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Executives

Rich Boyle - Chairman & Chief Executive Officer

Brent Stumme - Chief Financial Officer

Derek Brown - Vice President of Investor relations & Corporate Planning

Analysts

Ian Corydon – B. Riley

Brett Huff – Stephens Inc.

Analyst for Andrew Jeffrey - SunTrust Robinson Humphrey

Jim Wilson – JMP Securities

Mitchell Bartlett - Craig Hallum

LoopNet Inc. (LOOP) Q4 2009 Earnings Call February 10, 2010 4:30 PM ET

Operator

Welcome to the LoopNet Incorporated earnings conference call for the fourth quarter of 2009. The date of this call is February 10, 2010. This call is the property of LoopNet Incorporated, and any recording, reproduction or transmission of this conference call, without the expressed prior written consent of LoopNet Incorporated is strictly prohibited. This call is being recorded.

You may listen to a webcast replay of this call by going to the Investor Relations section of LoopNet’s website. The webcast will be available on the company’s website until February 12, 2010. I would now like to turn the call over to Derek Brown, Vice President of Investor Relations and Corporate Planning.

Derek Brown

Good afternoon. Thank you for joining us to discuss LoopNet Inc’s financial and operating results for the fourth quarter of 2009. With me today are Rich Boyle, Chief Executive Officer and Chairman and Brent Stumme, Chief Financial Officer.

Today Rich will begin with an overview of the business and overall corporate strategy, continued by a summary of the company’s fourth quarter performance and review of the marketplace. Brent will review the fourth quarter financial results and provide first quarter 2010 guidance.

I would now like to bring the following to your attention. On the call today you may hear forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties.

Please refer to the company’s recent SEC filings at the SEC’s website at www.sec.gov for detailed discussions of the relevant risks and uncertainties. The company does not intend to update the forward-looking statements in this conference call, which is based on information available to us as of the date of this call.

The press release distributed today that announced the company’s results is available on the company’s website at www.loopnet.com in the Investor Relations section, under financial press releases. The current report on Form 8-K furnished with respect to our press release is available on the company’s website in the Investor Relations section under SEC filings and on the SEC’s website.

You will also hear discussion of non-GAAP financial measures. Reconciliations of these non-GAAP measures to their most comparable GAAP financial measures are contained in the press release distributed today and available on the Investor Relations section of the company’s website.

Now, I will turn the call over to Rich Boyle, Chief Executive Officer and Chairman.

Richard Frost

Thank you Derek. I would like to welcome all of you to the LoopNet fourth quarter 2009 earnings call. On our call today we will discuss our performance during the fourth quarter 2009 and share with you our perspective on current conditions in the commercial real estate industry as well as trends and opportunities we see in our business.

Additionally we will provide you with updates on a number of other ongoing initiatives in the company. Following my prepared remarks and those of Brent Stumme, our Chief Financial Officer, we will be opening the line for your questions.

With that why don’t we get started. Our company and business performed solidly ahead of expectations during Q4 2009. Despite ongoing gridlock in the commercial real estate industry that has materially suppressed activity levels and the number of completed transactions industry wide we comfortably exceeded the financial targets we set three months ago.

Revenue in Q4 of 2009 was $18.3 million compared to our guidance of $17.7 to $17.9 million and adjusted EBITDA was $7.6 million or $0.18 per share compared to our guidance of $6.7-6.9 million. Our adjusted EBITDA margin for the quarter was 41.6%, towards the higher end of our stated target range for 2009 of high 30’s to low 40’s on a percentage basis. In our view, these better than expected results which were once again achieved despite persistent headwinds in the broader commercial real estate industry highlight the health of our underlying business model and reflect favorably on our consistent financial discipline and the ability of our team to execute.

Equally important, key operating and activity measures of our core business such as the average monthly cancellation rate of our premium members, profile views and profile views per listing as well as subscriptions to recent sales showed considerable sequential improvement in the quarter. Based on activity we monitor and analyze on our marketplace as well as data from third-party sources such as Real Capital Analytics, we believe the dynamics in the investment sale market particularly on the demand side may be starting to improve very gradually.

While we are proud of the market-leading position we have created for our marketplace products, we believe there is tremendous opportunity to extend that lead to adjacent areas particularly by increasing the scope of information, transaction and technology services that we deliver to an expanded set of customers. Capturing these opportunities will require an increase in investment spend that is likely to reduce our operating margins in the near term. However, we are confident these investments are the prudent course of action for our company and our shareholders longer-term.

To put the rationale and timing for these new investments in perspective let me give you an update on our view of general industry conditions. With that as a backdrop we can turn the focus to our results in light of those conditions and provide detail on some of our recent achievements and on the new opportunities we are pursuing.

