Loop Industries, Inc.
Q3 2009 Earnings Call Transcript

Published: 29 Oct 2009

[Operator:]

Welcome to the LoopNet Incorporated earnings conference call for the third quarter of 2009. The date of this call is October 28, 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 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, 2009. I would now like to turn the call over to Derek Brown, Vice President of 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 third 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 third quarter performance and review of the marketplace. Brent will review the third quarter financial results and provide fourth quarter 2009 guidance. In coming months LoopNet will be meeting directly with institutional investors in Boston, New York and San Francisco, as well as at SunTrust Robinson Humphrey’s business and government Services Unconference in November, Credit Suisse’s Technology Conference in December, Citi’s Global Entertainment Media & Telecommunications Conference in January 2010, and Needham’s Growth Stock Conference also in January 2010. We hope to see you at these events. A webcast of many of these presentations 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 filings 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 results is available on the company’s website at www.loopnet.com in the Investor Relations section, under financial press releases. The current report on Form 8-K furnished with respect to our press release is available on the company’s website in the Investor Relations section under SEC filings and on the SEC’s website. You will also hear discussion of non-GAAP financial measures. Reconciliations of these non-GAAP measures to their most comparable GAAP financial measures are contained in the press release distributed today and available on the Investor Relations section of the company’s website. Now, I will turn the call over to Rich Boyle, Chief Executive Officer and Chairman.

[Rich Boyle:]

