Welcome to LoopNet Inc.’s Earnings Conference Call for the Fourth Quarter of 2010. The date of this call is February 9, 2011. This call is the property of LoopNet Inc. and any recording, reproduction or transmission of this conference call without the expressed prior written consent of LoopNet Inc. is strictly prohibited. This call is being recorded. You may listen to a webcast replay of this call by going to the Investor Relations section of LoopNet’s Web site. The webcast will be available on the company’s Web site until February 11, 2011. I will now turn the call over to Derek Brown, VP, Investor Relations and Corporate Planning.

Good afternoon. Thank you for joining us to discuss LoopNet Inc.’s financial and operating results for the fourth quarter and full fiscal year of 2010. With me today are Rich Boyle, Chief Executive Officer and Chairman; and Brent Stumme, Chief Financial Officer. In addition to discussing our performance in Q4 2010 and fiscal year 2010 during this call, we plan to share our perspective on current conditions in the commercial real estate industry and discuss how these conditions are impacting our business. We will also provide you with updates on new investments we are making to expand the breadth and depth of the services we provide to our customers. First, Rich Boyle, Chairman and CEO will provide some context for our quantitative results and offer some color on our business and plans for the future. Then Brent Stumme, our Chief Financial Officer, will walk through our fourth quarter and year-end financial results and guidance for Q1 2011. Following these prepared remarks, we will open the line for your questions. Over the next few months, LoopNet has plans to meet with institutional investors in Miami, Phoenix, San Francisco, Los Angeles, and New York among other locations and will be participating in investor conferences hosted by Deutsche Bank, Credit Suisse, JMP Securities, B. Riley, and Stephens. We hope to see you at these events, but we’ll also make webcast of our presentations available on the Investor Relations section of LoopNet’s website. I would now like to bring the following to your attention. On the call today, you will hear forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties. Please refer to the Company’s recent SEC filings at the SEC’s website at www.sec.gov for detailed discussions of the relevant risk and uncertainties. The company does not intend to update the forward-looking statements in this conference call, which are based on information available to us as of the date of this call. The press release distributed today that announced the company’s results is available on the company’s website at www.loopnet.com in the Investor Relations section, under Financial Press Releases. The current report on Form 8-K furnished with respect to our press release is available on the company’s Web site 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 Web site. Now, I will turn the call over to Rich Boyle, Chief Executive Officer and Chairman.

Thank you, Derek, and thank you all for joining us today. In the fourth quarter of 2010, LoopNet delivered strong financial results highlighted by the fact that year-over-year revenue growth accelerated once again to over 9%. Additionally, our company continued to push forward on key initiatives that we think will extend and deepen our relationship with our customers and accelerate our growth in the quarters and years ahead. When coupled with gradual improvement, we see in the commercial real estate markets that we serve these dynamics give us confidence as we begin the new year. We said at the start of last year that our business was at an inflection point and we were correct. 2010 marked overturn to revenue growth at increasing levels as the year progressed. We believe that this return to growth was due to stabilizing industry conditions, the strength of our underlying business model and our ongoing investments both organic and via acquisition that have expanded our fleet of products and services among other factors. As we step into 2011, our belief is that industry conditions have bottomed and that the broader commercial real estate market will continue to improve modestly as the year progresses. Against this backdrop, we are optimistic about our ability to continue driving adoption of our marketplaces, expanding the depths of our existing customer relationships, broadening our customer base to an expanded set of industry participants, and growing our revenue. To achieve these ends, we remain focused on building scale and driving activity in our commercial real estate, land for sale, and business for sale marketplaces, expanding the array of products and services we deliver, particularly new information services, and increasing the number of industry participants using our solutions. With that, let’s begin with a very quick review of current conditions in…

