtually flat from Q1 2009 levels. We are very pleased to see the number of for sale listings in our marketplace holding firm at a time when the number of transactions in the overall industry is down materially. We are also excited by the fact that the second quarter 2009 marked the third consecutive quarter of accelerating year-over-year growth in for lease listings. That annual growth in this segment has reached its highest level since Q2 2007 despite growing off a substantially larger base. Reflecting and to a degree helping to drive the previously discussed property pricing declines in the industry, we continue to see a rather pronounced influx of foreclosed properties and so called motivated sellers in our marketplace. Specifically, the number of distressed for sale listings added to our marketplace has grown significantly during 2009. The ratio of these distressed properties added to total for sale listings added is more than double what it was at this time last year and rising rapidly. Perhaps more telling and encouraging from our view, the distressed listings on our platform are generating approximately three times more profile views per property than are the non-distressed listings suggesting that buyers are actively seeking bargains and seem to have an increased appetite for discounted properties. We continue to believe that the out performance of our marketplace on both, the for sale and for lease sides is being fuelled by the ongoing secular shift online of the industry and by the superior performance of our marketing platform as compared to alternatives, both offline and online. Additionally, we think our for lease business is continuing to benefit from the rapidly increasing number of vacant spaces that need to be marketed across the country, as well as from our recent efforts to proactively bring those things to the marketplace. Profile views in Q2 2009 totaled 35 million, reflecting that the buyers, investors, tenants and tenant representatives continued to remain on the sidelines with little or no incentive to do deals of any sort in the current environment. Despite the 19% year-to-year decline we experienced in profile views, we are confident that demand side activity in our marketplace outperformed the industry as a whole. As an indication, we think it’s worthwhile to note that profile views increased 6% quarter-over-quarter marking the first sequential increase in this metric since Q3 2008. While profile views per listing, a key measure of liquidity in our marketplace increased 2% from Q1 2009 marking the first sequential increase in this metric in several quarters. As discussed on our Q1 2009 call, we have had successfully raised approximately $48 million net of fees in April 2009, in a private placement at convertible preferred shares to a new investor Calera Capital, as well as existing Board represented investors Trinity Ventures and Rustic Canyon Partners. Jim Farrell of Calera subsequently joined our Board of Directors bringing with him tremendous business acumen and deep real estate industry expertise from his experiences as a Director at Coldwell Banker. We think this investment coupled with our existing resources, puts us in a very strong position to exploit interesting opportunities we see being created by the shifting economic landscape. Accordingly, we have been busy evaluating a number of internal and external investment scenarios that we think can complement and/or extend our business and create meaningful shareholder value overtime. Though we do not have any acquisitions to announce at this time, we want to be clear that our overall acquisition strategy and discipline have not changed. We remained focused on businesses, which can add to the scale of our core marketplace in the form of more supply or more demand, as well as businesses that provide information and/or technologies related to the transactions in our marketplace. Equally important, the management team we have in place currently had successfully executed five M&A transactions over the last several years, adding incrementally to the strong organic growth in the business. We are confident in our ability to affectively evaluate and execute deals going forward that will benefit our shareholders overtime. Not to be over-shadowed, we are also constantly reviewing areas of investment within our existing business. While any one of these in-house investments is likely to be smaller in nature than most of the M&A scenarios we are evaluating, put together that could be meaningful and leasing very helpful in driving long term value creation for our shareholders. During the second quarter, we introduced a number of product features and functions that we think will improve the on-site experience of our customers and more importantly, help them close more deals overtime. In April we launched watch this property, a heavily requested features that allows prospective investors, owners, and tenants to keep track of changes to properties and/or property listings they are interested in. As a result, by site participants in our marketplace now have the ability to quickly and easily monitor pricing adjustments, relative new historical transactions or sales comparable records, as well as the inclusion of new leased space associated with properties they are watching. Complimenting this, we also introduced a new LoopNet listing profile in June of this year offering our members improved information design, better navigation, sharing functionality for social networking, improved mapping integration and enhanced styling. In addition, listing profiles now include a consolidated view of other information we possess about a given property making it more convenient for our customers to monitor and evaluate properties. In recent weeks, we have also improved our positioning for the rapidly increasing wave of distressed sales. With the introduction of distressed and auction flags in our system, listers can more efficiently and accurately qualify their properties and target the right exposure for their listings. As a result, investors and buyers can now more easily than ever target distressed and auction listings in their searchers, providing more value to bargain-hunters looking for a deal. LoopLink also continue to gain traction in the market with the mid-quarter announcement that industry leader Cushman & Wakefield had adopted our platform as their core property search and display solution. We also recently won ProLogis, one of the largest industrial property owners in North America as an exclusive LoopLink client. With the addition of Cushman & Wakefield, our LoopLink service now powers property search for four of the top five leading commercial real estate brokerage websites, and for more than 1,000 commercial real estate firms and organizations overall. We are also pleased with our initiatives to proactively gather more first-time lease listings on to LoopNet, from brokers pursuing more traditional offline marketing strategies. While the proportion of proactively aggregated listings is still very small compared to the user generated content on our platform, the proactive method has proven very effective in accelerating our aggregation of new listings in specific market segments. At the same time, we continue to learn a bit through our partnership with a minority investment in Xceligent, a provider of researched commercial real estate property and listing information. As 2009 has progressed, we have increased the amount of information and data flowing between our platforms. In the process, Xceligent can supplement the information about for lease spaces in our marketplace, and we can help them research markets more efficiently. Now I would like to spend a few minutes updating you on our ongoing litigation with CoStar Group. As you may recall, when we filed a lawsuit against CoStar in November 2007, the core