Thank you, Derek. I’d like to welcome all of you to the LoopNet third quarter 2009 earnings call. On our call today we will discuss our recent quarterly performance, and share with you our perspective on the current conditions in the commercial real estate industry, as well as the impact they are having on our business. We will also provide you with updates on a number of other ongoing initiatives to the company. Following my prepared remarks and those of Brent Stumme, our Chief Financial Officer, we will be opening the line for your questions. With that, why don’t we get started with our discussion? We are very pleased at how our company and business performed during the third quarter of 2009. Despite an ongoing standstill between commercial real estate buyers, sellers and lenders that has materially suppressed the number of completed transactions industry wide, we comfortably exceeded the financial targets we set three months ago, and several key measures of our business such as profile views per listing and average monthly cancellation rate for our premium membership service improved substantially. Revenue for the quarter was $18.8 million, compared to our guidance of $18 million to $18.3 million, and adjusted EBITDA was $7.8 million compared to our guidance of $6.7 million to $7 million. Our adjusted EBITDA margin for the quarter was 41.6% towards the higher end of our stated target range for this year of high 30s to low 40s on a percentage basis. In our view, these better than expected results which were achieved despite ongoing turmoil in the broader commercial real estate industry, highlight the health of our underlying business model and reflect favorably on the ability of our team to execute. We continue to outperform the industry as a whole, and believe that we are very well positioned to manage through the current industry cycle, to expand the scale of our marketplace, as well as the range of tools and information services we deliver to our users, providing even more value to an expanded set of customers over time. Speaking of the current cycle, conditions in the commercial real estate industry during the third quarter of 2009 were very challenging and little changed from the second quarter of 2009. In fact, this marks the ninth consecutive quarter in which industry trends and dynamics could be broadly characterized as being quite negative. Specifically, transaction volumes continued to bump along the cyclical bottom, asset prices continued to tumble, credit markets remained largely frozen, rental rates continued to decline rapidly and vacancy rates continue their ascend. All told, it seemed difficult to imagine an environment less conducive to the advancement of our business than the one in which we have found ourselves for much of 2009. Most importantly from our perspective, industry wide investment sale transaction volumes remain deeply depressed. As we have said previously, results in our business correlate much more closely to changes in transaction volumes than to changes in asset prices. According to data from research for real capital analytics, which focuses exclusively on institutional oriented properties, the number of sale transactions closed in Q3 2009 declined 61% from Q3 2008 levels, and a staggering 88% from Q2 of 2007, which was the industry’s peak period. Equally telling, annualized year-do-date transaction totals, suggest that the total number of closed transactions in 2009 maybe 60% to 65% lower than 2008’s already reduced volumes, 85% lower than 2007 peak volumes, and 55% to 60% lower than the total recorded in a more normalized year such as 2003. There appear to be four primary, somewhat interrelated reasons that investment sale transaction volumes continue to bump along on the cyclical bottom. First, a persistent or be it shrinking bid ask pricing gap. Second, lenders ongoing pursuit of a pretend and extend strategy for their existing loan portfolios. Three, the constrained credit availability for new loans and four, a lack of urgency among buyers or investors who continue to see prices moving their way and are content to wait. We’ve been discussing the bid ask pricing gap now for several quarters. In our view the gap has closed considerably during 2009, as asset prices have plunged, and we seem to be approaching what we hope is the zone of equilibrium. That said, we believe that buyers and sellers pricing expectations are not yet fully aligned to cross most markets and property types. The Moody’s real commercial property price index, which gauges same property round trip investment prices declined 33% year-over-year and 3% month-over-month in August 2009. The index is now down approximately 41% from its peak in October of 2007. Moreover, the dramatic declines seen in seven of the first eight months of this year, suggest that some owners are running out of financial run way and/or are either being forced to sell at any price or are at least becoming increasingly willing to accept current economic realties, rather than risk weighting for near term improvements. At the same time however, a recent LoopNet survey conducted of our customers suggests that commercial asset prices may still drop by an additional 10% to 15% from current levels, suggesting an aggregate peak to trough decline of roughly 50% to 55%. Our recent customer survey also revealed that more than 40% of the respondents anticipate commercial property pricing will reach a bottom by the second quarter of 2010, with the majority expecting bottom by the third quarter of 2010. In light of the significant depreciation of commercial real estate assets across the country, many lenders have elected to pursue a so-called pretend and extend strategy, but has been attempting to make shorter term modifications to terms of existing borrowers, rather than force a significant restructuring or even a foreclosure. Using this tactic, lenders are not only able to avoid for sales into deeply discounted markets, but they can also avoid the marking down of their commercial real estate loan portfolios to reflect current asset pricing which in-turn could impact their capital ratios in substantially negative ways. While this strategy does not appear sustainable to most experts over the longer term, the fact remains that its seemingly widespread adoption is delaying the foreclosure and/or restructuring process on properties of all types in every market. This in turn appears to be holding back the long expected flood of distressed