Move, Inc. Q4 2008 Earnings Call Transcript

Move, Inc. (MOVE)

Q4 2008 Earnings Call

March 3, 2009 5:00 pm ET

Executives

Todd Friedman – The Blueshirt Group

Steven H. Berkowitz – Chief Executive Officer & Director

Lewis R. Belote, III – Chief Financial Officer

Analysts

William Morrison – ThinkEquity

Jason Helfstein – Oppenheimer & Co.

Mitch Bartlett – Craig-Hallum Capital Group, LLC

Mark May – Needham & Co.

Presentation

Operator

Welcome to the fourth quarter 2008 Move Incorporated earnings conference call. My name is [Camesha] and I will be your operator for today. At this time all participants are in listen only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today’s call Mr. Todd Friedman.

Todd Friedman

Welcome to our fourth quarter 2008 earnings call. On the call today is Steve Berkowitz, our Chief Executive Officer and Lew Belote, our 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 our website.

Please be advised that some of the comments that will be made today constitute forward-looking 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 other decreases or delays in advertising spending and market acceptance of new products and services.

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 in this call is as of March 3, 2009 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 in the table attached to our press release. I’ll now turn the call over to Steve.

Steven H. Berkowitz

I’m very pleased to speak with you today on my first call as CEO. I’ve had the pleasure of speaking with many of you over the past six weeks and I’m looking forward to continuing those conversations in the months ahead. I’ll spend my time on today’s call covering two topics. First, I’ll briefly recap the quarter and the year providing some perspective on our market and our business. Second, I’d like to share some thought son how I spent my first six weeks on the job. Hopefully, I can provide some insights on how the team is working to constantly focus, refine and enhance our strategy.

As you can imagine the difference between serving on a board and serving as CEO is a level of detail. The learning curve is steep but I believe that my time on the board as well as my prior experience gives me an advantage adapting to this ever changing environment. Today, I’d like to give you my perspective about the business and help you understand the process we are going through to lay the foundations for the next phase of Move’s growth.

Looking back at the quarter and the year I think it’s fair to say that 2008 was a difficult year. I don’t believe that we’ve ever experienced such a comprehensive and rapid deterioration in the global economy led by the real estate market like we saw over the last 12 months. As you know, the headwinds are continuing and no one is willing to predict when things will improve.

However, I believe that the stable revenues we’ve experienced in our largest business and the improved financial performance in the latter half of the year is directly attributable to the significant advantages and benefits of our market leadership, comprehensive industry knowledge and deep customer insights.

In my role as a board member, I participated in many of the key strategic decisions of the company and know that a result of the complete relaunch of our website, companywide expense reduction initiatives and renewed focus on overall profitability we enter 2009 better positioned strategically on a stronger financial footing. The market continues to change dynamically and the overall economy is still uncertain. We will have to react in real time to the changing market conditions but we have and will continue to preserve our strategic investments in order to extend our market leadership as the real estate market recovers.

Looking briefly at the quarter, revenue in the fourth quarter was $57.5 million, a slight decline from last quarter primarily resulting from weakness in display advertising and to a lesser extent new homes and rentals. We were pleased to see Realtor.com perform well relative to the third quarter even as the market continued to slide. During the quarter we successfully completed the expense reduction effort announced two quarters ago.

Through a series of well planned actions, we reduced our annual operating expenses by more than $20 million over the past two quarters. You can see the positive impact in the fourth quarter where despite the sequential decline in revenue, EBITDA increased to $7.3 million, a 27% jump over the third quarter. Our balance sheet is strong with $109 million in cash. Lew will provide further financial details in his remarks.

Looking at the quarter a little more closely, Move continues to dominate the industry in traffic and engagement which are the key metrics we believe that determine success. Traffic is best measured not as a single data point but as a combination of unique users, visits, minutes spent on site and page views. Some people focus only on unique users but one of the experiences I bring to this role from my past companies is I know how easy it can be for a portal to create traffic from the home page.