Thank you, Rich. LoopNet’s revenue for the fourth quarter of 2010 was $20 million compared to $19.8 million in the third quarter of 2010, $18.3 million in the fourth quarter of 2009, and our guidance of $19.7 million to $19.9 million. The revenue growth was due to the impact of recently completed acquisitions and increase in our base of subscribers to RecentSales and a modest improvement in broader industry conditions. LoopNet’s adjusted EBITDA for the quarter was $7 million or 34.8% of revenues compared to $7.6 million in the fourth quarter of 2009 and our guidance of $6.9 million to $7.1 million. Net income applicable to common stockholders for the fourth quarter of 2010 was $7.2 million or $0.17 per diluted share compared to $3.2 million or $0.07 per diluted share in the fourth quarter of 2009 and our guidance of $0.04 to $0.05 per diluted share. Net income applicable to common stockholders for the fourth quarter of 2010 included three non-recurring items, which had a net positive impact of $0.12 per diluted share. The first item was a positive tax adjustment of $5.4 million or $0.13 per diluted share related to the reversal of the income tax valuation allowance for certain federal and state operating loss carry-forwards. The second item was an insurance reimbursement related to previous shares, litigation related fees of $750,000 or $0.01 per diluted share. And the third item was an impairment charge related to an equity investment of $1.4 million or $0.02 per diluted share. Excluding these non-recurring items, net income applicable to common stockholders for the fourth quarter of 2010 was $0.05 per diluted share. Non-GAAP net income, which we define as net income excluding stock-based compensation, amortization of acquired intangible assets, litigation related cost and recoveries, impairment charges, and certain non-recurring tax adjustments…

Thank you for that presentation. (Operator Instructions) Your first question comes from the line of John Blackledge of Credit Suisse. Please proceed.

Thanks and thanks for taking the question. So I just want to – a couple of questions. One is review the margins for 2011. Rich, I think you said that margins are going to – kind of decline to the second quarter and then second half of the year ramp up, and it looks from your guidance that the implied EBITDA margin for first quarter is 32% so then we can expect a little bit down from there and then rising up after that, if you can just make a comment on that. And then the other question I would have is on the sales force ramping. Is that for upselling the new services or cross-selling, or they’re going to be focused on the services separately? Thank you.

Sure, John. This is Rich. So in response to the two, yeah, I think you basically got it right. So when we look at the margins for Q1, we are seeing the accelerating top line growth. However, as we’ve said previously, we’re still in the process of ramping our investment program. What we look at right now is, on an absolute dollars basis, we think the dollars we’re spending are going to go up modestly from the levels we’re at right now. And the timing is not exact or it’s a little bit uncertain because of the rate that was top line revenue growth is accelerating. But basically, our expectation at this point is we’ll see a trough and margin switches slightly below our Q1 levels in the mid part of this year and then margin expansion going forward after that. Then in terms of the sales force ramp, it’s really both things. So one is the existing sales force team, which is primarily focused on selling premium membership, some of our other service as well, for example like RecentSales, we are expanding that as we’re spending some more effort in that group having them cross-sell property database now to people that are signing up for premium membership. So there is some expansion of bandwidth that’s required just to capture that opportunity. But then in addition to that, coming soon is the standalone release of property database, which we’ll be selling as a separate service independent of premium membership. So today, if you want to buy property database, you cannot buy unless you’re signing up for premium membership first. We’re going to be selling it separately in the not too distant future and so we’re adding some incremental sales people that we focus on selling that as an independent offering so we’re doing both.

Okay. That’s great. Thank you.

You bet.

Your next question comes from the line of Mitchell Bartlett from Craig-Hallum. Please proceed.

Yeah, Rich, that was a very bullish overview. So the question just kind of – last quarter, you were obviously less bullish. You were talking maybe about kind of a disappointing slowdown in commercial activity and all of a sudden now it’s back. What really happened and how much activity are you seeing on the site in January and February?