During Q4 2009 conditions in the commercial real estate industry remained extremely challenging when compared to any long-term benchmark of activity. However, they appear to have stopped getting worse in our view, showing what would best be described as modest sequential improvement in certain areas. Specifically, transaction volumes continued at historically low levels despite sequential gains. Asset prices fell further albeit at a slower rate than earlier in the year. Credit markets remained largely frozen. Rental rates continued to decline and vacancy rates continued their ascent.

As we have said previously, results in our business correlate much more closely to changes in transaction volumes than to changes in asset prices. Industry wide investment sale transaction volumes remained deeply suppressed during the last quarter of 2009. According to data from research firm Real Capital Analytics which focuses exclusively on larger properties, the number of sale transactions closed in Q4 2009 declined 24% from Q4 2008 levels and 81% from Q2 of 2007 which was the industry’s peak period.

Equally telling, the total number of closed transactions in 2009 was 60% lower than 2008’s already reduced volumes; 83% lower than 2007’s peak volumes and roughly 50% lower than the total recorded in a more normalized year such as 2003. That said, there were some very encouraging signs in RCA’s data that we think are worth highlighting. Specifically, the total number of sale transactions closed in Q4 2009 increased 40% quarter-over-quarter with every sector except hotels showing material gains. This was the largest sequential increase since Q3 2004 and only the second sequential increase of any magnitude since Q2 of 2007.

At the same time, the quarter’s 24% year-over-year decline in sale transactions we cited earlier was a marked improvement from the 60% year-over-year decline seen in Q3 of 2009 and the 65% year-over-year decline seen on average during the first three quarters in 2009. In fact this was the smallest year-over-year decline reported since Q4 of 2007. Industry experts continue to point to four primary reasons that investment sale transaction volumes remain well below longer-term averages.

First, a bid ask pricing gap. Second, lender’s pursuit of a pretend and extend strategy for their existing loan portfolio. Third, constrained credit availability for new loans. Fourth, a lack of urgency among buyers or investors, many of whom expect an end to the pretend and extend dance as the refinance and potential foreclosure wave grows and accelerates through 2010 peaking in 2011 and 2012.

In our view the Bid Ask pricing gap is now small enough we believe we are effectively in the broad zone of equilibrium. The Moody’s Real Commercial Property Price Index, which gauges same property round trip investment price declined more than 33% year-over-year in November of 2009 and is now down approximately 32% year-to-date through November of 2009 and 43% from its peak in October of 2007. Yet the index increased 1% month to month in November of 2009 marking the first such improvement since September of 2008 and only the 5th since the credit crunch hit in September of 2007 suggesting pricing may finally be finding a bottom.

At the same time, however, lenders’ ongoing pursuit of a pretend and extend strategy has been making shorter-term modifications to terms of existing borrowers rather than forcing a significant restructuring or possible foreclosure. While experts doubt the long-term sustainability of this approach the strategy does enable lenders to avoid forced sales into deeply discounted markets and more importantly avoid the marking down of their commercial real estate loan portfolios which could impact their capital ratios in substantially negative ways.

Over the shorter term however pretend and extend continues to delay the foreclosure and/or restructuring process of properties of all types in every market holding back the long expected flood of distressed property listings from coming to market. Largely reflecting the above mentioned factors as well as the current state of our global financial system debt capital markets remain extremely tight. The new issues market for commercial mortgage backed securities is still essentially dead and many banks are simply not writing new loans which would add to their already substantial commercial real estate loan portfolios. Those banks that are willing to write new loans have broadly adopted far more conservative underwriting standards and have significantly decreased the purchasing power of investors of all types.

In fact a recent survey of senior loan officers by the Federal Reserve noted that a substantial share of domestic banks on net reported having tightened standards on commercial real estate loans in the fourth quarter of 2009.

Lastly, buyers and investors, even those with immediate access to capital remain patient. Though prices are down considerably and may be approaching a bottom, many interested principals continue to believe that this buyer’s market will persist for some time to come in large part because of the aforementioned potential for a flood of distressed sales and foreclosures beginning to develop this year and expected to grow through 2011 and 2012. That said, we do continue to see signs, as we did in the third quarter of 2009, both in our marketplace and in the industry overall that bargain hunting principals are starting to focus more time and resources, analyzing markets and searching for potential investment properties.

We remain very confident that the breaking of the virtual gridlock in the investment sales segment will be very good for our business. If price declines continue and/or distressed sellers and foreclosures flood the market we would expect bargain hunting buyers to re-engage more aggressively. If credit becomes more readily available we believe already interested buyers would begin stepping in fairly quickly and we believe a greater sense of urgency will enter the market once prices come down further and/or transaction volumes begin to increase consistently.

