UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
|
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March
31, 2012
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 000-51002
ZIPREALTY, INC.
(Exact name of registrant as specified
in its charter)
DELAWARE
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94-3319956
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(State of incorporation)
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(IRS employer
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identification number)
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2000 POWELL STREET, SUITE 300
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EMERYVILLE, CA
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94608
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(Address of principal executive
offices)
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(Zip Code)
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(510) 735-2600
(Registrant’s telephone number)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated
filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
¨
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
x
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(Do not check if
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a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x
We
had 20,637,304
shares
of common stock outstanding at May 1, 2012.
TABLE OF CONTENTS
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Page
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PART I — FINANCIAL INFORMATION
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4
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Item 1.
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Unaudited Condensed Consolidated Financial Statements
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4
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Unaudited Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011
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4
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Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the
Three Months Ended March 31, 2012 and 2011
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5
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Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011
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6
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Notes to Unaudited Condensed Consolidated Financial Statements
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7
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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14
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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26
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Item 4.
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Controls and Procedures
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26
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PART II — OTHER INFORMATION
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Item 1.
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Legal Proceedings
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26
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Item 1A.
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Risk Factors
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27
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Item 5.
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Other Information
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27
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Item 6.
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Exhibits
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27
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SIGNATURE
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28
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EXHIBIT INDEX
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29
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Statement regarding forward-looking statements
This report includes forward-looking statements.
Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement
that does not directly relate to any historical or current fact. All statements other than statements of historical facts contained
in this report, including statements regarding our future financial position, business strategy and operations, and plans and objectives
of management are forward-looking statements. The words “believe,” “may,” “will likely,” “should,”
“could,” “estimate,” “continue,” “anticipate,” “intend,” “aim,”
“expect,” “plan,” “potential,” “predict,” “project,” “designed,”
“provides,” “facilitates,” “assists,” “helps” and similar expressions, as they
relate to us, are intended to identify forward-looking statements. Forward-looking statements contained in this report include,
but are not limited to, statements relating to:
• trends in the residential real
estate market, the market for mortgages, and the general economy;
• our future financial results;
• our future growth;
• our future advertising and marketing
activities; and
• our future investment in technology.
We have based these forward-looking statements
principally on our current expectations and projections about future events and financial trends that we believe may affect our
financial condition, results of operations, business strategy and financial needs. No forward-looking statement is a guarantee
of future performance and you should not place undue reliance on any forward-looking statement.
These forward-looking statements are subject
to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” in Item 1A of
Part I of our annual report on Form 10-K for our fiscal year ended December 31, 2011, as such disclosure may be revised under
“Risk Factors” in Item 1A of Part II of this report. Readers should carefully review such cautionary statements
as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking
statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed
elsewhere in this report or in materials incorporated herein by reference.
In light of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from
those anticipated or implied in the forward-looking statements. Except as otherwise required by law, we do not intend to update
or revise any forward-looking statement contained in this report.
Trademarks
“ZipRealty” is one of our registered trademarks
in the United States. We also own the rights to the domain name “www.Real-Estate.com.” “REALTOR” and “REALTORS”
are registered trademarks of the National Association of REALTORS
®
. All other trademarks, trade names and service
marks appearing in this report are the property of their respective owners.
Internet site
Our Internet address is www.ziprealty.com. We make publicly
available free of charge on our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities
and Exchange Commission. Information contained on our website is not a part of this report.
Where you can find additional information
You may review a copy of this report, including exhibits and
any schedule filed therewith, and obtain copies of such materials at prescribed rates, at the Securities and Exchange Commission’s
Public Reference at Room 100 F Street NE, Washington, D.C. 20549. You may obtain information on the operation of
the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding
registrants, such as ZipRealty, that file electronically with the Securities and Exchange Commission.
PART I — FINANCIAL INFORMATION
Item 1.