Yeah, we did see what we think was some evidence that we saw back in Q3. So if you recall, we reported Q3 results in early Q4. There has been what I’ll call in hindsight more of a hiccup in activity in Q3 and it did turn out to be transitory, which is – I think what we said at the time was our expectation but it’s still – it happens and give you a little bit of a pause. So I think in Q4, there are a couple of things that we saw that we’re happy. Certainly, if you look at the sort of high end property segments of the industry which in many ways are sort of the leading indicators, activity levels for high-end investment properties in Q4 were very, very strong. And I think we’re starting to see some indications that that activity is now migrating into the more, you know, Main Street segments of the industry that LoopNet primarily focuses on. We saw that. We saw better than expected activity levels across the board on our own platform. As we mentioned earlier on the call, we’re seeing some very healthy activity levels in early Q1. You know, it is – we’re only a month or a month and a half into the quarter so it’s still early but we’re encouraged by what we’re seeing there as well. So whether it’s greater new listings coming on, which is something we’re certainly excited about demand side activity picking up in Q4, which we’re also excited about. And then lastly, we’re obviously – what we’re doing for the first time in Q4 was beginning sales and marketing effort around the property database product, and that also went better than expected in Q4. We’re still in at least so far the testing mode with that product in January. Version 2.0 literally just went live last week, which we’re going to begin ramping some sales and marketing efforts around, so we’re not fully ramped there yet but we’re also – that’s driving some optimism for us as well. So across the board, we’re feeling like the industry is getting more stable. Our core business is reflecting that and we have some new product excitement as well.

And in light of that, the guidance seems a little bit lukewarm on the revenue side at the low end up $200,000 or so sequentially. Now I know you’re building a subscriber base and that comes in to the numbers very slowly. Is this just a – it’s obviously not a sea change in activity, it’s just incrementally better than it was. Is that fair to say?

Yeah, I think that’s fair to say that what we’re seeing is what I would describe as a gradual momentum build as opposed to a hockey stick style shift. And as it relates to kind of sequential guidance from Q4, I mean, in our core premium membership business, we’re seeing good momentum but it builds on a relatively gradual basis that’s just the nature of that product. And in the property database service, while we’re very enthusiastic about the initial feedback, we have not yet stepped on the gas bill from a full sales and marketing mode. It’s still in test marketing phases, if you will, from October on. So the reception has been very good but we expect it to begin ramping. We’re hiring sales people now, really beginning to focus on it towards the end of the quarter – this quarter. As we bring you sales people on it, it takes a while for them to ramp as well. It’s a quarter or two before they’re fully productive. So I think our expectation is we’ll start to see it add more materially as we get into the second and third quarter this year.

And just last question, property database, as you bring on people, what kind of – did you say that this could be a big in total subscribers as your core marketplace? And how is it going to be priced as a standalone service?

Yeah. So we did say that we think the opportunity set – the addressable market for it is at least as big as that for premium membership, so we think it’s a very substantial opportunity. Our view is that anybody who’s using premium membership would also be interested in the information contained in this service potentially for different business problems in different times but by definition, they would be interested in it and we think it opens the door to new people that aren’t really interested in premium membership. So we’re quite excited about the overall opportunity. The lease price is currently pegged for the offering and it’s on the Web site right now and it has been, since October, $59 a month. That said, the average effective price as we’re doing promotions, testing different price points, and bundling it with premium membership in this initial phase, the actual average or proof for the existing subscribers we have right now is probably in the mid-20s range.

Thanks very much.

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

Thank you. I’m just curious how you plan to get out the word on property database to potential customers outside of your existing marketplace, what channels and how aggressively.

We’ll be doing a few things, Ian. So it probably be increasing our participation in things like industry conferences, a certain amount of offline marketing activity which has not really begun incidentally. But we definitely have the luxury of – we’re very good at, we think, the online marketing aspects whether it’s organic search activity and/or search engine marketing activity that we can leverage on this and that’s always been our most productive marketing channels, and we believe it will continue to be and we’ll see a lot of effort there. It’s an area where we benefit greatly from having a very large installed user base, so we have not yet begun marketing to our 4-1/2 million registered members that the servicing exists, and that’s something that we’ll be ramping up and we can do that on a very cost effective basis but we think we’ll be beginning the process of marketing that service in the not too distant future to the – both our install base and the broader world, primarily via online means, organic and paid search. Those will probably be our primary marketing channels. We don’t see it frankly as being substantially different than the marketing channels we use for our existing business, getting people on the marketplace in the first place.