We believe that all of these possible dynamics whenever they manifest themselves will help to fuel LoopNet’s core marketplace franchise. As we mentioned previously though our belief is that while transaction activity levels may have bottomed any improvement from here is likely to be slow and gradual over time.

The leasing side of the industry has also continued through a cyclical low in overall activity as tenant demand continues to sag with the economy and the outlook for employment. While the baseline of activity remains through the cycle due to normal lease expiration patterns vacancy rates continue to rise rapidly and overall demand levels are down across the board with nearly every market sector and property type continuing to experience negative absorption.

As an indication of just how challenged the lease segment has become, Reis Inc., a leading real estate research firm reported that the overall U.S. office vacancy rate rose to a 15-year high of 17% during the fourth quarter of 2009 compared with 16.5% in Q3 of 2009. Additionally Reis noted that the office vacancy rate rose in 63 of the 79 primary metropolitan areas that it covers while effective rents fell in 70 of them.

Given these dynamics as well as the still rising rates of unemployment and the current state of economic activity it seems likely that the U.S. office vacancy rate will continue rising well into 2010. The implications for LoopNet of these market conditions are generally positive as building owners now facing considerable amounts of empty square footage become highly motivated to see their brokers are working harder and more effectively to market their spaces. We have seen the continued impact of that dynamic in our marketplace as [four lease] listings continue to show very strong growth at 22% for the fourth quarter on a year-over-year basis.

Drilling down further into our core business, LoopNet’s marketplace once again outperformed the industry during the fourth quarter of 2009 and for the second consecutive quarter experienced substantial improvement in the number of key operating metrics. While we remain hesitant to say the trends will remain consistently positive going forward, we are very encouraged by many aspects of what we saw in the fourth quarter of 2009 and more broadly what we saw during the second half of 2009.

Premium membership once again accounted for approximately 75% of total company revenue in Q4 2009. We ended the quarter with 68,378 premium members, down 12% year-over-year and 2% quarter-over-quarter. Although we remain dissatisfied with ongoing premium member net losses we are pleased to report that the total quarterly net loss of 1,431 was both the smallest of the year and the smallest we have experienced since Q1 of 2008 despite the fact that Q4 is typically our weakest of the year given holiday schedules.

A second consecutive quarter of substantial improvement in our cancellation rate was the primary reason for improved performance in our premium membership totals for the quarter. Specifically, the cancellation rate in the fourth quarter of 2009 fell sharply quarter-over-quarter once again reaching its lowest level since the fourth quarter of 2007. As such our cancellation rate remains comfortably within the 4.5-6.5% monthly range we began seeing two years ago. In our view the consistent improvement in this metric is attributable to a combination of searching principals becoming more interested in looking for buying opportunities, a stabilization in the number of active brokers as the declines in occasional participants are flushed out and stability within our pricing model throughout the year.

Encouragingly our premium membership performance was also incrementally aided by an increase in gross premium member additions in the quarter. While modest, this year-over-year increase was the first we had experienced since Q4 of 2007. As we have been saying for some time now the primary impact of the broader environment on premium membership has been we are seeing abnormally low volumes of for sale transactional listers and searchers who are simply not active in the market right now.

We continue to believe we have not permanently lost these members from our platform. Rather, they are simply retaining our free, basic membership until they get more active in pursuing their transaction. We believe if the current trend we are seeing of gradual improvement in market activity continues then we may see modest quarter-to-quarter growth in premium subscribers during 2010 with net increases possibly beginning during the first half of the year.

At the end of the fourth quarter of 2009 LoopNet’s commercial real estate marketplace contained more than 440,000 for lease listings and more than 292,000 properties for sale bringing the total to more than 732,000 active listings, up 12% year-over-year. Overall growth was fueled by activity in the for lease arena which saw year-over-year growth in listings being marketed exceed 22% for the 15th consecutive quarter as vacancy rates increased nationwide and more brokers chose to market their for lease listings on LoopNet.

Conversely and perhaps not surprisingly, for sale listings on our platform were essentially flat year-over-year and declined modestly quarter-over-quarter reflecting the deadlocked nature of the broader commercial real estate for sale sector we previously noted. In addition to these totals, BizBuySell ended the quarter with nearly 45,000 listings, down roughly 10% from Q4 2008 levels as dynamics in the Business for Sale market generally mirrored those in the commercial real estate investment sale market.

We continue to believe that the strong performance of our marketplace on both the for sale and for lease sides is being fueled by the ongoing secular shift online of the industry and by the superior performance, size and scope of our platform as compared to alternatives both offline and online. Additionally, we think our for lease business is continuing to benefit from the rapidly increasing number of vacant spaces that need to be marketed across the country as well as from our recent efforts to proactively bring listings to the marketplace.

