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ZipRealty Announces Second Quarter 2010 Results

Outlook

Based upon current information and expectations, the Company has revised its outlook:

  • Net revenues for the full-year 2010 are expected to grow in the single digits on a percentage basis over 2009 levels.
  • Net loss for the full-year 2010 is expected to be narrower than the 2009 net loss. Adjusted EBITDA is expected to be a loss for the full-year 2010, though narrower than the 2009 Adjusted EBITDA loss.

Use of Non-GAAP Financial Measures

To supplement its financial statements presented in accordance with Generally Accepted Accounting Principles (“GAAP”), ZipRealty uses a non-GAAP measure it refers to as Adjusted EBITDA. The Company defines Adjusted EBITDA as net income (loss) less interest income plus interest expense, provision for income taxes, depreciation and amortization expense, stock-based compensation and further adjusted to eliminate the impact of certain items that the Company does not consider reflective of its ongoing core operating performance. This non-GAAP measure is provided to enhance the user's overall understanding of ZipRealty’s current financial performance and its prospects for the future, particularly in comparison to the practices of other reasonably similar firms. ZipRealty believes this non-GAAP measure provides useful information to both management and investors by excluding certain items it believes are not reflective of its core operating results and thus presents a more meaningful basis for comparison between periods. Further, this non-GAAP measure presents key information the Company uses for planning, forecasting its future operations and as a measure for determining management compensation. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of this non-GAAP measure to the most comparable GAAP measure, Net income (loss) is provided in the attached tables.

Conference Call Details

A conference call to discuss second quarter financial results will be webcast live on Tuesday, August 3, 2010 at 5:00 p.m. Eastern Time on the investor relations section of ZipRealty’s website, www.ziprealty.com. Listeners may also access the call by dialing 800-390-5705. A replay of the call will also be available through August 10, 2010, at 888-203-1112 and pin number 5483352.

About ZipRealty, Inc.

ZipRealty is a leading full-service residential real estate brokerage that uses an innovative combination of a comprehensive online presence, robust proprietary technology and knowledgeable local agents in the field to offer its clients fast, responsive and transparent service. The Company’s award-winning, user-friendly website gives its users access to comprehensive local Multiple Listing Services home listings data, as well as other relevant market and neighborhood information and tools. The Company's proprietary technology, including its agent platform and customer relationship tools, helps it to increase agent efficiency and reduce costs, allowing the Company to pass on significant savings to consumers as permitted by law. Founded in 1999, the Company operates in 35 major markets in 22 states and the District of Columbia. For more information on ZipRealty, visit www.ziprealty.com or call 1-800-CALL-ZIP.

Cautionary Language

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the federal securities laws including, without limitation, statements under the heading entitled “Outlook” regarding the anticipated range of revenue growth for 2010, the narrowing of net loss and Adjusted EBITDA loss for 2010, as well as statements regarding housing market momentum, client activity, the Company’s focus on innovation and customer service, and growth related to implementation of the independent contractor model in California. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The risks and uncertainties include but are not limited to the Company’s history of losses and expectations concerning future losses, volatility in the real estate market, macroeconomic factors such as unemployment, tight credit, inventory levels and the impact of government programs, the Company’s ability to achieve sufficient agent productivity and retention to offset its costs, to remain an innovation leader in its industry, to adapt to changes in technologies and practices relating to the nature and use of information, to comply with often complex federal and state laws and regulations concerning its employees, independent contractors and other business practices, to attract, retain and incentivize agents and key personnel, to grow local market share in the face of intense competition, to access leads and MLS listings from third parties that it does not control, to develop, maintain and protect a strong brand identity, to protect arrangements for providing access to core services, and to manage the growth of technology and control systems, the Company’s continued use of rebates, the impact of website advertising and lead generation services on the visit-to-transaction pathway of potential customers, the Company’s pursuit of revenue growth opportunities that may reduce its profit margins, seasonality, systems interruptions, delays and failures, geographic concentration, the protection and defense of the Company’s intellectual property rights, and other risk factors set forth in the Company's Form 10-K for the year ended December 31, 2009. The forward-looking statements included in this release are made as of today’s date and, except as otherwise required by law, ZipRealty does not intend to update these forward-looking statements to reflect events or circumstances after the date hereof.

