Move, Inc. Q Earnings - Prepared Remarks February 13, Jessica Thorsheim, Director of Investor Relations:

Transcription

1 Move, Inc. Q Earnings - Prepared Remarks February 13, 2014 Jessica Thorsheim, Director of Investor Relations: Thank you, Operator. Good afternoon and welcome to Move s Fourth Quarter 2013 earnings call. On the call with me today are Steve Berkowitz, Chief Executive Officer, and Rachel Glaser, Chief Financial Officer. Today's call is being webcast from the Investor Relations section of our website, investor.move.com, and will be available for replay, shortly after we conclude. A copy of our press release issued earlier this afternoon, is also available on the company s IR website. Please be advised that some of the comments that will be made today, constitute forwardlooking statements within the meaning of the Private Securities Litigation Reform Act, that involve potential risks and uncertainties concerning Move's expected financial performance as well as Move's strategic and operational plans. These potential risks and uncertainties include, among others; decreases or delays in advertising spending, market acceptance of new products and services and our future expected financial results. Additional factors are discussed in the company's annual and quarterly reports, which are filed with the SEC, and are available on our website. All information discussed on this call is as of February 13, 2014, and Move undertakes no duty to update this information. Results projected on the call today may differ materially from actual results, and should not be considered as a guarantee of future performance. On the call today, we will also be discussing non-gaap financial measures in talking about the company's performance. Reconciliations of those measures to GAAP measures can be found on tables attached to today s press release. I'll now turn the call over to Steve. Steve Berkowitz, CEO Thanks, Jessica, and thanks to all of you for joining us today. Rachel and I are very pleased to welcome Jessica Thorsheim [Thor-sime] to the Move family. Jessica came to us after many years at Cole Real Estate Investments and was previously with Goldman Sachs. Today is her first day and we look forward to having her lead our IR efforts going forward. We also want to thank Marta Nichols for leading the IR function at Move and say our fond farewell to her as she moves on next month to a new endeavor. 1

2 I ll start our earnings call as I have previously, with a reminder of Move s market position. Move is the leading company in the real estate industry with products and services that satisfy the entire value chain, from content to connection to close. We strategically and methodically brought together Realtor.com, Top Producer, ListHub, SocialBios, TigerLead, and most recently Doorsteps and FiveStreet, to create a virtuous ecosystem that delivers far and away the best content to consumers, the highest quality transaction-ready leads to our broker and agent customers, and the software to help them manage those leads to a transaction. Fourth quarter wrapped up a great year for Move, driven by a healthier real estate market and meaningful gains in consumer engagement. Q4 revenue grew 7%, bringing our full year growth to 14%, our best annual growth rate in 7 years. Unique users grew 13% year over year in Q4, capping a year of consistent double-digit user growth each quarter. We re continuing to see healthy growth in leads reported to our broker and agent customers, driven by exceptional engagement from our mobile users. We have a lot more to share with you about what we accomplished in Q4 and 2013 overall but let me step back a moment and break my remarks into 3 areas: First, I ll provide color on the real estate market, Second, I ll share some thoughts on recent industry trends, and Third, I ll take a quick look at our Q4 results, 2013 accomplishments, and our plans for 2014 MARKET Let me talk first about the overall market 2013 saw a considerable shift of the housing market towards a sustainable recovery. Amid fluctuating interest rates, steep inventory shortages and new heights of demand, the national market tracked a solid trend toward stability, with moderately increasing prices and steadying inventory levels. Specifically in Q4, the national housing market remained healthy, with average home prices up over 7% versus Q4 a year ago and up 8% in the month of December. Prices continued to rise in the majority of U.S. markets and again, in more than 40 of the markets we track, average listing prices rose double digits in December versus the prior year. Gains here in California continue to outpace most of the country, but the recovery continued to demonstrate greater breadth, with strong gains in markets as varied as Florida, New Jersey, Oregon and Utah. 2