Profile views in the fourth quarter of 2009 surged 26% from Q4 of 2008 levels and more than 5% quarter-over-quarter to a record 46.6 million. Our previous high water mark of 44.4 million was achieved back in Q3 of 2008. We believe that multiple factors contributed to this significant increase including ongoing improvements to our search engine optimization efforts, the overall growth and scale of our marketplace as a whole and ongoing indications of incremental demand side interest in the market.

We are also very pleased to report that the number of profile views for active LoopNet listing reached 63.6 in the fourth quarter of 2009 an increase of 12% from Q4 2008 and 5% from Q3 of 2009. Profile views per listing is a key measure of overall liquidity in our marketplace. In addition to this being the first year-over-year improvement in this metric since Q1 of 2007, it also marks the third consecutive quarter in which this metric has grown sequentially. Equally noteworthy and encouraging, this sequential growth was fueled as much by activity in the for sale arena as by the for lease sector lending further credence to the view that the significant depression of asset prices throughout 2009 may now be attractive demand in greater quantities.

Average revenue per premium member was $66.01, essentially flat year-over-year and quarter-over-quarter reflecting the fact that changes in pricing we implemented beginning in late 2007 have now fully filtered through our customer base. With no immediate plans to alter our pricing strategy, shifts in the mix of searcher versus subscriber will play a more pronounced role in month to month fluctuations of average revenue per user going forward.

We also made progress during the fourth quarter in a number of areas of our business beyond premium membership. For example, subscribers to recent sales which is our database of comparable sales records reached a second consecutive all-time high in the fourth quarter of 2009 suggesting to us that principals and other industry participants may be starting to better familiarize themselves with the current dynamics of the markets in which they have interest in anticipation of the resumption of transaction activity in the quarters ahead.

We also introduced LoopLink Version 8.0, an updated version of our industry leading private label search engine for our corporate clients. This version is up to five times faster than our previous iteration and provides significant improvements to the optimization of our customer’s websites for major search engines such as Google, Yahoo! and Bing. LoopLink 8.0 has been extremely well received in the field while expanding our functional lead in this segment.

As an indication of LoopLink’s success we highlight that it is now utilized by all five of the top brokerage firms in North America and 15 of the top 20 firms and more than 1,000 commercial real estate firms and organizations overall. In October our Gannet distribution partnership for both City Feet and BizBuySell went live. Since then extended our distribution network even further with the announcement that Crane Chicago business had selected LoopNet to power their commercial real estate listing portion of its website and with the launch of Ink.com as a strategic distribution partner as well.

As a result, our commercial real estate property marketing customers now have access to more than 225 online distribution partners across the United States including the website for the New York Times, The Wall Street Journal, The Los Angeles Times, The Chicago Tribune, The Arizona Republic, [inaudible] and the Honolulu Advisor. Similarly, brokers and owners who would advertise their businesses on BizBuySell now have the opportunity to gain additional exposure to more than 125 partners nationwide.

Capitalizing on the mobile industry’s explosive growth we recently launched a free iPhone application becoming that platform’s first commercial real estate search application and the only company to offer commercial real estate professionals easy, anytime, anywhere access to over 732,000 commercial listings on LoopNet.com.

In its first few weeks since launch, the LoopNet iPhone app has been downloaded tens of thousands of times and customer feedback has been very positive. All of the above mentioned initiatives are focused on adding scale to and further extending the leadership of our commercial real estate and business for sale marketplaces. We have enhanced the one stop shop nature of our marketing platform by allowing listing brokers to easily distribute their listings to not only LoopNet.com but also to our network of owned sites such as CityFeet.com and LandandFarm.com to their own brokerage firm sites via LoopLink to their personal websites to our online newspaper partner sites and obviously to the major internet search engines such as Google, Bing and Yahoo! as well as to the iPhone.

Similarly we have continued to extend our lead in building the largest online audience and providing those searchers with unparalleled access to the necessary information for finding, evaluating and transacting on the properties that meet their needs. We also announced in late January of this year that LoopNet had acquired the assets of privately held BizQuest LLC. Founded in 1994 and headquartered in Pasadena, California BizQuest operates a business for sale marketplace with more than 35,000 businesses for sale and franchise opportunities directly.

While we do not expect the acquisition to have a material impact on our 2010 financial results we believe our ongoing growth and consolidation of the business for sale industry will increase our value proposition over time and provide better results both marketing and searching for our broker and business owner clients.

Our financial liquidity remains very strong. We ended Q4 2009 with more than $129 million in cash and short-term investments and no long term debt. As expected, we have continued to operate our business at extremely attractive margins despite very challenging industry conditions and have generated over $32 million of adjusted EBITDA or $0.75 of adjusted EBITDA per share over the last 12 months.