Unaudited Condensed Consolidated Financial
Statements:
ZIPREALTY, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except per share amounts)
|
|
March 31,
2012
|
|
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December 31,
2011
|
|
Assets
|
|
|
|
|
|
|
|
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Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,070
|
|
|
$
|
12,634
|
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Short-term investments
|
|
|
7,483
|
|
|
|
9,501
|
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Accounts receivable, net of allowance of $28 and $35, respectively
|
|
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1,423
|
|
|
|
1,209
|
|
Prepaid expenses and other current assets
|
|
|
1,776
|
|
|
|
2,002
|
|
Total current assets
|
|
|
21,752
|
|
|
|
25,346
|
|
Restricted cash
|
|
|
500
|
|
|
|
500
|
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Property and equipment, net
|
|
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2,201
|
|
|
|
2,211
|
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Other assets
|
|
|
177
|
|
|
|
239
|
|
Total assets
|
|
$
|
24,630
|
|
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$
|
28,296
|
|
|
|
|
|
|
|
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Liabilities and Stockholders’ Equity
|
|
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Current liabilities
|
|
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|
|
|
|
|
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Accounts payable
|
|
$
|
684
|
|
|
$
|
1,096
|
|
Accrued expenses and other current liabilities
|
|
|
3,628
|
|
|
|
4,337
|
|
Accrued restructuring charges, current portion
|
|
|
526
|
|
|
|
250
|
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Total current liabilities
|
|
|
4,838
|
|
|
|
5,683
|
|
Other long-term liabilities
|
|
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722
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|
|
|
781
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Total liabilities
|
|
|
5,560
|
|
|
|
6,464
|
|
|
|
|
|
|
|
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|
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Commitments and contingencies (Note 6)
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|
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Stockholders’ equity
|
|
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Common stock: $0.001 par value; 100,000 shares authorized; 24,222 and 24,167 shares issued and 20,617 and 20,565 shares outstanding, respectively
|
|
|
24
|
|
|
|
24
|
|
Additional paid-in capital
|
|
|
158,372
|
|
|
|
158,080
|
|
Accumulated other comprehensive income (loss)
|
|
|
—
|
|
|
|
(3
|
)
|
Accumulated deficit
|
|
|
(121,713
|
)
|
|
|
(118,656
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)
|
Treasury stock at cost: 3,605 and 3,602 shares, respectively
|
|
|
(17,613
|
)
|
|
|
(17,613
|
)
|
Total stockholders’ equity
|
|
|
19,070
|
|
|
|
21,832
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Total liabilities and stockholders’ equity
|
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$
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24,630
|
|
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$
|
28,296
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
ZIPREALTY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Net revenues
|
|
$
|
16,073
|
|
|
$
|
19,745
|
|
Operating costs and expenses
|
|
|
|
|
|
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|
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Cost of revenues (exclusive of amortization) (1)
|
|
|
8,336
|
|
|
|
10,708
|
|
Product development (1)
|
|
|
1,802
|
|
|
|
2,200
|
|
Sales and marketing
|
|
|
5,831
|
|
|
|
8,155
|
|
General and administrative
|
|
|
2,106
|
|
|
|
2,357
|
|
Restructuring charges, net
|
|
|
1,062
|
|
|
|
2,264
|
|
Total operating costs
and expenses
|
|
|
19,137
|
|
|
|
25,684
|
|
Loss from operations
|
|
|
(3,064
|
)
|
|
|
(5,939
|
)
|
Interest income
|
|
|
7
|
|
|
|
28
|
|
Loss before income taxes
|
|
|
(3,057
|
)
|
|
|
(5,911
|
)
|
Provision for (benefit from) income taxes
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(3,057
|
)
|
|
$
|
(5,911
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.29
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,573
|
|
|
|
20,494
|
|
|
|
|
|
|
|
|
|
|
(1) Amortization of internal-use software and website development costs included in product development
|
|
$
|
285
|
|
|
$
|
251
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,057
|
)
|
|
$
|
(5,911
|
)
|
Change in accumulated unrealized gain (loss) on available-for-sale securities, net of tax
|
|
|
3
|
|
|
|
(7
|
)
|
Comprehensive loss
|
|
$
|
(3,054
|
)
|
|
$
|
(5,918
|
)
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
ZIPREALTY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,057
|
)
|
|
$
|
(5,911
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
437
|
|
|
|
482
|
|
Amortization of intangible assets
|
|
|
—
|
|
|
|
7
|
|
Stock-based compensation expense
|
|
|
224
|
|
|
|
388
|
|
Non-cash restructuring charges