3 The number of days that a home spent on the market was down nearly 9% year over year in Q4, indicating inventory is turning over more quickly. However, the pace of improvement did moderate somewhat in the second half of the year as inventories remain constrained. Average monthly listings available for sale in Q4 were essentially flat with the prior year. As you ve heard us say before, when prices are rising and inventory is tight, finding a home first becomes much more important. Find it / See It / Get It First is the theme of our ongoing brand campaign, which we ll be expanding and building on in As we look forward, the real estate market remains strong, an environment we believe sets us up for another year of good growth. NAR AND INDUSTRY CHANGES Next, I d like to spend a little time on the historic agreement Realtor.com reached with the NAR last year. We ve experienced a continued drumbeat of industry support since the NAR s vote in July, which allowed for expanded content on Realtor.com, including new homes, rentals, and other content. We had the new homes content up and running shortly after the vote and we ve been steadily building our rentals content as well, which is now up to 250,000 units. As important, if not more so, is that the NAR is now promoting Realtor.com as the consumer real estate website of choice, alongside Realtor.com s commitment to do even more to highlight advantages of using a Realtor. At its annual conference in November, NAR showcased new ad creative prominently encouraging consumers to Contact a Realtor and visit Realtor.com. You can view the ads in the About NAR section of the NAR site, realtor.org. And local associations and brokers are doing more to reinforce the NAR s goal of making realtor.com the first and best online destination for real estate. We continue to work closely with the industry as partners, through unique products like ListHub, which helps the industry manage its content and understand its metrics. Another important partnership product that shows our unique industry alignment is our Find platform. We provide this search engine to MLS s for free, in exchange for broader data rights like pending sales information and historical sold information that we can add to our site in real time without waiting for public records information. We have over 60 Find contracts today that represent roughly 40% of the members of the NAR, or over 400,000 Realtors. These contracts include over 1 million current listings and also provide us with access to accurate sold and pending data on millions of other properties. For example, look in zip code in Long Island on our mobile apps, zoom closer in on the area, and you will see not only the most current listings but also up to the minute sold data, as well as houses that just came off the 3

4 market in the last few days. None of our competitors can even come close to this timely and accurate user experience. Find it, See it, Get it First on Realtor.com. Q4 13 and FULL YEAR RESULTS Turning now to our financial results for A strengthening real estate market and improvements in our product offerings, sales processes, and branding, yielded a very strong year for Move. Revenue of $227 million grew 14% year over year. That s our highest reported growth since 2006, driven by solid growth from both our Consumer Ad Products and our Software & Services offerings. Software and Services led the way in 2013, up more than 36% versus 2012 and Consumer Ad Products also contributed to growth, up over 8%. Strong growth in Co-Broke and Media sales throughout the year boosted the Consumer Ad Product line, while strength in our Software and Services line was driven by TigerLead, which has clearly benefitted from the stronger real estate market, exceptional and improving technology, and the leverage of the combination with Move. Our full year adjusted EBITDA of $28.6 million grew 6.4% over 2012, and represented 12.6% of revenue. Our margins reflected the very important investments we made in our products, technology and consumer branding in 2013, which boosted user growth, and we believe will provide real pay off in the years to come. Rachel will provide more financial details and our guidance for 2014 shortly. OUTLOOK AND GOALS So what drove those great results? In 2013, we set three very clear goals: One, audience growth, Two, product innovation, and Three, differentiating our offerings for real estate professionals. Let s touch on each briefly: First, to grow audience, Realtor.com has always started with the most accurate and timely listing information in the online consumer real estate industry. Last year, we added significant new and enhanced content to our products including new homes, substantially more rentals, expanded 15 minute updates now at over 90% of active listings, we expanded sold and pending data, added multiple price estimates on not-for-sale homes, improved mortgage data via BankRate, and increased focus on new home buyers with the Doorsteps acquisition. 4

5 To drive consumer awareness of all that great new content, we re-launched the Realtor.com site and brand, introduced an award-winning marketing campaign Find it First, and tested offline media with great results. All this led to Move and Realtor.com getting ten times more media coverage in 2013 than we did in And now, our industry partners at the NAR are including exposure for Realtor.com as part of their multi-million dollar annual ad budget. All these efforts resulted in a strong increase in unique users in 2013, delivering on our first goal of audience growth. Our second goal last year was to deliver meaningful product innovation. We re-launched the Realtor.com site with better SEO, we introduced a fantastic new rentals app, we enhanced apps and features across mobile platforms, we improved search technology with great new features like school search, we enhanced technology to dramatically increase our response times, and we beta-tested AgentMatch. By the end of 2013, our product suite was more comprehensive, up to date, and faster at offering many more useful features for our consumers. To achieve our third goal last year differentiating our products and services for agents: We helped agents manage their consumer relationships and marketing with Top Producer, acquire more valuable leads with TigerLead, and manage leads from other sources by acquiring FiveStreet. We expanded the penetration of our Find technology, launched SocialBios to help move marketing dollars online, and perhaps most importantly, we made our relationship with the NAR and the industry stronger than ever. In short, we accomplished a lot in 2013 and it showed in our metrics. Unique users grew 15% year over year, and Mobile listing detail page views increased more than 45%. Leads for both web and mobile were up approximately 34% year over year and up over 130% versus the same time period in Now I d like to turn to We have a clear roadmap this year to build on our 2013 success, and we ve laid out 3 clear objectives to help us execute on that roadmap: 1. One, Grow our consumer audience, 2. Two, Enhance and integrate our product suite to harness the competitive advantages of our Real Estate Platform, and 5