ZipRealty, Inc.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts and operating data)
       
Three Months Ended June 30,   Six Months Ended June 30,
2010 2009 2010 2009
 
Net transaction revenues $ 36,415 $ 31,702 $ 61,256 $ 53,054
Marketing and other revenues   1,169     432     2,116     792  
Net revenues   37,584     32,134     63,372     53,846  
 
Operating expenses
Cost of revenues 20,995 18,909 36,301 32,743
Product development 2,257 2,344 4,672 4,656
Sales and marketing 11,645 10,237 22,411 20,181
General and administrative   2,990     3,278     6,599     6,757  
Total operating expenses   37,887     34,768     69,983     64,337  
 
Loss from operations   (303 )   (2,634 )   (6,611 )   (10,491 )
 
Other income (expense), net:
Interest income 78 200 167 509
Other income (expense), net   -     1     -     1  
Total other income (expense), net   78     201     167     510  
 
Loss before income taxes (225 ) (2,433 ) (6,444 ) (9,981 )
 
Provision for income taxes   -     -     -     -  
 
Net loss $ (225 ) $ (2,433 ) $ (6,444 ) $ (9,981 )
 
 
Net loss per share:
Basic and diluted $ (0.01 ) $ (0.12 ) $ (0.32 ) $ (0.50 )
 
Weighted average common shares outstanding:
Basic and diluted 20,338 20,140 20,381 20,136
 
Supplemental operating data (unaudited)
Number of ZipAgents at beginning of period 3,017 2,989 3,085 2,816
Number of ZipAgents at end of period 3,251 3,172 3,251 3,172
 
Total value of real estate transactions closed during period (in billions) $ 1.61 $ 1.38 $ 2.69 $ 2.29
 
Number of transactions closed during period (1) 7,100 6,017 12,003 10,188
 
Average net revenue per transaction during period (2) $ 5,129 $ 5,269 $ 5,103 $ 5,207
 
(1) The term "transaction" refers to each representation of a buyer or seller in a real estate purchase or sale.
(2) Average net revenue per transaction equals net transaction revenues divided by number of transactions with respect to each period.
       
Reconciliation of non-GAAP Adjusted EBITDA to net loss
 

The Company defines Adjusted EBITDA as net income (loss) less interest income plus interest expense, provision for income taxes, depreciation and amortization expense, stock-based compensation and further adjusted to eliminate the impact of certain items that it does not consider reflective of its ongoing core operating performance. The Company presents Adjusted EBITDA because it believes it assists investors and analysts in comparing its core operating performance across reporting periods on a consistent basis by excluding items that the Company does not believe are reflective of its core operating performance.

 
 
Three Months Ended June 30,   Six Months Ended June 30,
2010 2009 2010 2009
 
Net loss $ (225 ) $ (2,433 ) $ (6,444 ) $ (9,981 )
Add back:
Interest income (78 ) (200 ) (167 ) (509 )
Depreciation and amortization 567 654 1,170 1,300
Stock-based compensation expense   1,043     1,086     1,738     2,079  
Non-GAAP Adjusted EBITDA $ 1,307   $ (893 ) $ (3,703 ) $ (7,111 )
   
ZipRealty, Inc.
Consolidated Balance Sheets (unaudited)
(in thousands, except per share amounts)
 
 
June 30, December 31,
2010 2009
Assets
Current assets:
Cash and cash equivalents $ 21,512 $ 23,737
Short-term investments 18,361 20,397
Accounts receivable, net of allowance 3,016 1,603
Prepaid expenses and other current assets   2,327     2,726  
 
Total current assets 45,216 48,463
 
Restricted cash 90 110
Property and equipment, net 3,188 3,390
Intangible assets, net 44 58
Other assets   264     371  
 
Total assets $ 48,802   $ 52,392  
 
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,640 $ 1,620
Accrued expenses and other current liabilities   8,915     8,815  
 
Total current liabilities 11,555 10,435
 
Other long-term liabilities   242     327  
 
Total liabilities   11,797     10,762  
 
 
Stockholders' equity:
Common stock: $0.001 par value; 24,037 and 23,930 shares issued and 20,502
and 20,445 shares outstanding, respectively 24 24
Additional paid-in capital 154,317 152,440
Common stock warrants 4 4
Accumulated other comprehensive loss (8 ) (153 )
Accumulated deficit (99,819 ) (93,375 )
Treasury stock, at cost: 3,535 and 3,485 shares, respectively   (17,513 )   (17,310 )
Total stockholders' equity   37,005     41,630  
 
Total liabilities and stockholders' equity $ 48,802   $ 52,392  
   
ZipRealty, Inc.
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six Months Ended
June 30,
2010 2009
 
Cash flows from operating activities
Net loss $ (6,444 ) $ (9,981 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 1,156 1,285
Amortization of intangible assets 14 15
Stock-based compensation expense 1,738 2,079
Provision for doubtful accounts 54 -
Amortization of short-term investment premium (discount) 310 (17 )
Loss on disposal of property and equipment - 7
Changes in operating assets and liabilities
Accounts receivable (1,467 ) (720 )
Prepaid expenses and other current assets 399 385
Other assets 107