For example, using a sensational headline to drive up unique users on whatever channel they wish. But, without deep, rich content to create deeper engagement, unique users are just a statistic. Traffic has to be viewed through the combination of quantity and quality and to be clear we always need to be thinking about increasing the numbers of consumers we interact with but we need to first be focused on making sure that we are deepening our engagement with the consumers we do touch and in that regard no one comes close to Move.

In the fourth quarter which is typically a seasonally slow quarter for real estate we averaged more than 140 million minutes of total user engagement each month. No one else averages even one third of our engagement and the other big traffic sites, namely the portals like Yahoo and AOL average around 20 million minutes per month or one seventh of our engagement.

When you look at the average number of pages views for the fourth quarter which is an indication of how deep consumers engage with the site, consumers viewed more than 600 million pages on our network which is more than twice the three major portals combined and four times our closest non-portal competitor. In short, we continue our dominance in the category and for 2008 we were the leader in unique visitors, total minutes, total page views and total visits.

So, overall as I step in to my role I am very pleased with our competitive position which has placed Move at the forefront of the industry and which will continue for years. We pioneered the market 15 years ago and we expect to lead the industry in innovation, information and service.

So, shifting gears here the question I’ve been hearing from many of you over the past few weeks has been, “How will you go about reviewing Move’s business?” And, “How will you set the strategy and objectives moving forward?” In my history I’ve always found it imperative to start by getting a clear understanding of the company’s enterprise level value assets which I define as the assets that help us build and sustain a competitive advantage.

Some of Move’s core assets are traffic, strong relationships with real estate professionals, data, people and a unique ability to communicate with and service real estate advertisers at the local level on a national scale. This company operates in an industry that has been through many cycles and will continue to evolve over the years. It is only through a well defined understanding of our strengths and opportunities that we will be able to take advantage of our leadership position.

From a macro perspective even in a down market, there’s still a multibillion opportunity and we should have a lion’s share of that market given our status as a clear leader. The real issue is how we get there and how long will it take us? To get to that answer the four questions that I need to understand are these: one, what is the value chain that we’re interested in; two, what is our technology strategy; three, how do we increase the effectiveness of our resources and decision making; and four, what is the financial model.

I do not plan on answering all of these questions for your today but I would like to give you a deeper understanding of the process we are undertaking to address each of these. So, starting with the first question, what is the value chain, where do we sit in it and how do we make it more effective with higher value? This is really a matter of defining our audiences, where can we possibly interact with them in the value chain and how can we improve the value we provide to our audiences?

As you know, our audience is made up of two distinct customers. We serve consumers both in the active phase of buying, selling, renting and moving as well as those consumers that are simply seeking information about residential properties. We need to serve those consumers in all of the different ways they seek information about real estate. We also serve advertisers in the form of real estate professionals, brokers, brand advertisers and various other businesses that may be interested in reaching our customers.

So, we have to be able to answer the question, how does the consumer define value and how does the real estate professional define value? Then, we can look at our businesses to know if we have the right enterprise level valued assets to meet those needs. For consumers there’s a laundry list of important items but ultimately it comes down to one thing, information.

For example, information on real estate professionals, on their current home, on the act of buying and selling, renting or owning, property values, schools, taxes, transportation, etc. and they want it in an easily accessible informative and pleasurable online experience. Sometimes that will mean pushing that information to them instead of waiting for them to request it which gives us the opportunity to stay connected with them for a longer period of time.

For real estate professionals and advertisers, they want relevant high quality customers, great customer service, proprietary data and tools that give them an advantage and they want us to help them build their brands, build their level of trust with customers and help them build their business. Part of my process with the team is to go through all of the steps and make sure that we know everything that our consumers and our customers want and then make sure we have the tools and information to provide it.

There’s a flow chart on the wall in this office that stretches more than 10 feet and has literally dozens of processes and actions and hundreds of data points that are necessary to effectively serve this market. Aside from giving us a valuable roadmap from a business standpoint, it also serves as a reminder that you need scale to succeed in this business as well as a single vertical focus to provide the depth and expertise to deliver both sides of the value chain.