6 3. Three, Nourish and expand our partnership with the real estate industry, building on our recent success with the NAR, and focusing on raising ROI for agents and industry partnerships I ll give you a little color on each. On the first goal of growing our consumer audience: 1. First, We ll keep bringing together the best real estate content, with a bias toward first time home buyers (building on our Doorsteps acquisition), as well as expanded rentals content, and deepened editorial and user generated content, 2. Second, We ll increase personalization of our products to grow retention and engagement, 3. Third, We ll improve our mobile features, adding new apps and distribution, and 4. Last but not least, We ll build on our growing share of voice through P/R, SEO, and brand marketing. Specifically on marketing, we expect to at least double our consumer marketing on Realtor.com this year. Based on the success and insights from our Q Media Test, we ll be launching new TV spots nationally this month. You can see them now at news.move.com. The new creative continues to focus on Realtor.com s industry leadership in content timeliness and accuracy, and also highlights the elegance and ease of our mobile apps, with fun, light-hearted looks at consumers finding their perfect home super-fast using Realtor.com. On our second goal this year, we ll focus our product efforts on enhancing and integrating our product suite to harness the competitive advantages of our Real Estate Platform. To do that, 1. One, We ll be building out Top Producer, which already takes in leads from over 50 marketing partners. We ll be integrating even more lead sources through Five Street, expanding on our strong Top Producer mobile products, and creating a more interactive product that makes leads and contacts more valuable, 2. Two, We ll be expanding the capabilities and penetration of our very strong Tigerlead and ListHub products, 3. Three, We ll integrate and optimize all our offerings across our B to B suite, to simplify our product offerings for agents and brokers, and 4. Four, We ll work to optimize page yield through all our ad products media, mortgage, moving, and more. In summary, our SAAS business will work closely with the industry to provide unique productivity tools like Top Producer and TigerLead along with valuable syndication control and ROI analysis thru ListHub to make everyone in the value chain more productive. 6

7 Finally, on the industry side, we re building on the tremendous success of our revitalized industry partnership with the NAR, strengthening and deepening our relationships with all of the core constituents in the real estate space, from agents to brokers to franchises, to MLS s, to state and local associations and our partners in the brand, the NAR. One important measure of our industry partnership will be our continued focus on raising Agent/Broker ROI, by helping them target quality and not just quantity of leads. We will work to make the leads we offer smarter, and provide more insightful reporting about lead performance, all with the goal of raising the ROI of our customers. When our customers ROI improves, we expect ours will too. SUMMARY Each of those three goals feeds into our ultimate strategy: to serve the whole real estate value chain. Move s model is about so much more than simply attracting and selling consumer attention. I ll say a bit more about that in a moment, but first, let me turn it to Rachel for more detail about our results and our 2014 guidance. Rachel Glazer, CFO: Thank you, Steve. As Steve said, Q4 was another solid quarter for Move, capping a great year for the company. Starting with the top line, our total revenue in the fourth quarter was $56.5 million, an increase of $3.7 million, or 7.1%, from the fourth quarter of Q4 was our seventh straight quarter of year-over-year growth. Full year revenue grew $27.8 million or 14% versus the prior year. Breaking the growth down into our two revenue categories, Consumer Advertising products grew $2.4 million year-over-year in Q4, or 5.8%, and represented 77% of total sales. One key source of growth in Consumer Advertising is the continued strength in Co-Broke Connections, which grew 44% year over year. A second source of growth was Media revenue, including CPC products in finance and lending, which accelerated very nicely in the quarter. Offsetting that media growth was a planned decline in our Prequal Plus mortgage-related revenue as we retired that platform earlier in the year and have re-oriented our finance and lending revenue stream toward partnerships like the one we announced with Bank Rate last quarter. 7