|
|
|
2
|
|
|
|
54
|
|
Provision for doubtful accounts
|
|
|
(7
|
)
|
|
|
(2
|
)
|
Amortization (accretion) of short-term investment premium (discount)
|
|
|
21
|
|
|
|
93
|
|
Loss on disposal of property and equipment
|
|
|
6
|
|
|
|
—
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(207
|
)
|
|
|
190
|
|
Prepaid expenses and other current assets
|
|
|
226
|
|
|
|
49
|
|
Other assets
|
|
|
62
|
|
|
|
1
|
|
Accounts payable
|
|
|
(412
|
)
|
|
|
(66
|
)
|
Accrued expenses and other current liabilities
|
|
|
(709
|
)
|
|
|
(1,449
|
)
|
Accrued restructuring charges, current portion
|
|
|
276
|
|
|
|
761
|
|
Other long-term liabilities
|
|
|
(59
|
)
|
|
|
229
|
|
Net cash used in operating activities
|
|
|
(3,197
|
)
|
|
|
(5,174
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sale or maturity of short-term investments
|
|
|
2,000
|
|
|
|
7,400
|
|
Purchases of property and equipment
|
|
|
(429
|
)
|
|
|
(421
|
)
|
Net cash provided by investing activities
|
|
|
1,571
|
|
|
|
6,979
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
62
|
|
|
|
5
|
|
Net cash provided by financing activities
|
|
|
62
|
|
|
|
5
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,564
|
)
|
|
|
1,810
|
|
Cash and cash equivalents at beginning of period
|
|
|
12,634
|
|
|
|
13,393
|
|
Cash and cash equivalents at end of period
|
|
$
|
11,070
|
|
|
$
|
15,203
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
The
accompanying
unaudited interim condensed consolidated financial statements as of March 31, 2012 and 2011 and for the three months then ended
have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they
do not include all of the information and footnotes required by Generally Accepted Accounting Principles (“GAAP”) for
annual financial statements. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial
statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only
of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods
presented. The results for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for
the year ending December 31, 2012, or any other period. The unaudited condensed consolidated balance sheet at December 31,
2011 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
These financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included
in the Company’s annual report on Form 10-K for the year ended December 31, 2011.
Principles of consolidation
The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries and reflect the elimination of intercompany accounts and
transactions.
Seasonality
The Company’s net transaction revenues
and income (loss) from operations have historically varied from quarter to quarter. Such variations are principally attributable
to variations in home sales activity over the course of the calendar year. The Company has historically experienced lower net transaction
revenues during the first quarter because holidays and adverse weather conditions in certain regions typically reduce the level
of sales activity and listings inventories between the Thanksgiving and Presidents’ Day holidays. The Company’s historical
quarterly operations have been additionally impacted in recent years as a result of economic conditions and government programs
that altered home buyer behavior. Net transaction revenues during the three months ended March 31, 2011 and 2010 accounted
for approximately 23.0% and 21.9% of annual net transaction revenues in 2011 and 2010, respectively.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current period’s presentation. Effective for the year ended December 31, 2011, for income statement presentation
purposes, amortization of internal-use software and website development costs were reclassified from cost of revenues to product
development. Accordingly, $251,000 has been reclassified from cost of revenues to product development for the three months ended
March 31, 2011.
Significant accounting policies
Revenue recognition
The Company derives the majority of its
revenue from commissions earned as agents in residential real estate transactions and from commission referrals earned from its
network of third-party brokerages. Commission revenue is recognized upon closing of a transaction, net of any rebate or commission
discount or transaction fee adjustment. These transactions typically do not have multiple deliverables.
Non-commission revenues are derived primarily
from marketing agreements with residential mortgage service providers, the sale of online advertising, lead referral fees and other
revenues. Marketing service revenues are recognized over the term of the agreements as the contracted services are delivered. Advertising
revenues on contracts are recognized as impressions are delivered or as clicks are provided to advertisers. Advertising and marketing
contracts may consist of multiple deliverables which generally include a blend of various impressions or clicks as well as other
marketing deliverables. Revenues related to revenue sharing arrangements are recognized based on revenue reports received from
our partners, provided that collectability is reasonably assured.