We continue to believe we are in prime position to capitalize on the industry’s shifting dynamics. As we look to 2010 and beyond as [highs] pending refinance and foreclosure cycles we expect to begin in earnest later this year and into 2011 we plan to increase the rate of investment in our business to extend our leadership position and maximize our opportunity. To be clear, we continued investing in our future throughout 2008 and 2009 during the worst commercial real estate cycle in decades. Yet we did so somewhat cautiously given uncertainties around the magnitude of decline and the timing of recovery in the commercial real estate industry.

Now as we see early indications that activity levels in the industry have stabilized if not started to increase every so modestly we think it is the appropriate time to accelerate our investment plans to fully capitalize on the longer term opportunity we see.

With this in mind we will be committing several million of incremental spend each year over the next few years to a range of internal and external investment that we think can compliment and extend our business and over time create meaningful, longer term shareholder value. Some of these investments are accelerations of ongoing efforts in areas we have highlighted previously such as our efforts to proactively aggregate more on-market available properties, our ongoing strategic investment in Exceligent, a provider of fully researched information services to commercial real estate professionals or various efforts to attract more demand side activity to our marketplace.

Others are new efforts such as a project underway to extend our information services product line using a hybrid approach that varies user generated marketplace data with a variety of other sources and development methods. We see fertile ground in the ability to deliver easy access to timely, useful, accurate market data at prices well below traditional alternatives particularly as we enter what we believe may be the early stage of a market recovery.

We expect the first of these additional information services to be available to customers sometime in the second or third quarter of this year. We also recently invested in and formed a strategic partnership with Auction Point, a solution provider to commercial real estate brokers in support of auction offerings of for sale commercial real estate properties. We are very excited about the Auction Point platform and their innovative, broker friendly approach to commercial property auctions. We believe that by working with them we will be well positioned to capitalize on the rapid increase in distressed properties coming to market. We will be providing more details around our work in this area in the coming weeks.

Recent sales, which is a perfect example of a multi-million dollar revenue stream that we developed and funded internally is another area of ongoing planned investment. As transaction volumes likely accelerate over the next few years we intend to expand the breadth and depth of the data coverage in this service, providing more value to existing customers and introducing the service to many new subscribers.

We are also continuing to work on upgrading and integrating technology platforms from some of the acquisitions we have done in the past including RE Applications in LandandFarm and now BizQuest which we just announced. This financial commitment which extends throughout the organization to include product development, data aggregation, sales and marketing and possible M&A related efforts amongst others is being made in advance of the full market recovery to better position our business for the gradual increase in activity we see coming.

Given our intentions and this timing differential we expect that our overall adjusted EBITDA margin for calendar year 2010 will be in the low to mid 30’s on a percentage basis as compared to our Q4 2009 level of 41.6%. To be clear, this investment strategy is focused on accelerating our revenue growth and market share gains as activity in the commercial real estate market begins to recover. While reducing margins in the short run it does not impact our medium term goal of becoming a substantially larger company generating adjusted EBTIDA margins in excess of 40%. Rather, we think it increases the likelihood we attain those goals while extending our longer term competitive and technological advantages.

To that end our board of directors and our management team are aligning our long-term incentives around execution of this plan and expect to tie our long-term compensation directly to achieving goals that we believe will create strong shareholder returns. Management is confident in our ability to achieve these goals through execution of our strategy and business plan, ongoing investments in our existing business, investments in new organic initiatives, further acquisition opportunities and through capital structure changes such as stock buyback.

In conclusion, we believe LoopNet both our business and our team performed very well in a challenging environment during 2009 including in the fourth quarter. We comfortable exceeded the financial targets we set three months ago. We continued to outperform the industry as a whole and key measures of our business improved substantially, many for the second consecutive quarter. We believe that industry conditions may improve gradually through 2010 reinforcing some of the positive trends we are seeing in our business and we remain very excited about the opportunities we see to grow our mind share, market share and financial footprint in the coming years, growing our business and creating value for you, our shareholders.

Now Brent Stumme, our Chief Financial Officer, will take us through the quarter’s financial results.

Brent Stumme

Thank you Rich. LoopNet’s revenue for the fourth quarter of 2010 was $18.3 million compared to $21.1 million in the fourth quarter of 2008 and our guidance of $17.7-17.9 million. The decline in revenue was primarily due to lower premium member subscribers and lower advertising revenue as a result of the challenging market environment in which we are currently operating.