Okay. And you mentioned that you’re pleased with the comp product. In the past, you’ve talked about market trends per product. Can you just – and talk about where you are right now with those two products?

Yes, sure. So the comparables product, which we branded under the name of RecentSales, as we said it’s – it has continued to see solid growth. On a revenue basis, fourth quarter was up 20% on a year-over-year basis and we’re pretty excited about its momentum right now. We think that’s both because we spend a fair amount of effort investing in – enhancing the product last year, ramping some of our sales and marketing efforts around it and also, it’s benefitting from the early recovery, if you will, in market conditions. So we think that is a product line that has continued ongoing growth potential and we’re very excited about it. The market trend is that the data set that we released in a beta form in the first half of last year, it’s still in beta right now. We’ve been experimenting with all kinds of different combinations, uses, and tests of it. Just for people that may not be familiar with it, it’s essentially using our information set about available properties and closed transactions to generate statistics and pricing information. So trends in asking rates for office rent for lease in San Francisco, for example. We’ve built a couple of successive generations of the data there. We’re working on some alternatives so it’s still something that I’ll describe as being in beta and I expect it to be in the – for at least the next few quarters as we look at a couple of variations and where we may go with that.

Got it. And last question is on the Enterprise (Deal) Tools, if you can talk about the pricing for that product and what you think about what the market size there might be?

Yeah, the market size would literally be any broker marketing piece of commercial property. So – and we think that there are in the millions of listings and hundreds of thousands of brokers that are active in the market engage in those activities. We haven’t set pricing for it yet. Right now, the version that we have at the moment is tailored towards brokerage firm of somebody that wants to run a number of marketing campaigns and has a goal of not just automation but also standardization. So they’ve got, for example, a common corporate branding and platform and toolsets that they can use. We are not charging the current customers that are using it. We’re – we have a – it’s in a relatively small number of brokerage firms that are using it and they’re acting as in effect early beta customers that are giving us great feedback and suggestions and telling us what they want the product to do, but we haven’t set pricing for it. We expect to continue developing it over the course of the next few quarters and have a version that will be available for individual subscribers a few quarters from now, but we don’t have any pricing stakes in the grout at this time.

Thank you.

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

Good afternoon, guys.

Hi, Brett.

How are you?

Doing well. How are you?

Good. Thanks. A couple of quick questions, as we look – I get the curve of the margins down and up through ‘11 and I get the curve of revenue, which is sort of a slow ramp up at least in 1Q and 2Q but do you expect an increase in the revenue curve as a result of property database. Like you mentioned stepping on the gas, are your tests encouraging enough that you can see bending that curve upward in revenue even beyond sort of the cyclical trend back that seems to have at least started in the core growth of the business?

Yeah, I think we will. I mean, I think we’re in the very early stages. It did have – it added a very small amount of actual revenue in the fourth quarter. It will have a minor impact on Q1 as well. But as we begin to build that subscriber base and drive it into the tens of thousands over the next year or two, we think that’s going to have a material impact on top line revenue acceleration – no question.

Even in the back half of this year?

Yeah. I mean, it will start to have more significant impact as we get into full selling mode. Probably over the next quarter to two, it is a combination of standalone saleable version of the product, which is coming the next several months. And then the ramping of the sales force which is just beginning now as we hire new people and get them trained up and get them on their production ramp, it will be a quarter or two before those two things come together, but I think we’ll be in full scale sales mode in the back half of this year that will start to impact things.

Okay, that’s helpful. And then in terms of the margin profile of the property database, I know your incremental margins in the core business are very nice. Is this – is the property stuff [ph] materially different or how should we think about that? I mean as we think about this becoming really hitting more of a volume level where it’s moving the needle more, is there anything in particular about it that is different and that we should know about in terms of step functions, anything like that in terms of cost?