Revenue is recognized only when the price
is fixed or determinable, persuasive evidence an arrangement exists, the service has been delivered and collectability of the resulting
receivable is reasonably assured.
2. SHORT-TERM INVESTMENTS AND FAIR VALUE MEASUREMENTS
Short-term investments
At March 31, 2012 and December 31, 2011,
short-term investments were classified as available-for-sale securities, except for restricted cash, and were reported at fair
value as follows:
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Gross
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Money market
funds
|
|
$
|
7,167
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,167
|
|
|
$
|
10,320
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,320
|
|
Certificate of deposits
|
|
|
250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250
|
|
|
|
250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250
|
|
Corporate obligations
|
|
|
982
|
|
|
|
—
|
|
|
|
—
|
|
|
|
982
|
|
|
|
1,745
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,745
|
|
US
Government sponsored obligations
|
|
|
4,852
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,852
|
|
|
|
4,861
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
4,858
|
|
Total
|
|
$
|
13,251
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,251
|
|
|
$
|
17,176
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
17,173
|
|
|
|
March 31,
2012
|
|
|
December 31,
2011
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Recorded as:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
5,768
|
|
|
$
|
7,672
|
|
Short-term investments
|
|
|
7,483
|
|
|
|
9,501
|
|
Total
|
|
$
|
13,251
|
|
|
$
|
17,173
|
|
At March 31, 2012 and December 31, 2011,
the Company did not have any investments with a significant unrealized loss position. All of the investments at March 31, 2012
mature within one year or less.
Fair Value Measurements
The Company follows the fair value hierarchy,
established by the accounting standard related to fair value measurement, to prioritize the inputs used in valuation techniques.
There are three broad levels to the fair value hierarchy of inputs to fair value. Level 1 is the highest priority and Level 3 is
the lowest priority and are as follows:
|
•
|
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities;
|
|
|
|
|
•
|
Level 2: Quoted prices in markets that are not active; or inputs which are observable, either directly or indirectly, for substantially
the full term of the asset or liability;
|
|
|
|
|
•
|
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(i.e., supported by little or no market activity).
|
The Company measures and reports certain
financial assets at fair value on a recurring basis, including its investments in money market funds and available-for-sale securities.
At March 31, 2012 and December 31, 2011, there were no liabilities within the scope of the accounting standards.
The
fair values of the Company’s Level 1 financial assets are based on quoted market prices of the identical underlying
security. The fair values of the Company’s Level 2 financial assets are obtained from readily-available pricing sources
for the identical underlying security that may not be actively traded. The Company utilizes a pricing service to assist in obtaining
fair value pricing for the majority of this investment portfolio.
At March 31, 2012 and December 31, 2011, our
available-for-sale short-term investments, measured at fair value on a recurring basis, by level within the fair value
hierarchy were as follows:
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Money market
funds
|
|
$
|
7,167
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,167
|
|
|
$
|
10,320
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,320
|
|
Certificates of deposits
|
|
|
—
|
|
|
|
250
|
|
|
|
—
|
|
|
|
250
|
|
|
|
—
|
|
|
|
250
|
|
|
|
—
|
|
|
|
250
|
|
Corporate obligations
|
|
|
—
|
|
|
|
982
|
|
|
|
—
|
|
|
|
982
|
|
|
|
—
|
|
|
|
1,745
|
|
|
|
—
|
|
|
|
1,745
|
|
US
Government sponsored obligations
|
|
|
—
|
|
|
|
4,852
|
|
|
|
—
|
|
|
|
4,852
|
|
|
|
—
|
|
|
|
4,858
|
|
|
|
—
|
|
|
|
4,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,167
|
|
|
$
|
6,084
|
|
|
$
|
—
|
|
|
$
|
13,251
|
|
|
$
|
10,320
|
|
|
$
|
6,853
|
|
|
$
|
—
|
|
|
$
|
17,173
|
|
3. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation
of basic and dilutive net income (loss) per share for the periods indicated:
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,057
|
)
|
|
$
|
(5,911
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Shares used to compute EPS basic and diluted:
|
|
|
20,573
|
|
|
|
20,494
|
|
Net loss per share basic and diluted:
|
|
$
|
(0.15
|
)
|
|
$
|
(0.29
|
)
|
The following weighted-average outstanding options, warrants
and non-vested common shares were excluded in the computation of diluted net loss per share for the periods presented because including
them would be anti-dilutive:
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
Options to purchase common stock
|
|
|
4,284
|
|
|
|
4,293
|
|
Nonvested common stock
|
|
|
20
|
|
|
|
49
|
|
|
|
|
4,304
|
|
|
|
4,342
|
|
4. STOCK-BASED COMPENSATION
Valuation assumptions and stock-based compensation expense
The Company estimates the fair value of
stock options on the day of grant using the Black-Scholes option pricing model, which incorporates various assumptions including
volatility, expected life and interest rates. The expected volatility is based on the historical volatility of the Company’s
common stock. The expected life of options granted during the three months ended March 31, 2012 and 2011 was estimated by taking
the average of the vesting term and the contractual term of the option. The risk-free interest rate estimate is based upon U.S.