property listings from coming to market. As such, it may well be that the up tick we are already seeing in motivated sellers and distressed properties in our marketplace, is in fact nothing more than the first trickle of what could be an eventual deluge. Largely reflecting the above mentioned factors, as well as the current state of our global financial system, debt capital markets remain extremely tight. The new issues market for commercial mortgage backed securities is essentially dead, and many banks are simply not writing new loans which would add to their already substantial commercial real estate loan portfolios. Those banks that are willing to write new loans have broadly adopted far more conservative underwriting standards that have significantly decreased the purchase for the investors of all types. In fact according to our survey numbers, the fact of debt financing is generally unavailable or too expensive, is far and away the number one obstacle to the completion of investments sale transactions today. The last issue weighing on investment sale transaction volumes maybe the fact that commercial real estate buyers and investors, even those with immediate access to capital, lack any sense of emergency and are taking their time putting money to work. Though asset prices are down considerably and maybe approaching bottom, many interested principals seem to believe that their ability to buy at deep discounts will persist for some time to come, in large part because of the aforementioned potential for a flood of foreclosures down the road. We believe that there are signs in our marketplace and in the industry overall, that bargain hunting principals are beginning to focus more energy, time and resources, analyzing markets and searching for potential investment properties, but they have not yet begun to make offers or close on new purchases in earnest. From a LoopNet centric point of view, we remain confident that the virtual deadlock in the investment sales segment of the industry will break, and then when it does, it will be very good for our business. However we simply do not have meaningful visibility into the precise timing or pace of improvement just yet. If prices continue to decline rapidly, and/or foreclosures flood the market, we would expect bargain hunting buyers to reengage. If lenders loosen requirements, we believe interested buyers would begin stepping in fairly quickly, and we believe that a greater sense of our urgency will enter the market once prices come down sufficiently and/or transaction volumes start to increase consistently. We believe that all of these possible dynamics, whenever they manifest themselves, would help to fuel LoopNet’s core market places franchise. Now, we’d like to switch to a discussion of the leasing side of the industry, which has also suffered from a highly constrained transaction environment in recent months. As tenant demand continues to sag with the economy, and the outlook for employment, while a base line of activity remains due to normal lease exploration pattern, vacancy rates continue to raise rapidly, and overall demand levels are down across the board, with nearly every market sector and property type continuing to experience negative absorption. As an indication of just how challenged the lease segment has become, Reese Incorporated, a leading real estate research firm, reported that the overall US office vacancy rate rose to a five year high of 16.5% during the third quarter of 2009, compared with 15.9% in the second quarter of 2009, and 13.7% in the third quarter of 2008. Similarly, Jones Lang LaSalle recently indicated that office leasing activity nationally declined for the eighth consecutive quarter in the third quarter of 2009. Given these dynamics, coupled with the still rising rates of unemployment, and the new normal of economic activity, it seems highly likely that in the fourth quarter of 2009 US office vacancy rate will exceed the peak of the prior recession. Moreover, most experts believe that vacancy rates will continue rising well into 2010. The implications for LoopNet of these negative leasing market trends however are mostly positive, as building owners are now faced with considerable amounts of empty square footage, and are highly motivated to see that brokers are working harder to market their spaces, and are doing so effectively while broadening their reach. We see the continued impact of that dynamic in our marketplace, as spaces for lease continue to show very strong growth. Drilling down further into our core business, LoopNet’s marketplace once again outperformed the industry as a whole during the third quarter of 2009, and for the first time in several quarters, experienced substantial improvements in the number of important metrics, such as profile views per listing and average monthly cancellation rates for our premium membership service. While it is premature to say that trends will be consistently positive from here, we are certainly encouraged by many aspects of what we saw during this last quarter. We ended the third quarter of 2009 with 69,809 premium members, down 17% year-over-year and 2% quarter-over-quarter. Needless to say, we remain dissatisfied with ongoing premium membership net losses, yet we were very heartened to see these losses shrink consistently throughout the third quarter of 2009, and we are equally pleased that the total quarterly net loss of 1566, marked both a substantial improvement from recent quarters and the smallest net loss we have experienced since the first quarter of 2008. Our market improvement and our cancellation rate was the primary reason for improved performance in our premium membership totals for the quarter. The cancellation rate in Q3 2009 fell within the 4.5% to 6.5% monthly range that we began seeing two years ago, down sharply from 6.8% last quarter and the 7% plus high watermark we recorded earlier this year. In our view, the improvements in this area are attributable to a combination of searching principals becoming more interested in looking for buying opportunities, stabilization in the number of active brokers, as the declines in occasional participants are flushed out and stability within our pricing model throughout 2009. 