Second is the question of technology, we need to focus on the question of how does our technology give us a competitive advantage. It is not simply how does our technology enable our business strategy but how is our technology a key component and driver of our business strategy. Are we able to effectively connect the information seekers with the information providers, consumers to real estate professionals and advertisers?

Obviously, one of the assets resident in the business is vast amount of data that we have about the real estate market. We know virtually every listing in the country, how long it’s been listing, how the asking price has changed over time, historical listings, listing agent, buying agents. In addition, the information exists in video, text, maps and the list goes on and on. The data that exists in our company and on the web should be the foundation of our business strategy and we should have the ability to integrate all these data types in to an actionable format.

We should be able to more quickly analyze this data, understand market trends and behavior patterns and use that information to better drive monetization and the user experience. We are undergoing an evaluation of all the different technology elements in our business but I believe we need to develop a more flexible architecture that allows us to quickly develop new applications and revenue sources.

We have several hundred data bases at Move and when we harness this data in to a more actionable architecture we will be able to do things like adjust sales strategy in the near real time to capture market opportunities and further differentiate move as the trusted expert for the entire real estate market.

Lastly, it’s about how we make timely and effective decisions and how effectively we allocate our resources but ultimately drives the long term financial model. I don’t want to spend much time on this today but suffice it to say that I would not have taken this job if I did not believe that Move could be a fast growing, highly profitable company.

While the $20 million of cost reductions were both strategic and necessary I don’t think over the long term any company can cut their way to growth. We need to continue to refine our financial model so we can balance the need for profitability without capping our ability to invest and grow.

The answer lies in increasing productivity. By fixing our processes and applying technology based solutions so our employees can be more effective and efficient at their jobs and spending a lot of time with every division and manager to understand how better tools, technology and infrastructure can drive more productivity in the future. We owe this to our employees, customers, consumers and our investors.

One thing that remains constant is our clear market leadership in all of the important metrics and we are committed to extending that leadership position through the end of this year and beyond. I believe strongly that Move should be the leader in setting the standards around the information flow in the real estate market and given our resources we should be the creative leader, the innovation leader and the thought leader in this space.

I’ll now turn to Lew for the discussion of the quarterly financial results.

Lewis R. Belote, III

Let me start by saying as we look back at 2008 I don’t think we need to remind you of how difficult the real estate and credit markets were throughout the year. In that context, we were pleased with our performance as revenue remained relatively flat and our profitability increased at the end of the year.

Our fourth quarter results were somewhat mixed but given the difficulty being experienced by the real estate market we were very encouraged by our progress. While revenue was slightly lower our adjusted EBITDA improved significantly as we met our cost reduction targets. Revenue was $57.5 million compared to $62.6 million in the fourth quarter of last year.

The decline in revenue from last year was primarily due to our new homes business and display advertising with a slight decline in Realtor.com. However, we are pleased with the relative stability of Relator.com and Top Producer compared to the third quarter and throughout the past year in this difficult market. While we are still impacted by cancellations, our new sales continue to be strong.

Our operating loss from continuing operations for the fourth quarter was $282,000 compared to $1.6 million in the fourth quarter of 2007 and an operating loss of $4.1 million last quarter. Because of one-time charges in each of the three periods I’ve mentioned, operating income is not always comparable which is why we continue to report adjusted EBITDA each quarter.

EBITDA for the fourth quarter was $7.3 million or 13% of revenue compared to $9.7 million in the same quarter last year and $5.7 million or 9% of revenue in the third quarter of this year. We’re encouraged by the sequential improvement in EBITDA that shows the positive impact of our cost reductions efforts which more than offset the decline in revenue from the third quarter.

Our net loss applicable to common shareholders for this quarter was $3.2 million compared to $5.3 million in the same quarter of 2007. The net loss in the current quarter includes a $696,000 loss from discontinued operations and a $1.5 million restructuring charge related to discontinued operations.