LoopNet’s adjusted EBITDA for the quarter was $7.6 million or 41.6% of revenues compared to $9.5 million in the fourth quarter of 2008 and our guidance of $6.7-6.9 million. The company has reported adjusted EBTIDA which we define as EBITDA excluding stock based compensation and litigation related costs because management uses this to monitor and assess the company’s performance and believes it is helpful to investors in understanding the company’s business, net income applicable to common stockholders for the fourth quarter of 2009 was $3.2 million or $0.07 per diluted share compared to $4.1 million or $0.12 per diluted share in the fourth quarter of 2008.

Non-GAAP net income which we define as net income excluding stock based compensation and litigation related costs for the fourth quarter of 2009 was $4.7 million or $0.11 per diluted share compared to $5.3 million or $0.15 per diluted share in the fourth quarter of 2008 and our guidance of $0.08 to $0.09 per diluted share. As of December 31, 2009 the company had $129 million of cash, cash equivalents and short-term investments and no debt.

Now I would like to review some of our key operating metrics. The number of registered members which includes both basic and premium members grew to 3,925,534 during the fourth quarter of 2009, a 21% increase over the fourth quarter of 2008. The number of premium members as of the end of the fourth quarter 2009 was 68,378, a 12% decline from the fourth quarter of 2008. Embedded in this metric was an average monthly cancellation rate within the 4.5-6.5% range we began seeing two years ago.

Average monthly revenue per premium member was $66.01 in the fourth quarter of 2009, a 1% increase over the fourth quarter of 2008. The number of profile views of listings on the LoopNet marketplace during the current quarter was 46.6 million, a 26% increase from the fourth quarter of 2008. Average monthly unique visitors on the LoopNet marketplace were approximately 992,000, a 17% increase over the fourth quarter of 2008. As of December 31, 2009 the LoopNet online marketplace contained 732,503 listings, a 12% increase compared to December 31, 2008. BizBuySell contained 44,651 listings of operating businesses for sale, a 9% decline from December 31, 2008.

That brings me to our business outlook. Based on current industry dynamics and marketplace trends the company expects revenue for the quarter ending March 31, 2010 to be in the range of $18.1-18.3 million, adjusted EBITDA to be in a range of $6.3-6.5 million and net income applicable to common shareholders to be in a range of $0.04 to $0.05 per diluted share assuming stock based compensation of approximately $0.03 net of tax benefit and an effective tax rate of approximately 40%.

Thank you for joining us today. I will now open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions) The first question comes from the line of Ian Corydon – B. Riley.

Ian Corydon – B. Riley

A couple of questions on the increased investment. I do think it makes sense for LoopNet to expand the scope of its business and offerings. If you look at the incremental investments in 2010 how much are those weighted between projects that are expected to begin to deliver revenue pretty quickly versus kind of more longer-term projects?

Richard Frost

I think the ones that are organic investments, a few of them have been underway for some time and I think we will have some ability to impact this calendar year starting in the middle of the year. But most of them it tends to be a little bit longer term meaning we are beginning the investment now and it is going to be I think really impactful in years starting towards the end of this year out into 2011. I think the one difference to that would be where we are able to successfully go after M&A opportunities it will obviously have a more near-term impact. Those are also a little harder to predict timing wise.

Ian Corydon – B. Riley

The investments in fiscal 2010 are they going to be fairly equally weighted by quarter?

Richard Frost

Yes, I believe so. They will be spread out pretty evenly throughout the year.

Ian Corydon – B. Riley

I don’t know if you can speak to this but you had mentioned you will continue to invest. Assuming the business grows in fiscal 2011 do you think fiscal 2010 will be kind of a low point for EBITDA margin?

Richard Frost

I think we will be looking at the rate of investment overall going forward and I think managing that to some degree depending on how conditions change. We see what are some encouraging but pretty modest positive trends in the business right now I think if those continue we will start to grow a bit going forward which hopefully will turn into a margin this year which ends up gradually increasing over time.

Ian Corydon – B. Riley

A clarification on the gross new premium members. You said that was up, was that up year-over-year or was that up sequentially?

Brent Stumme

It was year-over-year.

Operator

The next question comes from the line of Brett Huff – Stephens Inc.

Brett Huff – Stephens Inc.

A couple of quick questions, I think these are mostly just making sure I understood what you said before or getting more clarification. You had said and I think the words you used you think you are broadly in the range of bid-ask-spread equilibrium. That to me I think is different from how you had characterized that even in the last call or two. I am wondering if you could just point us to the one or two things that maybe changed the outlook?

Richard Frost

There were a few. Certainly one would be looking at the Moody’s pricing index data we look at which started to show a rate of decline in the fourth quarter which stabilized pretty considerably. In fact it took a tick up in November. December data is not out yet. Second would be looking at data that suggests we are starting to see an increase in actual transaction closes meaning buyers are starting to come in and actually deciding prices are low enough to purchase.