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 fore 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 become more confident in the market again. Overall, despite these recent favorable trends, our expectation is for industry conditions to provide ongoing near-term headwinds to our premium membership totals. The fourth quarter has historically shown seasonal weakness in our business, and we expect this year to be no different. In addition, while many of the underlying trends are positive, they are also developing relatively slowly. We continue to believe strongly in our business model and are working diligently to take advantage of these conditions to our company’s and stockholder’s long term benefit. At the same time however, we believe it is prudent to be prepared for a gradual recovery and activity to more normal levels. Consistent with prior quarters, premium membership accounted for approximately 75% of total company revenue in the third quarter, of which approximately 60% came from brokerage marketing properties, and approximately 40% came from customers using LoopNet to search for available properties. At the end of Q3 2009, LoopNet’s commercial real estate market place contained more than 430,000 spaces for lease and nearly 300,000 properties for sale, bringing the total to approximately 730,000 active listings, up 13% from the third quarter of 2008 levels and up 2% from Q2 of 2009. Consistent with trends in recent quarters, overall growth was fueled by activity in the four lease arena, which again saw year-over-year growth in spaces being marketed exceed 25%, as vacancy rates increased nationwide and more brokers chose to market their fore lease listings on LoopNet. Conversely and perhaps not surprisingly, the sale listings in our platform declined roughly 2% year-over-year and we are flat quarter-over-quarter, reflecting the dead lock nature of the broader commercial real estate for-sale sector that we have previously noted. In addition to these totals, BizBuySell ended the quarter with nearly 47,000 listing of businesses for sale, down 2% from Q2 2009 levels. We are very pleased to see the number of fore sale listings in our market place holding relatively firm, at a time when the number of transactions in the overall industry is down materially. We are also excited about the fact that Q3 2009 marked the third consecutive quarter in which fore lease listings have increased by at least 25% year-over-year in the 14th consecutive quarter in which they have advanced by at least 22% year-over-year. We continue to believe that the out performance of our market place on both the fore sale and fore lease sides, is being fueled by the ongoing secular shift online at the industry, and by the superior performance of our marketing platform as compared to alternatives, both offline and online. Additionally, we think our fore 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 listings to the marketplace. Profile views in Q3 2009 searched 26% from Q2 2009 levels and exceeded $44 million for just the third time in LoopNet’s history. In fact, profile views in the quarter nearly matched the all-time high we recorded in this metric back in Q3 2008. Multiple factors contributed to this significant increase, including ongoing improvements to our search engine optimization efforts and general enhancements that we’ve made to the LoopNet website, and the overall growth and sale of our marketplace as a whole, in addition to early indications that demand side interest may finally be on the rise once again. In terms of marketplace liquidity, we are very pleased to report the number of profile views per active LoopNet listing reached 60.5 in the third quarter of 2009, an increase of 23% from Q2 of 2009. This is the second consecutive quarter of sequential growth in this metric. Equally noteworthy and encouraging, this sequential growth was fueled almost as much by activity in the fore sale arena as by the for release sector, suggesting that the recent compression of asset prices maybe starting to attract demand in greater quantities. Average revenue per premium member was $66.09, up 2% from the third quarter of 2008, and essentially flat from the second quarter of 2009, reflecting the fact that changes in our pricing we implemented beginning in late 2007, have now fully filtered through our customer base. With no immediate plans to alter our pricing strategy, mix shifts will play a more pronounced role in month-to-month fluctuations in ARPU going forward. In addition to the profile view statistics we cited earlier, our view that buy side interest may finally be picking up a bit, was bolstered by the performance of our recent sales service. Subscriptions to our database of comparable sales records reached an all-time high in Q3 2009, hinting to us the principals and other industry participants may be starting to better familiarize themselves with the current dynamic in the markets in which they have interest, in anticipation of the resumption of transaction activities in the quarters ahead. During the third quarter, we continued to enhance the functionality of our product to improve the on-site experience of our customers, and more importantly help them close more deals over time. Additionally we signed agreements with several new partners that extend our reach across the industry. In July we introduced distressed and auction classifications for listings on our system, allowing listers to more efficiently and accurately define 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. Throughout the quarter we introduced and experimented with multiple enhancements to our core search experience, focusing largely on increased speed and improved access to a wider variety of content. Our new search design delivers results up to four times faster than our pervious architecture. At the same time and as we’ve mentioned previously, we continue to make good progress testing and evaluating the expansion of the depth, breadth, and type of commercial real estate information that our users are able to access. While in limited beta today, we expect to expand our search solutions significantly in the first half of 2010, blending the massive amounts of data generated by our market place, with other information sources to help our customers become more knowledgeable about current market conditions and trends, as well as to help them evaluate and execute on the opportunities that are developing. In September we announced the material expansion of our online newspaper distribution network which operates under the Cityfeet with the signing of Gannett. The Cityfeet network now has more than 225 distribution partners across the United States, including the