Treasury bond rates appropriate for the expected life of the options.
The assumptions used and the resulting
estimates of weighted average fair value per share of options granted were as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Expected volatility
|
|
|
49
|
%
|
|
|
47
|
%
|
Risk-free interest rate
|
|
|
0.9% - 1.2
|
%
|
|
|
2.5% - 2.7
|
%
|
Expected life (years)
|
|
|
5.5 - 6.1
|
|
|
|
6.1
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Weighted-average fair value of options granted during the period
|
|
$
|
0.58
|
|
|
$
|
1.39
|
|
Stock-based compensation expense was as
follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
Cost of revenues
|
|
$
|
15
|
|
|
$
|
60
|
|
Product development
|
|
|
20
|
|
|
|
85
|
|
Sales and marketing
|
|
|
26
|
|
|
|
74
|
|
General and administrative
|
|
|
163
|
|
|
|
169
|
|
Total stock-based compensation expense
|
|
|
224
|
|
|
|
388
|
|
Tax effect on stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
Net effect on net income
|
|
$
|
224
|
|
|
$
|
388
|
|
The accounting standards require forfeitures
to be estimated at the time of grant and revised, if necessary in subsequent periods if actual forfeitures differ from those estimates.
The Company estimated expected forfeitures based on various factors including employee class and historical experience. The amount
of stock-based compensation expense has been reduced for estimated forfeitures. As of March 31, 2012, there was $2.5 million
of unrecorded stock-based compensation, after estimated forfeitures, related to unvested stock options. That cost is expected to
be recognized over a weighted average remaining recognition period of 2.3 years. As of March 31, 2012, there was no unrecorded
stock-based compensation related to unvested restricted stock.
Stock option activity
A summary of the Company’s stock
option activity for the period indicated was as follows:
|
|
Number of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Outstanding at December 31, 2011
|
|
|
4,163
|
|
|
$
|
3.87
|
|
|
|
6.01
|
|
|
$
|
20
|
|
Options granted
|
|
|
1,075
|
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(63
|
)
|
|
|
0.99
|
|
|
|
|
|
|
|
|
|
Options forfeited/cancelled/expired
|
|
|
(265
|
)
|
|
|
3.31
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2012
|
|
|
4,910
|
|
|
$
|
3.36
|
|
|
|
6.34
|
|
|
$
|
169
|
|
Exercisable at March 31, 2012
|
|
|
2,870
|
|
|
$
|
4.19
|
|
|
|
4.43
|
|
|
$
|
40
|
|
Options generally vest over a four-year
period with one-fourth (1/4) of the shares vesting one year after the vesting commencement date, and an additional one-forty
eighth (1/48) of the shares vesting on the first day of each calendar month thereafter until all such shares are exercisable.
The Company granted options for 183,000 shares during the three months ended March 31, 2012 that provide accelerated vesting if
the Company’s closing stock price is equal to or greater than $5.00 per share for a period of 120 consecutive days and granted
options for 183,000 shares that provide vesting in full if the Company achieves adjusted EBITDA profitability for the year ending
December 31, 2012. Options generally expire after ten years. Options issued pursuant to the Company’s voluntary stock option
exchange program, completed in July 2009, vest ratably over a 36 month period and expire after seven years.