There is definitely to be clear some variability by geography, asset type and particular deal opportunities as well. Thirdly is obviously all of our own metric data which is looking at activity around things like our recent sales service where we have seen some really strong sales, the profile view activity meaning demand side folks coming in and looking more actively at properties to buy. That seems to lend in our view some data supporting the concept that prices are now down at a level where buyers are coming in and really starting to dig deep on evaluating opportunities.

Brett Huff – Stephens Inc.

So the last one, you are finally seeing the buy side come back and sniff around a bit?

Richard Frost

Exactly. We were kind of encouraged as well in what is typically a kind of weak quarter for us seasonality wise. When you look at it from that perspective some of the sequential improvements from Q3 to Q4 it was something we feel like was a pretty good sign as well.

Brett Huff – Stephens Inc.

You talked about the churn rate 4.5-6.5 range. You said you were comfortably in the range and that had been after being sort of at the top end or even a little above. Am I remembering that right?

Richard Frost

That is correct. We actually went above it in early 2009. The very peak of it was just over 7% and then it fell back down into that range in Q3 and improved even further in the fourth quarter.

Brett Huff – Stephens Inc.

Can we assume a midpoint? Is that the right way to think about it?

Richard Frost

I think our only comment is it has been within that range.

Brett Huff – Stephens Inc.

The reason you feel the churn got better and you said this is the best since 2007 or the first time…What was the gross adds were up since the first time in 2007?

Richard Frost

On a year-over-year basis gross adds went up for the first time since 2007. I think the other part of the question was what was driving the churn improvement. We really viewed it as a couple of things. First and foremost we think we have seen a real increase in the demand side buyers coming on and looking deeper and staying on longer to try and find properties they are interested in. The second is the population of active people in the industry overall. We have really kind of been fully through the cycle now and we think we have kind of washed out the transactional participants that come and go or the part-time players in the industry to some degree.

Those are probably the biggest factors. Then a lesser factor is obviously our pricing model change which we made way back in Q4 2007. There was still some [audio break] in early 2009 as we rolled that out and that is done now.

Derek Brown

Just to clarify, the cancellation rate in Q4 of this year was the lowest it had been since Q4 2007. The premium membership gross increase was the first increase we have seen since Q4 of 2007.

Operator

The next question comes from the line of Analyst for Andrew Jeffrey - SunTrust Robinson Humphrey.

Analyst for Andrew Jeffrey - SunTrust Robinson Humphrey

I just wanted to get a sense, you said that you expected EBITDA margins to move down to mid…

Richard Frost

Low to mid 30’s.

Analyst for Andrew Jeffrey - SunTrust Robinson Humphrey

How should we think about the path of getting there? Is this going to be a stair step function down as you progress in some of these investment initiatives or is this going to lever down and kind of single step?

Richard Frost

I think you can start with looking at the guidance we gave for Q1 which is kind of the first indicator of where we are in that. As we roll out some of the investments it might go down slightly from there but even Q1 a number of these things are already underway. So the midpoint of the guidance for Q1 is guided to that range already.

Brent Stumme

About 35%.

Analyst for Andrew Jeffrey - SunTrust Robinson Humphrey

You mentioned pricing. Are we looking at pricing remaining reasonably stable around the $66 per level? You mentioned the mix. How is that going to affect pricing?

Richard Frost

The way the mix can affect it without necessarily saying exactly how it is going to play out is obviously we have two significantly different price points in the service. The listers have a base price that is hinged around more of an $89 a month fee and the searchers are at $49 per month. As you bring on more searchers in terms of the volume of people coming on they are a lower average price so it can affect it in that way. That said, it has been pretty stable the last few quarters at around that $66 price. I wouldn’t expect it to show any real dramatic swings.

Analyst for Andrew Jeffrey - SunTrust Robinson Humphrey

As some of the investment initiatives become more significant in terms of total revenue what direction should we be thinking about pricing?

Richard Frost

A number of them will be separately priced products essentially. Meaning for example our recent sales service is an incremental $30 per subscriber per month type of service. So they end up being priced wholly independently as well as some of the M&A stuff being separate prices. There are some things we may do that would be value added to the existing premium membership service. The levers there would be for us to be to increase gross sales, reduce the cancellation or the stickiness or increase average price. At this point though the stuff we are bringing out in the market right now shouldn’t change the pricing mix you that you see in premium membership right now.

Analyst for Andrew Jeffrey - SunTrust Robinson Humphrey

More to drive traffic?

Richard Frost

Or to introduce new services or increase stickiness but I don’t think we are going to do anything in the near-term to affect average price.

Operator

The next question comes from the line of Jim Wilson – JMP Securities.