No, I wouldn’t – there’s no step functions. I mean, to some degree, we’re bearing the cost now.

Right.

As I think straightforwardly obvious to everybody, it’s having a significant impact on margins at the moment. As we look down the road and get scale though, we definitely don’t view any step function in the cost structure. We think the incremental margins are very good. And as it gets scale and blends in with our core business, we feel very comfortable that it will be an essential part of helping us drive to that near-term $200 million revenues goal and 40% EBITDA margins goal. We think it will definitely fit into that structure very nicely.

So – well, it sounds like it won’t be meaningfully – it’s certainly not meaningfully less than your current core business, if you can…

Yeah, I mean, maybe modestly less because there are some costs in terms of aggregating the data in a few ways that aggregating and cleansing and organizing the information but just certainly not from a sales and marketing structure or anything like that point of view. So I think on a – it may be modestly less but not dramatically less.

Okay. And then of the – you mentioned a few positives in terms of metrics that you’re seeing, is the one – the one that jumps out at me is the profile views and particularly, the profile views per active user, is that the one that you find most exciting or is it the supply side that you mentioned?

Yeah, to some degree both though the profile views really began to develop for us several quarters ago. We felt like we were seeing the demand side interest begin to grow. And I guess, it goes back almost a year now as prices in the industry got to a level where we felt like we were seeing the demand side interest grow, it has continued to grow. The new news is that we did feel like we were supply-constrained. And it goes back to this whole pretend and extend phenomena that’s being going on in the banking world where owners of properties were not being pushed to or did not have to address their refinancing problem because they could push out the terms in their loan, for example. And so we were seeing a relatively small number of new properties coming on the market, which was constraining overall activity levels in our minds. So seeing a number of new for sale listings increase substantially is something that we’re very excited about and there’s definitely relatively new news. We saw a little bit of it in Q3 of last year and then it accelerated nicely into Q4.

Okay. And then one – that’s helpful. And then one last question, when you think about that extend and pretend phenomenon, et cetera, my understanding of the bottleneck for the property that you all deal in has typically been a function of banks not willing to lend simply because they have a big book of business and they’re trying to sort of manager that. They’re willing to do some of this extend and pretend. Has the bank’s behavior changed meaningfully? I missed about two minutes of your first commentary, so if you answered that question there, I apologize. But is it the banks that are changing or is it the owners of the properties who are giving up the ghosts [ph]?

Well, there’s a couple of things going on. It’s still a very complicated thing. We didn’t address it in depth in the script. In short, there’s a little bit going on of – it’s facilitated by still a very low interest rate environment, meaning the bar that needs to be cleared from an owner generating positive cash flow on a property is still relatively low. The technique of extending the loan terms for an extra three or four years has to some degree – well, I won’t say we’re anywhere near out of the woods. The strategy there, I think, has been to try to engineer a "soft landing" and to some degree, it’s been working as the banks have been writing off or writing down the value of those assets over time quarter-by-quarter for the last two to three years. What was a hundreds of billions of dollars in outstanding loan balances in the commercial real estate small banking world that need to be it fixed. A substantial portion of that has now been written down so there are – there’s certainly banks that are still in trouble. The troubled institution list of the FDIC continues to grow. The number of failed banks last year was at the highest since early 90’s but it has been much better than anybody expected, I think, a year and a half ago. So I would say we’re not out of the woods yet but it’s been getting better gradually. And then that in turn, we are seeing circumstances where banks now, I think are starting to lend again as a result of that. So it’s still not I would call a normal environment but it has been getting gradually better in avoiding the doomsday in our end.

And you had talked in the past too about bid/ask spreads. Clearly, the buyers are out there sort of looking, thinking that we’re near the bottom. Have the sellers capitulated or have they needed to capitulate, or have the buyers come up to them?