Aggregate intrinsic value represents the
difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $1.37 on March
30, 2012, and the exercise price for the options that were in-the-money at March 31, 2012. The total number of in-the-money options
exercisable as of March 31, 2012 was 105,000. Total intrinsic value of options exercised was $17,000 and $1,000 for the three months
ended March 31, 2012 and 2011, respectively. The Company settles employee stock option exercises with newly issued common shares.
Restricted Stock
The Company expenses the cost of restricted
stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during
which the restriction lapse. Stock-based compensation expense related to restricted stock for the three months ended March 31,
2012 and 2011 was ($3,000) and $42,000, respectively.
A summary of the Company’s nonvested
restricted stock for the period indicated was as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
Per Share
|
|
|
|
(In thousands)
|
|
|
|
|
Nonvested at December 31, 2011
|
|
|
23
|
|
|
$
|
4.90
|
|
Shares granted
|
|
|
—
|
|
|
|
—
|
|
Shares vested
|
|
|
(3
|
)
|
|
|
4.90
|
|
Shares forfeited
|
|
|
(1
|
)
|
|
|
4.90
|
|
Nonvested at March 31, 2012
|
|
|
19
|
|
|
$
|
4.90
|
|
5. INCOME TAXES
At the end of each interim period, the
Company calculates an effective tax rate based on the Company’s best estimate of the tax provision (benefit) that will be
provided for the full year, stated as a percentage of estimated annual pre-tax income (loss). The tax provision (benefit) for the
interim period is determined using this estimated annual effective tax rate.
The Company maintains that a full valuation
allowance should be maintained for its net deferred tax assets at March 31, 2012. The Company supports the need for a valuation
allowance against the deferred tax assets due to negative evidence including recent historical results and management’s expectations
for the future.
Based on the full valuation allowance and
the loss for the three months ended March 31, 2012, the Company has not recorded a tax provision or benefit.
6. COMMITMENTS AND CONTINGENCIES
The Company leases office space under non-cancelable
operating leases with various expiration dates through July 2017. Future gross and net lease commitments under non-cancelable operating
leases at March 31, 2012 were as follows, in thousands:
|
|
|
Gross
Operating
Lease
Commitments
|
|
|
Sublease
Income
|
|
|
Net
Operating
Lease
Commitments
|
|
Remainder of 2012
|
|
|
$
|
1,588
|
|
|
$
|
(73
|
)
|
|
$
|
1,515
|
|
2013
|
|
|
|
1,523
|
|
|
|
(3
|
)
|
|
|
1,520
|
|
2014
|
|
|
|
1,220
|
|
|
|
—
|
|
|
|
1,220
|
|
2015
|
|
|
|
976
|
|
|
|
—
|
|
|
|
976
|
|
2016
|
|
|
|
849
|
|
|
|
—
|
|
|
|
849
|
|
Thereafter
|
|
|
|
456
|
|
|
|
—
|
|
|
|
456
|
|
Total minimum lease payments
|
|
|
$
|
6,612
|
|
|
$
|
(76
|
)
|
|
$
|
6,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal proceedings
On March 26, 2010, the Company was
named as one of fourteen defendants in a lawsuit filed in the United States District Court for the District of Delaware,
Smarter
Agent LLC v. Boopsie, Inc., et al.
, by plaintiff, Smarter Agent LLC. The complaint alleges that the defendants have each infringed
on patents owned by Smarter Agent relating to mobile device application technology and seeks unspecified damages and injunctive
relief. After completing its initial investigation of this matter, the Company does not currently believe that it has infringed
on any patent, or that it has any liability for the claims alleged and, thus, it intends to vigorously defend against this lawsuit.
No estimate of possible loss, if any, can be made at this time.