288

Accounts payable 1,020 541
Accrued expenses and other current liabilities 146 2,296
Other long-term liabilities   (85 )   (40 )
Net cash used in operating activities   (3,052 )   (3,862 )
 
Cash flows from investing activities
Restricted cash 20 20
Proceeds from sale and maturity of short-term investments 1,871 21,440
Purchases of property and equipment   (919 )   (746 )
Net cash provided by investing activities   972     20,714  
 
Cash flows from financing activities
Proceeds from stock option exercises 58 6
Purchase of treasury stock   (203 )   (30 )
Net cash used in financing activities   (145 )   (24 )
Net increase (decrease) in cash and cash equivalents   (2,225 )   16,828  
 
Cash and cash equivalents at beginning of period   23,737     18,500  
 
Cash and cash equivalents at end of period $ 21,512   $ 35,328  
 
ZipRealty, Inc.
Results of Operations - Existing and New Markets
           
The following table summarizes certain financial data related to our operations by new and existing markets for the periods indicated:
 
Three months ended June 30, 2010 Three months ended June 30, 2009
Existing New Total Existing New Total
(in thousands) (in thousands)
Statements of Operations Data
 
Net transaction revenues $ 29,716 $ 6,699 $ 36,415 $ 27,062 $ 4,640 $ 31,702
Marketing and other revenues 93 25 118 112 13 125
           
Net revenues   29,809     6,724     36,533     27,174     4,653     31,827  
 
Operating expenses:
Cost of revenues 17,563 3,432 20,995 16,366 2,543 18,909
Sales and marketing 7,668 2,217 9,885 6,185 2,243 8,428
           
Total operating expenses   25,231     5,649     30,880     22,551     4,786     27,337  
 

Income (loss) from market operations

$ 4,578   $ 1,075   $ 5,653   $ 4,623   $ (133 ) $ 4,490  
 
The following table summarizes certain financial data related to our operations by new and existing markets for the periods indicated:
 
Three months ended June 30, 2010 Three months ended June 30, 2009
Existing New Total Existing New Total
 
Statements of Operations Data
 
Net transaction revenues 99.7 % 99.6 % 99.7 % 99.6 % 99.7 % 99.6 %
Marketing and other revenues 0.3 % 0.4 % 0.3 % 0.4 % 0.3 % 0.4 %
           
Net revenues   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
 
Operating expenses:
Cost of revenues 58.9 % 51.0 % 57.5 % 60.2 % 54.7 % 59.4 %
Sales and marketing 25.7 % 33.0 % 27.1 % 22.8 % 48.2 % 26.5 %
           
Total operating expenses   84.6 %   84.0 %   84.6 %   83.0 %   102.9 %   85.9 %
 

Income (loss) from market operations

  15.4 %   16.0 %   15.4 %   17.0 %   (2.9 %)   14.1 %
 
Other Operating Data
 
Number of markets (1) 23 12 35 23 12 35
 
Number of transactions closed during the period (2)
Buyer representation 5,041 1,350 6,391 4,697 931 5,628
Seller representation   543     166     709     314     75     389  
  5,584     1,516     7,100     5,011     1,006     6,017  
 
Average net revenue per transaction (3) $ 5,322 $ 4,419 $ 5,129 $ 5,400 $ 4,612 $ 5,269
 
Number of ZipAgents at end of the period 2,525 726 3,251 2,435 737 3,172
 

(1) Existing markets include markets opened as of December 31, 2006 and new markets include markets opened in 2007 and later. Westchester County, NY and Long Island, NY were combined during 2009 and are included as one market for all periods presented.

       
Comparable existing markets:
 
Atlanta, GA Houston, TX Phoenix, AZ
Austin, TX Las Vegas, NV Sacramento, CA
Baltimore, MD Los Angeles, CA San Diego, CA
Boston, MA Miami, FL San Francisco Bay Area, CA
Chicago, IL Minneapolis, MN Seattle, WA
Dallas, TX Orange County, CA Tampa, FL
Fresno/Central Valley, CA Orlando, FL Washington, DC
Greater Philadelphia Area, PA Palm Beach, FL
 
New markets and the month opened:
 
Naples, FL March 2007 Virginia Beach, VA August 2007
Tucson, AZ March 2007 Charlotte, NC August 2007
Denver, CO April 2007 Raleigh-Durham, NC September 2007
Jacksonville, FL May 2007 Westchester County/Long Island, NY December 2007
Salt Lake City, UT July 2007 Hartford, CT July 2008
Richmond, VA July 2007 Portland, OR April 2009
 
(2) The term "transaction" refers to each representation of a buyer or seller in a real estate purchase or sale
 
(3) Average net revenue per transaction equals net transaction revenues divided by number of transactions with respect to each period




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