I think it’s a little bit segment-specific. Certainly, if you look at high-end investment properties, I think prices have, in many ways, come back to where they were a few years ago. It’s very active market in that segment. Kind of reflecting a lot of capital, a lot of cheap capital, a lot of flight to quality type of behaviors, in the mid-market and the small market properties, I think prices have stabilized to some degree but they’re not by any means recovering so I think it’s more sellers accepting the reality of where prices are and if they want to get liquid or need to get liquid in doing so with that adjusted expectation levels.

Again, ladies and gentlemen, if you like to ask a question, please press star-1 at this time. And your next question comes from the line of Jim Wilson of JMP Securities. Please proceed.

Thanks. Good afternoon, guys.

Hi, Jim.

We’re just wondering if you could – and I know you would answering one question, went into a little bit on the pricing strategy for the property database but could you go into a little bit more of how you think about it on the long run as well as the RecentSales together in the enterprise – the desktop solution, what you’re thinking about the long-term?

Yeah. On the RecentSales service, so the official list price which I think we mentioned is on the Web site right now at about 59 bucks a month. And we’re approaching it to some degree with the same mindset that we have for premium membership which, on average, is kind of right in that same price point. It’s a little bit based on kind of what we think the target customer would view as both the appropriate value and affordability levels. In terms of the actual pricing at the moment, we’re using some of the same strategies we used when we initially launched premium membership years back where we launched RecentSales, which is we are doing a fair amount of testing of different price points to experiment with where we think the leverage lies in the elasticity curve. We’re also, in effect, rewarding the early adopting customers with some lower price points. One of the key things is bundling so keep in mind – somebody buying property database today has already decided to make us a purchase of the premium membership subscription as a starting point so it’s in addition to that. We’re not selling it on a standalone basis right now. So – but as I think I mentioned the effective rate for the customers we’ve sold so far ends up being on an average basis of about $25 a month. I will say there’s a very wide distribution around that as we’ve been testing different price points in different bundles, so it will probably converge to a more stable or a narrower distribution as we finalize our pricing. But going forward, I think the initial starting point of around 60 bucks a month, which is where it is right now is probably where our mind will be and then opportunities to either buy that on a standalone basis or see some lower prices as you potentially bundle multiple products together is how we’re thinking about it. On the enterprise tools basis, we really – we don’t have a price point in mind there yet. I think we’re still in the early stages of making sure we understand what our customers really wanted to do from a functional point of view and then it will – probably over the course of the next quarter or two that we’ll develop a clear point of view on how we want to monetize that.

Great. And do you think the new products – do you think this can bring in any – a new set of customer? I guess, what I’m thinking is moving up market a little bigger brokerage firms, maybe put you a little more out of the million dollar property segment and open up opportunities to more of the middle part of the market.

I think to some degree, yes, but I wouldn’t describe it as our core focus. I mean, there’s no question that as information service, we think it will get used by people even at the high end of the market in certain circumstances. They might be looking for additional information to augment other sources of data they might have right now. They might be looking for something that our access to our information tended to be very easily available. We have a very frictionless model where they want the data for a couple of months and they don’t want to find some onerous contract, I mean, that’s the sort of stuff that is very easy to do with our service. And so I think you’ll see some higher end customers take advantage of it in that sense. That said, we view it – we view our focus as a business and our core customers as the folks doing the mid-market $1 million to $2 million transaction, and that’s really where we’re aiming. What we’re trying to provide in this service in our minds and from talking to our customers is really address a very unmet need in the market. You talk to people at the lower end of the market right now and information is either simply not available to them or it’s incredibly expensive and it’s focused on higher end properties that they’re just not really interested in or it’s not their bread and butter. And so we view it as primarily a green field opportunity where we think we’ve got an opportunity to provide services to people that have a very large unmet need right now.

Okay, great. All right. Thanks.

This concludes the question-and-answer session of today’s call. Thank you for your participation in LoopNet Inc.’s earning conference call for the fourth quarter of 2010. This concludes today’s conference. You may now disconnect and have a wonderful day.