underlying issue involved CoStar’s violation of LoopNet’s website in terms of use. Our complaint alleges the CoStar employees have engaged in systematic copying and use of data from loopnet.com, which is a clear violation of our terms of use. Our view on this matter has not changed. CoStar story on the other hand has changed several times as we continue to make progress in our litigation. Initially, CoStar completely denied our allegation that they weren’t copying from LoopNet. Then CoStar claimed it was copying from LoopNet but only when it broke the request, the CoStar updated the listing. From the brokers LoopLink powered website and when -- or when CoStar got an e-mail request for the broker. But this year, we were able to obtain irrefutable evidence that in fact, as we alleged CoStar was systematically copying information directly from the loopnet.com website. As shown through CoStar internal documents that the court has unsealed and made public. Hundreds of CoStar employees and contractors in India were directed by CoStar management to take data directly from loopnet.com. This was obviously not done at the request of brokers. CoStar was forced to admit under oath that the reason it had hundreds of employees and contractors systematically taking LoopNet customer information, so that it can populate CoStar’s database with that information and use it to market CoStar products to LoopNet customers. In the words of one document CoStar provided a discovery "to steal market share". Once we caught CoStar systematically copying from our site and clearly not to doing so at the request of any brokers, CoStar’s story changed yet again. Now it claimed that the settlement agreement we entered into with CoStar in 2005 somehow gave CoStar the right to do whatever it wanted on loopnet.com as long as they do not log onto our site. CoStar said it had the right to copy and use data even though that is prohibited by LoopNet’s terms of use. LoopNet believes that this argument is dead wrong and just the opposite of the letter an intent of the 2005 settlement agreement. The 2005 settlement agreement was put in place to resolve the suit LoopNet brought in 2005 which like the current suit was to stop CoStar’s violation of LoopNet’s terms of use. To settle the 2005 law suit, CoStar specifically agreed to make a company policy that its employees would be prohibited from violating LoopNet’s terms of use. CoStar also agreed to purge its database of LoopNet customer identifications, the type of information we caught them recreating this year. After the settlement was entered, CoStar on a number of occasions represented to us that it was CoStar’s policy that its employees were prohibited from violating LoopNet’s terms of use. CoStar’s interpretation that an agreement that it is prohibited from violating that term of use somehow instead gives it the right to violate the LoopNet’s terms of use was rejected by the judge in our case. In recent ruling against CoStar, the judge stated that the interpretation of the 2005 settlement offered by CoStar through the testimony of its CEO was "unreasonable". We were very pleased with that ruling and it provided an update with more details on our website at www.loopnet.com/litigation. While the ongoing law suits with CoStar are very expensive to the $2.3 million in litigation fees in the second quarter of 2009, we think it is important to invest in protecting our website and customer data from unlawful taking news by a competitor. We believe we are making progress towards our goal of stopping this unlawful behavior as evidenced by the recent favorable ruling. While the timing in these cases is impossible to know with certainty, the trial date for this California case is currently set for January of 2010. We look forward to having a trial where we can obtain a judgment that will put a stop to CoStar’s unlawful behavior and which will compensate LoopNet damages. In conclusion, we believe LoopNet, both our business and our team performed very well in an extremely challenging environment. We made tangible progress in our efforts to aggregate the supply and demand sides of the market, and believe we have the company well positioned to capitalize on opportunities we see developing around the industry. We continued to believe that the biggest factor in our return to premium membership growth is an increase in for sale deal volume, and are hopeful with the accelerating decline in asset prices in the market, coupled with the rapidly increasing volume of motivated sellers in the market and on our system, maybe the leading indicators that the expected pre-conditions for more normalized activity are developing. 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 second quarter of 2009 was $19.2 million compared to $22 million in the second quarter of 2008, our guidance of $18.8 million to $19.1 million. The decline in revenue was primarily due to lower premium member subscribers and lower advertising revenue as we build the challenging market environment that Rich just highlighted. The net adjusted EBITDA for the quarter was $8.2 million or 42.6% of revenues compared to $10.4 million in the second quarter of 2008, and our guidance of $7.2 million to $7.5 million. The company has reported adjusted EBITDA, which we defined as EBITDA excluding stock-based compensation and litigation related cost because management used it to monitor and accept the company’s performance and believed that it’s helpful to investors in understanding the company’s business. Net income applicable to common stockholders for the second quarter of 2009 was $1.8 million or $0.04 per diluted share compared to $4.5 million or $0.12 per diluted share in the second quarter of 2008. Non-GAAP net income was redefined as net income excluding stock-based compensation. Litigation related cost for the second quarter of 2009 was $4.4 million or $0.10 per diluted share compared to $6.1 million or $0.16 per diluted share in the second quarter of 2008, and our guidance of $0.08 to $0.09 per diluted shares. As of June 30, 2009, the company had a $120 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 3,588,271 during the second quarter of 2009, a 21% increase over the second quarter of 2008. The number of premium members as of the end of the second quarter of 2009 was 71,375, an 18% decline from the second quarter of 2008. Embedded in this metric was an average monthly cancellation rate of 6.8% during the quarter. Average monthly revenue per premium member was $65.83 in Q2 of 2009, a 6% increase over Q2 of 2008. The number of profile views of listings on the LoopNet marketplace during the current quarter was $35 million, a 19% decline over the second quarter of 2008. Average monthly unique visitors on the LoopNet marketplace were approximately 950,000, a 9% increase over the second quarter of 2008. As of June 30, 2009, the LoopNet online marketplace contained 713,610 listings, a 14% increase compared to June 30, 2008. This by sale contained 47,697 listings of operating businesses for sale, a 9% decline from June 30, 2008. That brings me to our business outlook. Based on current industry dynamics and marketplace trends, the company expects revenue for the quarter ending September 30, 2009 to be in the range of $18 million to $18.3 million. Adjusted EBITDA to be in the range of $6.7 million to $7 million and non-GAAP net income to be in the range of $0.08 to $0.09 per diluted share assuming effective tax rate of approximately 42%. The company expects stock-based compensation to be approximately $0.03 per diluted share net of tax benefit in this quarter ending September 30, 2009. The adjusted EBITDA and non-GAAP net income guidance for the quarter ending September 30, 2009 exclude stock based compensation and litigation related costs. Thank you for joining us today and I will now open up the call for questions.