We are progressing through the sales process of Welcome Wagon and expect to have that process completed later this year. We made a decision last quarter to restructure the business to improve operations and make it more attractive to potential buyers. As a result we incurred the previously mentioned restructuring charge. We expect further restructuring charges in Welcome Wagon related to office space in the first quarter as well but, it should not exceed the fourth quarter charge.

As we have noted since our second quarter’s earnings release we plan to take $20 million in annual operating costs out of the business by the first quarter in 2009. I’m pleased to say that we achieved our full $20 million in operating expense reductions by the end of the year in accordance with our plans. We’re often asked by investors and analysts if we expect further cost reductions going in to 2009. Steve is currently leading a process that encompasses a review of all of our business units as well as our business functions and our operating structure. While we may identify synergies and changes in our current structure, we may also find the need to reallocate resources. We will update you on future calls as we make progress in this area.

In turning to our consolidated results, our gross margin for the quarter was 80% which is roughly consistent with last quarter but down from 82% in the same quarter last year. Product development expenses were $5.8 million or $2.2 million lower than the fourth quarter last year and a decline of $1 million from last quarter. Part of the sequential reduction was a temporary redeployment of some technical resources in to cost of sales after the launch of our new websites.

Sales and marketing expense increased approximately $600,000 or 3% from the fourth quarter last year but declined $1.7 million from the third quarter as a result of our cost reduction initiatives and the reduced SEM spending. G&A expense decreased by $2.4 million or 13% compared to last year and $2.7 million or 15% from the third quarter as a result of our cost reduction efforts.

In looking at our segments, our real estate service revenue declined 6% from the fourth quarter of last year and 3% from last quarter primarily due to new homes and rentals. The operating margin in the quarter was 26% compared to 27% for the fourth quarter of 2007 primarily due to that revenue decline.

In our consumer media segment, revenue was down 24% from the fourth quarter of 2007 as the online advertising market continues to deteriorate. The operating margin was a slightly loss even after identified expense cuts in the second half of the year. Our unallocated costs decreased $4.4 million from last quarter and decreased $2.8 million compared to the fourth quarter of 2007. Last quarter included a $3.7 million restructuring charge.

Turning to the balance sheet, cash and short term investments at December 31^st were $109 million compared to $114 million at the end of Q3. Even though we generated $7.3 million in EBITDA for the quarter our deferred revenue declined by $6.5 million partially due to normal seasonality but also impacted by the continued sale of broker products who generally pay monthly instead of in advance. We also paid down accounts payable and accrued expenses from Q3 by almost $6.4 million.

During the quarter we also updated our assessment of the value of our auction rate securities and took an additional $9.2 million temporary impairment to reflect the worsening market conditions. While we believe we will ultimately recover the value of our auction rate securities, we will continue to take a conservative approach to valuing those assets on the balance sheet.

With that, we’ll open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from William Morrison – ThinkEquity.

William Morrison – ThinkEquity

I guess Steve I hear what you’re saying about continuing to invest in the business especially in the product side and maybe even on the sales side. My question is now that you’ve had six weeks to kind of get under the covers, is there a reason that Move’s G&A as a percent of revenue should be as high as it is? I think it was 24% of revenue in the quarter. Most Internet companies that we cover are probably around 12% to 14% of revenue. I’m just curious is there’s some structural or unique characteristic to Move’s business that G&A would be as high as it is?

Steven H. Berkowitz

I’ll answer it from kind of an overall P&L perspective and then I’ll let Lew talk a little bit about the G&A number. Again, I think one of the things I haven’t spend a lot of time on is how we classify expenses here. What we put in G&A versus what we put in cost of goods versus what we put in sales and marketing so I need to take a look at that from the standpoint of how I’ve seen it done at other Internet companies.