8 We are beginning to see a modest return to growth in our Showcase product due in part to the changing tides of the housing market. Showcase s revenue trajectory has improved markedly, from down double-digits year over year in Q2, to down slightly in Q3, to up slightly in Q4. As many of you know, Showcase is priced on a historical listing count basis, or what we call HLC, a trailing twelve month metric that s a proxy for an agent s book of business. HLC began rising last quarter and that trend continued this quarter, ending Q4 at 6.8 million historical listings, an increase of 9% versus the prior year and up nearly 2% versus the prior quarter. Q4 represented the third quarter of year-over-year growth in HLC. In August, we began rolling out our new Showcase rate card and we are pleased with the progress. Showcase revenue increased both quarter over quarter and year over year in Q4. As we continue to renew our customers with the new rate card and assuming listing count continues to rise, we expect to see Showcase remain on an upward trajectory. We believe it will take a full months for the additional revenue from rising listing counts and Showcase pricing changes to be fully realized. Revenue per HLC for our consumer ad product business was $25.58 this quarter. This represents a slight decline versus prior quarter and prior year, again within our expectations, since at a macro level any increases in HLC will not be fully realized until our annual Showcase contracts fully renew at the higher listing count. Revenue per HLC for our entire business was $33.19, approximately $7.50 higher than that of our consumer ad product business, which is a positive example of how our Software and Service products help penetrate a greater share of the real estate marketing budget. In Q4, leads were up approximately 25% year over year, and leads per user grew 8%, which is evidence of a focused consumer, intent on finding a home. As Steve said, we are more focused on quality of traffic than quantity, as leads and conversion of leads is what creates value for our customers. Turning now to Software and Services, which includes our three key offerings for brokers and agents Top Producer, TigerLead and ListHub revenue was up $1.3 million, or 12%, versus the fourth quarter last year. Top Producer had another quarter of subscriber growth, and revenue for the Top Producer CRM product and our Market Snapshot product were each up in the fourth quarter. ListHub grew revenue double digits again year over year and now has nearly 130 publishers and more than 490 content sources. TigerLead continues to see very strong growth, up over 30% year-over-year due largely to synergies Move has brought to the TigerLead business. We are focused on creating an integrated experience in our SaaS businesses and the progress we made in 2013 is very promising. Overall, Software and Services represented 23% of sales in Q4. 8

9 Turning now to profit, EBITDA was $7.7 million in the quarter, roughly flat with the prior year and 13.6% of revenue. We made two important investments in the fourth quarter. The first was in marketing, where our four week Find it First Campaign was tested in offline channels in three markets. The test ran from September 15 th to October 15 th, so a portion of this expense was incurred in the fourth quarter. A second investment was the acquisition of Five Street. Five Street is integrated and sold with Top Producer and is already providing a very nice tailwind for our SaaS product suite. We have not disclosed Five Street s financials, but I can say it had minimal existing revenue and moderate expense which we have now absorbed. Our press release includes a reconciliation of GAAP net income and earnings per share to non- GAAP. The calculation of non-gaap net income is similar to that for adjusted EBITDA, excluding non-cash items such as stock-based compensation and charges, amortization of intangibles and amortization of debt discount and issuance costs. For the fourth quarter, our non-gaap net income was $4.7 million and non-gaap earnings per diluted share was $0.11. Net cash flow from operating activities was $11.9 million for Q4 and we ended the year with $119 million in cash. Before I finish with our 2013 financials, let me briefly describe two housekeeping items new to the accounting in our financial statements this period. First, traffic acquisition costs. Effective October 1, 2013, we elected to change our presentation of certain lead acquisition costs and to reclassify these costs from Cost of revenue to Sales and marketing in order to be consistent with our peers and to combine all traffic acquisition costs that are not directly related to the fulfillment of products into Sales and marketing. This had the effect of decreasing Cost of revenue and increasing Sales and marketing expense. The press release tables reflect this reclassification for all periods presented and we ve provided the amount of the reclassification for previous periods as well. Second, the interest expense related to our Convertible debt offering in August. As previously discussed, we issued $100 million in Convertible Senior Notes in August which resulted in $1.6 million of quarterly interest expense, $688,000 of which represents actual accrued cash interest to be paid in Q1, with the remaining $912,000 representing noncash interest. Steve spoke about our goals for 2014 and many of the exciting initiatives we have in the pipeline. These goals to grow audience and engagement will be achieved by stepping up investment in content creation, content acquisition, and consumer marketing and that is the context for which I will now provide guidance. For the full year, we expect revenue to be in the range of $254 to $258 million. This would equate to growth of approximately 13% at the mid-point for total revenue. Looking at our two 9