[Operator:]

(Operator Instructions) Your first question comes from John Blackledge - Credit Suisse.

[John Blackledge:]

Thank you. Thanks for taking my call. Just a couple of questions, so you guys have $120 million in cash or about $3 per share after the capital injection, just, Rich, if you can just talk about what you might do by the end of the year with that cash or if anything at all, I know you alluded to it a little bit, so that would be one question. The other would be I think you just said average cancellation rate was 6.8% per month. So, is that a new metric that you guys are introducing and if you can just talk to what it was in the first quarter and maybe what it was in 2008? Thanks.

[Rich Boyle:]

Sure, so in terms of what do we with the cash, I mean the two preferred avenues of putting that to use are what we discussed in the call, we don’t have specific M&A targets that we are willing to talk about at this point, but one would be looking at some acquisitions that we think expand the range of services we provide to our customers or expand the scale of our marketplace. We have been active acquirers in the past and are certainly actively evaluating number of things right now. So something that we’re very focused on and hope to be successful in, but we are part of what is, the timing issues have to do with a very disciplined bunch in terms of how we go about that. So, there are a number of things we are looking at and that we hope to bring the fruition, but nothing that we are ready to announce at this time. Then in addition to that, we have on an ongoing basis been making investments in the business on an organic sense and we are going to continue to do that as well. There’s a number of things going on this year in terms of aggregating more for lease spaces would be an example of areas where are building not just tools, but investing in business processes and executing up the scale of that to try to grow the overall marketplace. So, we’ll continue to drive in some of those organic investments as well. Then, thirdly, we have in the Xceligent case made a strategic investment where we made some minority stakes was found in acquisition at this point, but it’s a business partner that we’ve been end up with a very close relationship with that we think benefits both businesses. So, we’ll continue to look at all those avenues and yes, we think the strong balance sheet with 120 million in cash and no debt is a real strength of the business that we can leverage to our advantage in this cycle. In terms of the cancellation rate, maybe I’ll let Brent to comment on where we are with that.