I think as a company it really kinds of gets back down to what the right operating margin should be for the business and I think as I dig in to that I think what I should hopefully be able to find is how the relationship to revenue in each of the areas from sales and marketing to product development to G&A run in terms of cost of goods.

Again, I think what needs to happen is I need to take the business apart purely from an accounting perspective and how we see it and I think the other thing to look at is how do you get expenses, just overall expenses as a ratio in line with what we need to do. I think that’s something I just have to get at as we start to reorganize the business I think in a more effective way.

Lewis R. Belote, III

Bill, just following up I’ll note, and we’ve noted this in the past, for a company of our size we’re incurring probably higher stock-based charges than the average company that’s primarily all in G&A. Legal costs which we’ve talked about at length and the various litigations we’ve been dealing with and our facility costs because of the timing in the market when we took on certain facilities we’re paying probably higher rates that we should be based on our utilization. I mentioned that Steve’s leading a process of going through the entire structure of the organization. We’ll be addressing all those as a part of that.

William Morrison – ThinkEquity

Just to be clear the 24% is excluding – I took stock-based compensation out of that. But, you raised my second question, can you tell us what the legal charges were in the quarter? You’ve done that in the past several quarters.

Lewis R. Belote, III

We gave the incremental amount last quarter Bill but for a number of reasons we’re not going to disclose the absolute amount. I will make a couple of comments regarding our progress. You did hear that we got a favorable summary judgment against the Keithly however, that case is not done. They have the right to appeal. The timeline on when they may or may not file an appeal is still running. It could be sometime out because the judge has not entered a final order.

The [Reele] case which is disclosed in our K and has been the past we’re expecting to gear up some this year but we’re hopeful that we have the Experian case behind us. So, there’s some pluses and minuses in there but we’re not done with the legal cycles yet.

William Morrison – ThinkEquity

One last question for Steve, you’re obviously evaluating and still getting to know the business and evaluating where you want to take it from investment standpoint. When do you think you’ll be able to tell investors kind of the direction you want to go, how much more investment you want to make, etc.? Is it another quarter or two?

Steven H. Berkowitz

I think it’s probably somewhere in the next quarter or two. I think my goal right now, this is a personal goal that I’ve set for myself, I’ve been through now two rounds of business reviews of kind of the details of the business because I actually love that and actually I need to understand that before I can get in to it.

Then, right now I am in the process of putting together kind of the overarching five goals for the company. So, I’m hoping that probably within 90 to 120 days and maybe sooner, depends on how quickly I should be able to get out and talk to you all about where we’re going, how we’re going to get there and what it is going to cost to get there.

I think from the standpoint of the business I think it’s going to be easier for me at this point to probably actually explain what we’re going to do and how we’re going to do it than I can explain where the market will go just because of the way the economy is. But, in general I believe that we will have I think a very good handle on the business in terms of that direction the next 90 to 120 days, maybe sooner.

Operator

Your next question comes from Jason Helfstein – Oppenheimer & Co.

Jason Helfstein – Oppenheimer & Co.

Two questions, the first is in two parts, on revenues wise you talked about weakness in real estate new homes. Is there anything you can do to stimulate that business in 2009 or it’s really a function of the cycle or perhaps significant changes to the product that don’t happen quickly? Then, on that same tone or same note, you talked about realtor being relatively stable again, are there things you think you can do to improve monetization in ’09 or again are we waiting for the cycle? Then on expenses, is it fair to assume while you may think about allocating expenses differently as you answered the prior question, is it fair to assume that the product and development and G&A expenses should be run rate from here?

Steven H. Berkowitz

I’ll answer then I’ll let Lew. The new homes business I mean is a business as a function of [inaudible] right. I guess January was the lowest month ever of new home sales so I think that’s an industry, their actually from a business point of view probably getting at least from my perspective in this business getting hit harder than the realtor side although I think the realtor side is getting hit very hard.