websites of the New York Times, the Los Angles Times, the Chicago Tribune, the Arizona Republic, the Indianapolis Star and the Honolulu Advertiser among many others. Significantly, this network provides an unparallel distribution channel for brokers listing property on LoopNet, allowing them to put their listings in front of the online audiences of these partner sites with no incremental effort. Also in September, we announced the addition of over 80 new Gannett newspapers to the BizBuySell distribution network. Now brokers and owners, who advertise their businesses for sale on BizBuySell, have the opportunity to gain additional exposure from more than 125 partners nationwide. Also in September, Jones Lang LaSalle formally integrated LoopNet’s market leading LoopLink technology to power the industrial listing section of its corporate website. Coming on the heels of last quarter signing of Cushman & Wakefield, LoopNet technology in now utilized by all five of the top brokerage firms in North America, 15 of the top 20 firms and more than 1000 commercial real estate firms and organizations overall. We ended the third quarter of 2009 with more than $125 million in cash, in short-term investments and no long-term debt. As expected, we have continued to operate our business and an attractive margin, and we continue to be strongly cash flow positive. Given the stability of our core business and the strength of our balance sheet, we believe that we are in a very good position to exploit interesting opportunities we see being created by the shifting economic landscape. With this in mind we continue to evaluate a number of internal and external investment scenarios, that we think can compliment and extend our business and create meaningful long-term shareholder value over time. I look forward to sharing more about these opportunities when it is appropriate. In conclusion, we believe LoopNet, both our business and our team, performed very well in an extremely challenging environment during the third quarter of 2009. We comfortably exceeded the financial targets we set three months ago, several key measures of our business improved substantially, and we made tangible progress in our efforts to aggregate the supply and demand sides of the market. While market conditions remain very difficult, especially in the investment sale segment, we have begun to see some initial signs of positive trends. Equally important, we continue to believe that we as a company are well positioned to capitalize on opportunities we see developing around the industry. 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 third quarter of 2009 was $18.8 million compared to $22.4 million in the third quarter of 2008 in our guidance of $18 million to $18.3 million. The decline in revenue was primarily due to lower premium member subscribers, and lower advertising revenue as a result of the challenging market environment in which we are currently operating. LoopNet’s adjusted EBITDA for the quarter was $7.8 million or 41.6% of revenues, compared to $10.4 million in the third quarter of 2008 and our guidance of $6.7 million to $7 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 believe this is helpful to investors in understanding the company’s business. Net income applicable to common stockholders for the third quarter of 2009 was $3.7 million or $0.09 per diluted share, compared to $4.8 million or $0.13 per diluted share in the third quarter of 2008. Non-GAAP net income, which we define as net income excluding stock-based compensation and litigation related costs for the third quarter of 2009 was $5.3 million or $0.12 per diluted share, compared to $6.4 million or $0.17 per diluted share in the third quarter of 2008 in our guidance of $0.08 to $0.09 per diluted share. Net income applicable to common stockholders and non-GAAP net income for the third quarter of 2009, included a favorable tax adjustment of $0.02 per diluted share. Net income applicable to common shareholders for the third quarter of 2009 also included a favorable stock compensation adjustment of $0.01 per diluted share. As of September 30, 2009, the company had $125.5 million of cash, cash equivalent and short term investment 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 $3,760,249 during the third quarter of 2009, a 21% increase over the third quarter of 2008. The number of premium members, as of the end of the third quarter of 2009 were 69,809, a 17% decline from the third quarter of 2008. Embedded in this metric was an average month cancellation rate that fell within the 4.5% to 6.5% range we began seeing two years ago, and which improved substantially from 6.8% in the second quarter of 2009. Average monthly revenue for premium member were $66.09 in the third quarter of 2009, a 2% increase over the third quarter of 2008. The number of profile views of listings on the LoopNet market place during the current quarter was $44.1 million, a 1% decline from the third quarter of 2008. Average monthly unique visitors on the LoopNet market place were approximately $1,005,000 million, 11% increase over the third quarter of 2008. As of September 30, 2009, the LoopNet online market place contained 729,467 listings, a 14% increase compared to September 30, 2008. BizBuySell contained 46,874 listings of operating businesses for sale, a 11% decline from September 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 December 31, 2009, to be in the range of $17.7 million to $17.9 million, adjusted EBITDA to be in the range of $6.7 million to $6.9 million, and non-GAAP net income to be in the range of $0.08 to $0.09 per diluted share, assuming an effective tax rate of approximately 40%. The company expects stock base compensations to be approximately $0.03 per diluted share, net of tax benefit in the quarter ending December 31, 2009. The adjusted EBITDA and non-GAAP net income guidance for the quarter ending December 31, 2009, exclude stock-based compensation and litigation related cost. As the standard for us, we anticipate providing our initial outlook for 2010 when we report our Q4, 2009 financial results early next year, or it may go without saying our forecast will depend heavily on the timing and pace of recovery in the commercial real estate industry, particularly in the investment sales segment and could be meaningfully influenced by shifts in government and/or banking policy among other factors. Thank you for joining us today. I will now open up the call for questions.