[Brent Stumme:]

Yes, so you did hear, right. Our cancellation rate during the quarter was 6.8%. If you go back and look at 2007 and 2008, our cancellation rate has kind of been in the 4.5% to 6% range. So it’s firstly common on at each call, but in Q4 2008 it actually went above that range, it was just slightly over 7% so we did mention that and then in Q1 it was 7.1% so Q2 came in slightly less than Q1.

[Operator:]

Your next question comes from Jim Wilson - JMP Securities.

[Jim Wilson:]

I guess first question on G&A and obviously you’ve increased in Q2 as soon as far as the guidance and I know you talk about further investing in the business. Could you just give a little color on that and thoughts on where you are spending money internally and a little bit of direction on that line items?

[Brent Stumme:]

Yes, Jim this is Brent. So, the most of the increase that you have seen in G&A in Q2 was all because of the litigation costs. If you actually strip out the litigation G&A is down about 300,000 from Q1. But I think as Rich mentioned $2.3 million in the quarter and in Q1 it was about $1.1 million.

[Jim Wilson:]

Okay. Well, that may as I then assume that’s similar numbers built in your Q3 guidance and is that the right way to look at it?

[Brent Stumme:]

No, because the guidance that we have given has actually exclude the litigation costs just because it’s too hard to predict the timing of it and lot of it depends on how quickly the courts move on certain things. So, the guidance that we have given actually excludes the litigation cost.

[Rich Boyle:]

That’s been the consistent policy since the beginning on this Jim its been that way since the end of ‘07.

[Jim Wilson:]

All right. Okay. Then, just the other questions on pricings there, just working on the model here, I guess any real change on the pricing or trying to look fairly stable compared to Q1, but your percentage of the total premium members seem to be about the same between listers and viewers, but any real change or any real change in the pricing or any mix shift?

[Rich Boyle:]

No, I would say it’s fairly consistent. I mean, we are seeing a little bit of movement around on the searching side of the system for example, there is a lower price point in searchers and as we’re starting to see with things that beep on the searching side maybe begin with a little bit of interest, there is a little bit of mix shift there. We’ve also seen, and this has really been over the course of the last year, I think we’ve commented on this a number of times. In one of the market segments that has been, I think most severely kind of squeezed out of the market over the last year, is what I would call the low volume crossover listers that maybe do a little bit of residential, a little of commercial in the kind of low-end property for sale market. Those are people who would tend to have one or two listings at a time and they are just not getting business right now. If you look at it on dollars per listing basis, they tend to be good customers for us. So, it’s moving around a little bit, meaning both the overall compression in listings as well as the mix shift a bit recently toward searching is pushing down prices a little bit on that side.

[Rich Boyle:]

I mean they are kind of minor tweaks on the fringe; the general character from Q1 to Q2 didn’t change very much.

[Operator:]

Your next question comes from Steve Weinstein - Pacific Crest.

[Steve Weinstein:]

Two things. One, so in your prepared remarks you talked about maybe a trend towards a transaction volumes improving sequentially and I would assume your business is more transactional based than asset price base. So, I would think that it will be a positive indication for you, but you’re still guiding towards a sequential decline in Q3. So, I’m wondering if you think there is some sort of lag time between when we would see transaction improve and when it would start to impact your business, if you can give any color or framework around that. Then, just kind of a follow-up question, the last question here, your last comments. This was the first time in a while where I guess, you reported the kind of average monthly pricing did actually drop a little bit from quarter-to-quarter. Any more color you can put around that would be great and if you think that’s likely to continue if we reach some near term?