I think in terms of the realtor business I think because we are the number one destination for people looking for properties I think the question for me to look at it and I’m beginning to dig in to it is what are the ad products, how do we make sure they’re effectively meeting the needs of both sides of our audience base and then to me really is going to be understanding what is – the one area I feel I need to really dig in to is what is our media revenue strategy and how do we find ways to drive that up.

Even though the marketplace is tough we happen to be one of the largest publishers out there in terms of targeted inventory around the vertical so the question for me comes down to what’s our story, how do we sell that, how do we continue to make that an effective part of what we do and try and turn the tide on that portion of our business. But, the growth most likely in my opinion, if there is any, as we look at this world is how do we get the media business moving forward? I think we do an amazing job of selling to realtors and I think we do a good job selling branded advertising but there’s a lot of things that I think this business affords us the opportunity to do.

Lewis R. Belote, III

As far as the expense structure, we’ve been through a series of meetings that will continue where Steve is really digging in to with all the various managers in the company is to how we’re structured, how we perform our business day in and day out and has brought some pretty interesting insights as to why we may be over resourced in some areas and not have enough resources in others.

So, Jason to your real question is does the expense structure change dramatically going forward? I don’t know that it comes substantially down because I think we will need to invest where we also find savings in some areas. It could change from category to category but I don’t think you’ll see any monumental change quarter-on-quarter, it will take some time.

Operator

Your next question comes from Mitch Bartlett – Craig-Hallum Capital Group, LLC.

Mitch Bartlett – Craig-Hallum Capital Group, LLC

The Realtor business and the Top Producer business, maybe you could flesh out a little bit about what’s going on underneath the covers a bit? The broker agent split on revenues, you’re much more effective in selling to the brokers. What is going on there and how has the churn been on the agent side? Maybe that discussion could extend to Top Producer as well?

Lewis R. Belote, III

Realtor like I said in the script, we’re encouraged by the job that our sales force is doing in this tough market but we’re also seeing cancellations from existing customers and we had a little bit of a blip in December and January believe it or not when credit cards fill up and it takes time for them to renew they don’t have the ability to do so and we’re working through that in to February and March getting customers renewed.

Top Producer we have seen a slight decline in subscribers but we’re working on improving the sales efforts there. The cancellations are not any worse than they’ve been really over the past year but our effectiveness in new sales has not been as good in Top Producer as it has been in Realtor.

The broker products we continue to sell the company showcase product to brokers and are encouraged by those results but in addition when I talk about the effectiveness of new sales we’re also seeing agents buying featured homes and featured community ads around the website that haven’t bought those products before. You’re seeing relatively stable revenues in both of those areas and given this current marketplace that’s pretty good.

Mitch Bartlett – Craig-Hallum Capital Group, LLC

Just maybe a little bit more on the blip of getting customers on their credit cards. So, you’ve seen a recovery from that November/December time frame?

Lewis R. Belote, III

Yes, we’re starting to see some of those customers renew now that they’ve cleaned up their credit card balances, yes.

Mitch Bartlett – Craig-Hallum Capital Group, LLC

So it seems like an anomaly?

Lewis R. Belote, III

Yes. It has happened virtually every year. Christmas time comes around people do their Christmas shopping but it hadn’t had a impact on the business like it does in this tough market.

Mitch Bartlett – Craig-Hallum Capital Group, LLC

Always in the past we were told new homes and rentals were integral to presenting a dominate look to the customer base. Do you still feel that way? In the past you’ve also said even though their sales were fairly lackluster they were not terribly onerous to profitability. Is that still the case? Do you still feel their strategic?

Lewis R. Belote, III

The rentals business is still profitable and frankly is not performing as well as we would like it. It was actually starting to grow a little bit but we haven’t focused on it as strong as we could have and we think there’s an opportunity there. New homes continues to decline just because of the market and frankly when the real estate market turns around the new homes business may actually trail that recovery that possibly the realtors see. We’ve got to do a better job of managing that but the content is still important to the website and to the consumer.