Jim Wilson – JMP Securities

I was wanting to go further into the new investment initiatives. Can you talk a little bit about returns? I am think if you are going to have a consistent investment program taking margins down for now you expect reasonably good returns to be coming through in order to actually drive those margins back up? Can you address what you are thinking of and maybe tie it into are you or would you be looking for strategic acquisitions to fill some of those holes?

Richard Frost

In reverse order we are definitely looking for acquisitions as well. The BizQuest one we just announced we are excited about although it is relatively small. We have an appetite to do more. That said we have been working very hard to maintain our discipline as we do that and so we will be continuing to look at those very carefully. We do have an appetite to do more acquisitions. In terms of the returns for one of these investments we absolutely feel that in a long-term aggregate sense there is no question they are going to have very strong returns. The specific way we look at it really does vary on an investment by investment basis. Some of them are quite clean, stand alone new products where you can get a very clear return on direct investments.

Others are expanding the footprint of the marketplace that are more blended in our existing business and it is a little more difficult to measure. The way we look at it from a big picture sense is achieving our near-term business plan goals of being a $200 million revenues company with 40% plus EBITDA margins, looking at the different product lines our customers want and how do we expand the scale of the core marketing and searching service as well as bring online some of these new information services either organically or via M&A. That whole big picture framework is really how we are looking at it.

Jim Wilson – JMP Securities

As you look at the margin improvement in those starting to look for properties, is there any pattern, size of asset, geography, anything interesting or significant that might kind of reflect where and who is looking or what they are looking for? Getting bigger, even though prices have dropped? Anything like that?

Richard Frost

In terms of market data on our marketplace?

Jim Wilson – JMP Securities

Yes.

Richard Frost

That is actually one of the areas we are trying to include some information in upgraded service that is going to be available later this summer. Sort of what is some of the market trend data in not just pricing trends but demand side activity trends. I do think there is quite a bit of variability. When you look right now certainly by asset type, things like multifamily come out as being a little bit better than some of the other asset classes. When you look by geography you can see some pretty wide disparities in terms of how things are going. Even within that as you start drilling down into a specific geography and asset type you can see some very huge variability between specific sub-classes and all the way down to a particular asset. We think we are in a pretty interesting position to be able to deliver some of that data to people to help them make better decisions.

Jim Wilson – JMP Securities

Stock repurchase program obviously you noted you added to the authorization. I can’t really tell by the net share count, how much have you actually repurchased either in the quarter or program to date?

Richard Frost

We have not actually done any repurchasing to date. It goes back to well over a year.

Brent Stumme

I think the last time we repurchased was in 2008.

Jim Wilson – JMP Securities

So you increased the authorization because you are going to get more serious about potentially repurchasing or how should we take that?

Richard Frost

I think I would interpret it simply as we want to have the flexibility to weigh options between some of the investments we are doing and the alternatives of changing the capital structure in this way to whatever we think is going to be the most beneficial. We haven’t committed to doing any specific purchases at this point.

I guess maybe one comment I will make is I think our board does want us to pursue at a minimum buybacks that offset auction dilution of the company and so I think we are likely going forward, though we haven’t done anything yet to be clear, to be doing sort of a minimum level of buybacks that are intended to achieve that end.

Operator

The next question comes from the line of Mitchell Bartlett - Craig Hallum.

Mitchell Bartlett - Craig Hallum

You mentioned you didn’t expect the split between listers and searchers is going to change the revenue breakdown a whole lot going forward. Is that because you think when the market does get liquid again or folks are coming back in and you will see an even increase on both sides of the equation?

Richard Frost

I do think searchers are going to lead a little bit. But I don’t think it is going to change it dramatically would be all I would try to say there. I think it may shift it a bit but it is not going to be a major shift one way or the other is our view.

Mitchell Bartlett - Craig Hallum

Auction Point. I kind of missed the discussion along that. Could you just review that again?

Richard Frost

More will be announced in the coming weeks. We are very close to being able to provide more details. They are a provided of an online auction platform for commercial property. One of the very unique things about their approach to the industry is they do so with a business model which is inclusive of and relies upon and is friendly with the commercial real estate brokers. So it is a broker friendly auction model which is different than has historically existed.

The strategy from our point of view in working with them is to create a platform where as we expect to see in the coming years a greatly increased volume of distressed or foreclosure listings which have a disproportionate probability they end up being auctioned as opposed to sold in a traditional manner, we have been looking for a strategy to take advantage of that. The structure right now we are not going to disclose tremendous detail but it is a minority investment. We have provided them some capital and we will be in an ongoing operating partnership between the two companies working together to try and capture that opportunity.

Operator

At this time there are no further questions. That concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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