[Rich Boyle:]

Yes, so in terms of the overall cycle and how it’s impacting our guidance. I think, first of all, what we saw in the RCA data that we sided, that had a sequential uptick in volume. There was a 4% increase from Q1 of ‘09 to Q2 of ‘09 over the base line, though is that it’s running it about 10% of the volume it was a few years ago. So, on the one end it’s a little bit of a bright spot and that it appears to have quick declining and may be went slightly favorable. We have not assumed that that is a sharp V-type change in the market and I think as it affects our guidance, the fundamental assumptions we are working from is that volume stays really, really low for the near term. So, we’d love to be surprised on the upside, but I think the fundamental issue for there for us in that scenario is that where we’ve been saying for quite some time now as there is still a pretty big pricing gap and the credit markets are still pretty disrupted. So, I think we are happy to see volume quit going down and may be go up a little, but really see a substantial recovery, we think prices have to go down another 20% or so and the financing markets need to be a little bit more robust then they are at the moment. So, we have not assumed that happens in contemplating our guidance for the next quarter. I think we’d be thrilled if it does. The way we expect it to play out in our platform is really as prices approach this market clearing level, we think we will see search activity in our system pick up in advance of reported transaction closings. We tend to get used by buyers in the early stages if trying to find a property before they get into the process of due diligent seeing it and negotiating and getting in contract and eventually going to ask on closing, that’s a fairly long duration in the commercial real estate transaction world. We think we will be on the front end of that as far as buyers go. But at the moment it’s still a very challenging market. While we think there is some signs of light but in the very near term in our guidance we haven’t assumed that things get materially better. Now on the pricing topic, it kind of relates to what Jim just asked, we did see a little bit of change, we didn’t change our pricing model in any material way just to be clear with everybody. We do run minor price test and promotions from time-to-time but nothing significantly changed. I think what we’ve seen on the searching side is as we have customers there; it ends up being a little bit at a lower price point than a listing side. When you look at the listers where we have a volume based pricing model, I don’t know if I was clear about this for Jim, but basically the number of listing that people are paying for in a market where listing volume is down dramatically tends to be lower on a per broker average basis. So that’s probably pushed down our average price point a little bit as well. We haven’t changed the pricing model and it’s certainly more to do with the mix shift in the overall volume on a listing side that are affecting it.

[Operator:]

Your next question comes from John Crowther - Craig-Hallum.

[John Crowther:]

Quick question here, sorry if I missed this number, but then a little bit of a commentary around it. Could you speak to the year-over-year increase or kind of a quarter-over-quarter increase in leasing searches and kind of unique leasing members and kind of the trends there?

[Rich Boyle:]

Yes, sure. I mean the primary number we breakout is actually on a listings basis where the total number of for lease spaces being marketed on the platform is up, I think it was about 28%.

[Brent Stumme:]

28%.

[Rich Boyle:]

On a year-over-year basis. The average profile view for listing is actually down a bit on year-over-year basis. The dynamic during the market is really kind of two things. I think our marketplace reflects the broader activity in the overall offline rule and fairly accurately here. So, on the marketing side of the world vacancy rates are going up and what that means in terms of our platform is there is more space that’s sitting around vacant. If you own a building and you’re sitting on vacant space, you’re very motivated to get a broker to market it for you. So, it’s a very good environment in terms of picking up more listings on the for lease side of the world. In fact, we’re seeing strong growth on the listing side of our for lease marketplaces, a reflection of that. On the other hand, when you think about the demand side of the world, although it’s sort of macro economic indicators, unemployment is up so businesses don’t need expansion space. Certainly in sectors like retail, businesses are just really not expanding much at all. So the consumption of space, people looking on the demand side for new space to let is actually quite low right now, the demand activity is pretty muted. The leasing industry is a little less volatile than the sales side in that. The average duration of a lease might be five to seven years, so there is natural retention flow of businesses whose lease are expiring. Even in a market like this they may not be taking net new space but they have an opportunity to upgrade to nicer space or lower cost. So there is a baseline of leasing activity that you still see in the market. Net absorption, I think as we said on the call is negative, pretty much everywhere. So if you look at the overall space, more is coming on the market than is being consumed by people renewing leases. So that’s kind of a characterization, great environment to pickup a lot of supply and we think we’re both doing that successfully in our existing platform as well as looking at some investments to try to accelerate that. It’s a tough environment to pickup demand because demand is so muted, but we think that our marketing platform, which delivers is by far the biggest online audience looking at stuff, becomes disproportionately valuable to the listers in a market like this. So, we’ve been pretty pleased with our overall performance even in a market where its somewhat challenging in terms of leasing transaction volume.

[Operator:]

(Operator Instructions) Sir, you have no questions at this time.

[Rich Boyle:]

All right. Well, thank you everyone. I guess that ends the call for this quarter. We’ll look forward to updating you again next quarter.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.