Steven H. Berkowitz

And again, this is even a little early for me to kind of get in to a lot of detail so I’ll keep it up at kind of a high level but, when we look at what the experience that we need to deliver to consumers if you really think about the five things that consumers are doing on the web today, they’re communication and socializing, they’re getting at information, they’re buying and selling things, they’re expressing themselves and their entertaining themselves.

What’s really interesting about our product strategy in terms of what we have to deliver to consumers, we have to be looking at each one of those human behaviors because they actually do affect and actually can be part of the real estate experience or I should say the homeownership – I can’t even think of the right words for it yet but it’s kind of the homeownership, your life cycle around the home.

I think that as we clearly define how each of our products move to the customer and what the customer cycle is in that marketplace or the consumer cycle is in that marketplace I think we’ll be able to talk about how each one of these pieces plus I think a couple of others will be core to our competency and will be built off of a scalable platform that will allow us to in a lot of ways scale the business as our customers grow and then as our consumers grow we’ll get more advertisers.

Operator

Your next question comes from Mark May – Needham & Co.

Mark May – Needham & Co.

I think two questions, one you talked about the relative performance of Relator.com which I understand that makes sense given what’s going on in the market as a whole but, it does seem like the revenue decline there accelerated in the fourth quarter and I just wondered if you could shed some light? Did you see an increase and acceleration in churn? Kind of what’s driving that and whatever the factors are, are those things you would expect to persist at least in the near term? Essentially do you expect to continue to see kind of accelerating revenue decline for that segment, the real estate segment? The second question is of the $20 million in expense reductions, how much of that, if any, is attributable to what you’re doing at Welcome Wagon?

Lewis R. Belote, III

Relative to the performance, Realtor was basically flat with last quarter. It has been down since second quarter a little bit each quarter since last year so there’s not an acceleration in performance. The sector real estate services which includes new homes and rentals and Top Producer is down a little more than normal as we mentioned primarily because new homes and rentals didn’t perform.

On the $20 million Welcome Wagon is in discontinued operations so it’s zero impact. The simple way to see the magnitude of it is we’ve said from the beginning that Q2 was our baseline so if you take our Q2 costs relative to what our Q4 costs were in the four basic categories: cost of sales; product development; sales and marketing; and G&A you’ll see that we’re just over $5 million improvement quarter-on-quarter.

Steven H. Berkowitz

So Welcome Wagon is not included in that.

Lewis R. Belote, III

Welcome Wagon is all pushed down below.

Mark May – Needham & Co.

You’re nearing kind of breakeven at Welcome Wagon? It looks like your burn rate was in the hundreds of thousands per month or quarter now?

Lewis R. Belote, III

There was a two-fold reason behind doing the restructuring in the quarter, one we weren’t sure how long it would take us to sell it and so we didn’t want to sit there and continue to burn cash in the process. And two, it’s more attractive to a buyer when it’s not losing money. So, we’re encouraged by the results and we’ll be able to show you hopefully substantial improvement in the Q1 numbers.

Operator

Your next question comes from Mitch Bartlett – Craig-Hallum Capital Group, LLC.

Mitch Bartlett – Craig-Hallum Capital Group, LLC

On the Welcome Wagon topic, you said it lost $695,000 in the quarter?

Lewis R. Belote, III

Operating loss, yes.

Mitch Bartlett – Craig-Hallum Capital Group, LLC

Then there was a discontinued –

Lewis R. Belote, III

There’s a restructuring charge $1.5 million.

Mitch Bartlett – Craig-Hallum Capital Group, LLC

So when I look on the cash flow statement between the third and the fourth quarter it looks like a total of $1.6 and that seems like continuing operations.

Lewis R. Belote, III

No, it’s a separate line item. Obviously some of those restructuring charges are non-cash at this point so you’ll pay them out over time so there’s delta there slightly.

Steven H. Berkowitz

I want to thank you very much. I look forward to speaking to you next quarter and hopefully some of you during the quarter. Thanks very much for your time and I’ll speak to you soon.

Operator

Thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect and have a wonderful day.

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