[Operator:]

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

[John Blackledge:]

Thanks.

[Rich Boyle:]

Hey John, how are you?

[John Blackledge:]

Thanks for taking the question, nice quarter. I guess you kind of addressed the premium number of declines which were definitely better than I thought, and just wondered if you can expand it all and where do you see that going into the fourth quarter and into next year. Then just wondering how much would the litigation cost in the third quarter? Thank you.

[Rich Boyle:]

John this is Rich. I will talk about the PM trends and then I’ll let Brent to address the litigation piece. So, I guess a little bit of color on where we see it. What we did see in the third quarter was some things that got substantially better and the biggest lever that moved the net PM number in the right direction from where it had been trending was a pretty substantial improvement in cancellation rate, and we think driving that was really two factors. One is, some indications that people on the buy side of the market are indeed starting to come back in and show some interest in getting smart about properties available and developing investment strategies and we thought for a while that as pricing came down that would develop, and so far it looks like that’s as expected. The second thing affecting the cancellation rate is a lot of what we refer to as the transactional listers that kind of come in and out of the market with one listing, are basically not active in the market right now and that seems to be fairly fully flushed out by now. So those things together we think improve the cancellation rate, which was the biggest lever in the quarter. Looking forward, the first thing I think people will want to keep in mind is the seasonality in our business, Q4 tends to be seasonally weak for us and we expect that to be true again this year. We tend to get used by people that are launching off doing new deals and once the Thanksgiving holiday rolls around through the end of the year it tends to be a pretty slow market. So, we think we’ll continue to see seasonality and then what we’re cautiously optimistic about is the market continuing to develop improvement overtime next year. We are a little reluctant to predict exact timing though. It does seem to be developing in the right direction now, but somewhat slowly.

[Brent Stumme:]

And John, this is Brent, and answer to your question about litigation cost in the quarter, they were $938,000.

[John Blackledge:]

That’s great, thank you.

[Brent Stumme:]

Yes.

[Rich Boyle:]

Thank you.

[Operator:]

Your next question comes from the line of Ian Cordeon [ph]. Please proceed.

[Rich Boyle:]

Hi Ian.

[Ian Corden:]

Hi, guys. A couple of quick follow ups, did you say that the cancellation rate improved throughout the quarter and would you care to say kind of where it came in, in terms of that range you gave?

[Rich Boyle:]

In terms of the range, I think it did improve gradually throughout the quarter to some degree, we were pretty pleased to see kind of the positive trends there. What we’ve done historically is describe it in terms of being inside the range as opposed to give a point estimate normally and we are back into the range that we’ve been in for a couple of year now. We did give a point reading on it in the first part of this year when it exceeded the top end of that range for the first time, but it’s been our policy in the past to just give it within the range as opposed to a specific point estimate.

[Brent Stumme:]

So, it went from a little over 7% at the beginning of this year to now down in that 4.5% to 6.5% range, and it has been improving as the year has gone on which we are very pleased about.

[Ian Corden:]

Yes, that’s obviously a nice improvement. I wonder on the guidance, can you talk a little bit more about the seasonality? I mean does that typically, I imagine it manifest itself in the slowdown in growth. New members, does the cancellation rate typically increase sequentially as well, any other kind of help you could provide on that seasonality?

[Brent Stumme:]

Yes, this is Brent. So normally what we see is the gross numbers do slowdown in the quarter and mainly from Thanksgiving to Christmas things drop off quite a bit. The cancellation rate typically stays pretty close to what we’ve seen historically in the previous quarter, like in Q3. So the main issue is slowdown in the gross sales.

[Ian Corden:]

Okay, great. Maybe just one final question, the decline in G&A looks like it can be explained by lower legal, but sales and marketing was down sequentially. Can you just talk about how you kind of manage that number, and how are you going to manage it going forward?

[Brent Stumme:]

Yes, I think a lot of that decline was just related to timing of sale hires. We have some open positions that got filled towards the latter part of the quarter. So it’s really just a timing issue with the sales hires.

[Ian Corden:]

Okay, great. Thank you very much.

[Brent Stumme:]

Thank you.

[Operator:]

(Operator Instructions). Your next question is from the line of Andrew Jeffrey. Please proceed.

[Andrew Jeffrey:]

Hey guys good afternoon.

[Brent Stumme:]

Hey Andrew.

[Andrew Jeffrey:]

Rich can you talk a little bit about some of the progress you think have been making on some of your growth initiatives, specifically sort of the digitization of historical physical world listings for brokers. Do you get the sense that maybe anecdotally or otherwise, that response rates that they’re seeing when they move on to LOOP network are starting to sort of break the log jam on the demand side or is it kind of too easy or too difficult to really say?

[Rich Boyle:]

Well, I might need to have you clarified just a little bit Andrew. I mean, I think when you say the digitization efforts on the platform, it means some of the new things that we are doing about providing additional information, is that the heart of the question?

[Andrew Jeffrey:]

Some of the things you have done for brokers that have historically been not been...

[Rich Boyle:]

Bringing new listings on, yes…

[Andrew Jeffrey:]

Try to digitize some of the physical world listings they have had.