10 revenue categories, we expect Consumer Advertising revenues to grow approximately 11-12% for the full year, and Software and Services revenues to grow roughly 13-15%. Within those numbers there are a number of puts and takes so let me briefly describe those. First, our rentals business. This year, while we accelerate our investment in rentals, we are also shifting our business model from exclusively paid inclusion to a hybrid model that will include cost per move-in, also referred to as cost per lease. Property managers will be able to post their listings on the site for free and we ll no longer have a minimum lead requirement to satisfy those contracts. As a result, by the end of 2014, we expect to have significantly more content on the site, and to have nearly eliminated our traffic acquisition costs. We expect profitability in this segment to improve while revenue, at least initially in 2014, is expected to decline by $2-4 million. Second, our Moving business. We expect revenue will be down for a few reasons, but primarily because inter-state, full-service move volume, our bread and butter category for monetization, is down as less people are moving long distances. We call these two items out specifically so that we can underscore the relative health of our core real estate and media business. Removing the impact of the rentals model transition and our ancillary moving business, our core consumer ad products business is expected to be growing 15-16% vs We expect healthy growth in our consumer audience from investment in marketing and content. This will directly and favorably impact both our Cobroke revenue, with increased leads, and media revenue, through increased impressions. Our SaaS business will similarly continue to grow helped by the strength of TigerLead, new product features, and the rollout of mobile applications. The integration of Five Street into our CRM suite has already gotten some legs and is helping fuel accelerated Top Producer growth. Combining all these factors, we expect total revenue to grow roughly $29 million at the midpoint of our 2014 guidance, in line with most of the street estimates we have seen, but perhaps achieving that growth with a slightly different mix than your models may suggest. Before I discuss our plans for expenses and profitability, I d like to remind you that as a company, we have always been focused on value creation. That is evidenced in the high ROI products we deliver to our customers, our commitment to products that serve the whole value chain from content to connection to close, the high rate of return on our acquisitions, and the deliberate and judicious way we invest in marketing. Without compromising that focus on long term value creation, in 2014 we expect that we will make more up-front investments to gain longer term rewards. These investments will come in the form of marketing, content acquisition, and more aggressive internal development in areas 10

11 that we believe will help grow and engage our audience. Specifically, regarding marketing, as Steve mentioned, after carefully reviewing the success of the testing we did in 2013, we expect to at least double our investment in consumer marketing in 2014 and we re optimistic that this will help us gain share in this very competitive space. Consistent with our goals of aggressively growing audience through consumer marketing and content acquisition, we are providing a full year Adjusted EBITDA target of approximately $30 million. We expect to reinvest incremental revenue at a greater rate than we have this past year. While this investment is projected to have short term margin contraction, we have analyzed this carefully and believe it will have a positive ROI over the next 4 quarters. As a reminder for those of you who may possibly be comparing our financials to our competitors in this sector, we capitalize an insignificant amount of our website development costs relative to our total technology expenditure in a year. We expect Depreciation to range between $13 and 14 million, Amortization of Intangibles to be approximately $4.5 million, Stock Based Compensation to range between $12 and 13 million, and CAPEX to be approximately $16-18 million, up $3-5 million year-over-year as we make several infrastructure-related investments. Last but not least, let me briefly outline how that revenue and EBITDA guidance will translate to our first quarter. We currently expect revenue for the first quarter of 2013 to be approximately $58 million. This represents 7.5% year-over-year revenue growth or an increase of about $4 million. We expect our first quarter adjusted EBITDA will be roughly $5 million, reflecting seasonality of our expenses. Revenue in the first quarter for our Consumer Advertising products is expected to be approximately $44.5 million, up 6% over the same period last year. We expect our Software and Services revenue in Q1 to be about $13.5 million, up roughly 12% over Q We look forward to sharing more about our 2014 plans with you at our Analyst Day, scheduled for Thursday, May 22 nd in San Francisco. More details on the day will be available soon, but in the meantime, please save the date. In summary, in 2014 we are galvanizing our resources to increase our share of the consumer audience. Move is the only company in this arena with products and services that span the full value chain from content to connection to close AND with the partnership of the real estate industry. What that gives us is absolutely unparalleled content, which in turn attracts the most valuable audience which is what makes our customers the real estate professional the most successful. Now, let me turn it briefly back over to Steve. 11

12 Steve Berkowitz, CEO: Thank you Rachel and thanks to all of our employees, leaders, and our board for leading Move to a tremendous year. We are very proud of our accomplishments and of our focus on serving the entire real estate value chain. We give consumers the best, most accurate information in any channel and on any device they choose. We connect those consumers to agents when the time is right, and we then help agents convert those consumer leads into closed transactions. And we are the only company that stands with and for Realtors online, representing the highest level of quality and service in the industry, and a code of ethics that no other online real estate portal can touch. No one else has the industry alignment and complete product set we have, designed to super-serve both real estate consumers and professionals. With the major shifts in the industry and our ability to be more competitive, with fresh energy for our brand, strong business leadership and innovation, good financial growth and further strengthening of our balance sheet, we are well-positioned for continued success this year and beyond. With that, we ll open up the call for your questions. Operator? 12