[Rich Boyle:]

Right. I think in the effort regarding, how do we get more brokers who are generating marketing materials and executing marketing strategies, if you will in the offline world on to our platform, we have definitely continued to do a fair bit of that both internally through some organic means of getting them to send us listing information which we then populate on the system. I would describe that as being, it’s a relatively small incremental add to the organic growth rate on the listing side. So, the tailwinds of the secular shift in the industry conditions are probably driving more incremental new listings than our manual efforts there. We’ve also been continuing on, as we discussed earlier this year with some of the partnership based efforts, where for example the research based company that we’ve a partnership with called Xceligent has continued to roll out in new markets and aggregate more listings information, and during the second quarter in particular we had a number of test markets go live where listings information that was generated in their database was transferred to LoopNet for eventual upload into our market place to expand our footprint. Those have been, I think very good from a listing broker’s point of view and getting them online, exposed to online marketing at a very low effort from their point of view. We have not yet done much in the way of monetization of that. So those listings that have been pushed into our system in those means have not been monetized at this point. So, I think we think of it as good in terms of building the overall scale on the market place, but yet to be determined in terms of its stability to drive incremental revenue for us.

[Andrew Jeffrey:]

Okay. If you look sort of in aggregate at some of the things you have done to maybe drive either traffic on the network or monetization, as maybe evidenced by an up tick in some of the technologies spent, for example this quarter. What’s your sense of the ROI there, and timing to ROI? Do you feel like those are efforts that you would continue to push on in a tough revenue environment or at some point does that kind of moderate?

[Rich Boyle:]

I will say, I mean it’s already probably balanced a bit more or we are going a little more slowly than we might have a few years ago given the overall environment, that’s certainly true. The past ROI is a really important question to us that we look at very carefully. I don’t think we are there yet frankly. We are very convinced that it’s adding to the overall scale and utility, and liquidity of our market place, but we are big believers in eventual monetization and I don’t think we are over the right hurdle in that regard yet. We are still fine-tuning a lot and expanding the effort to try new things, but I would still call it in the test mode as opposed to full scale build it up production mode.

[Andrew Jeffrey:]

Okay. Then, with regard to overall listings, can you give us a sense of what percentage of overall listings or leases versus for sale listings?

[Rich Boyle:]

Yes, the 730 we do break that out exactly. I think it’s about 300,000 are buildings for sale and about 430,000 are spaces for lease.

[Andrew Jeffrey:]

Great, thank you very much.

[Rich Boyle:]

Sure

[Operator:]

(Operator Instructions). Your next question comes from the line of Mitchell Bartlett. Please proceed.

[Mitchell Bartlett:]

Hi Rich, hi Brent.

[Rich Boyle:]

Hi Mitch.

[Mitchell Bartlett:]

Good quarter in a ugly environment, glad to see there are some signs of a turn here, maybe with 35% of your market cap and cash you might update us on what the M&A environment feels like, looks like these days.

[Rich Boyle:]

Well, it’s an area that we are spending a lot of time and energy trying to push forward some strategies. It is also an area where in our view pay should be careful and prudent over time. So we don’t yet have anything to announce, I think we are optimistic that we’re going to continue to make some progress and eventually get some things across the finish line. Broadly, the overall picture of what we are looking at hasn’t changed, which we are focused on things that are very aligned with our core business in the form of listings, searching and tools and information services, but we don’t have anything to announce yet. Quite candidly it’s something that we’ve been spending a lot of time trying to achieve all year and I’d like to get some things done, but we want to be very careful about how we go about it and we are just not there yet.

[Mitchell Bartlett:]

Sure. Still a couple of projects that might be fairly large in size?

[Rich Boyle:]

Yes, as we’ve said since the beginning there is a few difference scenarios that we think are pretty attractive investment opportunities for us if we can bring them to fruition, and it’s combinations of both acquisitions, the integration of those acquisitions with our business and ongoing organic investments of various sorts. So, there is definitely something, I think pretty interesting for us, good sized opportunities out there, but like I said so far we haven’t been able to get something done that we feel is an appropriate investment for us.

[Mitchell Bartlett:]

Got it, thanks.

[Rich Boyle:]

Sure.

[Operator:]

At this time you have no further questions.

[Rich Boyle:]

All right. Well, I guess that concludes our call and thank everyone for joining us.

[Operator:]

Ladies and gentlemen that conclude today’s conference. Thank you for your participation. You may now disconnect. Have a great day.