On September 26, 2011, the California
State Labor Commissioner filed a lawsuit against the Company in the Superior Court of California, Alameda County,
State
Labor Commissioner, etc., v. ZipRealty, Inc
. The complaint concerns the Company’s compensation practices regarding real
estate agents in California, who at the time at issue were classified as employees. Specifically, the complaint alleges that the
Company failed to pay these persons minimum wage and overtime, and failed to provide itemized wage statements, as required by
California laws. In addition to wages and overtime, the complaint seeks liquidated damages, for a total claim in excess of $17
million. The Company has filed an answer denying the allegations as it believes that its sales agents, whose job duties consisted
exclusively of selling residential real estate, were properly classified as “Outside Salespersons” and were compensated
accordingly in full compliance with California law. Accordingly, the Company believes that this claim is without merit and,
thus, it intends to vigorously defend against this lawsuit. No estimate of possible loss, if any, can be made at this time. An
adverse resolution may have a material effect of the Company’s results of operations and financial condition including liquidity.
On January 18, 2012, the Company was named
as a defendant in a lawsuit filed in the United States District Court for the Northern District of Illinois,
Earthcomber, LLC
v. ZipRealty, Inc.
, by plaintiff, Earthcomber, LLC. The complaint alleges that the Company has infringed on patents owned
by Earthcomber relating to a feature in its mobile device application technology and seeks unspecified damages. The plaintiff
has filed similar complaints against several other defendants. On or about March 13, 2012, the plaintiff voluntarily dismissed
its action against us.
On February 17, 2012, two real
estate sales agents formerly employed by the Company, on behalf of themselves and all other similarly situated individuals,
filed a lawsuit against it in the United States District Court, District of Arizona,
Patricia Anderson and James
Kwasiborski v. ZipRealty, Inc
. The complaint concerns the Company’s compensation practices nationwide regarding its
real estate agents, who at the time at issue were classified as employees. Specifically, the complaint alleges that the
Company failed to pay these persons minimum wage and overtime as required by federal law. In addition to the federal law
allegations, the complaint also alleges violations of the Arizona Minimum Wage law. The complaint seeks liquidated and
treble damages in addition to wages and overtime for an unspecified amount. The Company has filed an answer denying these
allegations as it believes that its sales agents, whose job duties consisted exclusively of selling residential real estate,
were properly classified as “Outside Salespersons” and were compensated accordingly in full compliance with
federal and state law. Accordingly, the Company believes that this claim is without merit and, thus, it intends to
vigorously defend against this lawsuit. No estimate of possible loss, if any, can be made at this time.
On February 29, 2012, one real
estate agent formerly employed by the Company, on behalf of herself and all other similarly situated individuals, filed a
lawsuit against the Company in the Superior Court of California, Los Angeles County,
Tracy Adewunmi v. ZipRealty, Inc.
concerning the Company’s compensation practices regarding real estate agents in California. Specifically, the complaint
alleges that the Company failed to pay these persons minimum wage and overtime, failed to provide meal and rest periods,
failed to reimburse employee expenses and failed to provide itemized wage statements as required by California laws. The
complaint seeks unspecified damages including penalties and attorneys’ fees in addition to wages and overtime. The
Company believes that the claims in this case are nearly identical to those in the
State Labor Commissioner, etc., v.
ZipRealty, Inc
. The Company has filed an answer denying allegations as it believes that its sales agents, whose job
duties consisted exclusively of selling residential real estate, were properly classified as
“Outside Salespersons” and were compensated accordingly in full compliance with California
law. Additionally, the Company filed a cross complaint against Ms. Adewumni for fraud and breach of contract, in which
the Company alleged that she created false client accounts that resulted in her receiving higher commission payments than she
was entitled to receive under her written employment agreement. Accordingly, the Company believes that Ms. Adewumni’s
claim is without merit and, thus, it intends to vigorously defend against this lawsuit. No estimate of possible loss, if
any, can be made at this time.
The Company is not currently subject to
any other material legal proceedings. From time to time the Company has been, and it currently is, a party to litigation and subject
to claims incident to the ordinary course of the business. The amounts in dispute in these matters are not material to the Company,
and management believes that the resolution of these proceedings will not have a material adverse effect on its consolidated financial
position, results of operations or cash flows. A reasonably possible loss in excess of amounts accrued is not significant to the
financial statements.
Indemnifications
The Company
has
entered into various indemnification agreements in the ordinary course of our business. Pursuant to these agreements, the Company
has agreed to indemnify, hold harmless and reimburse the indemnified parties, which include certain of our service providers as
well as others, in connection with certain occurrences. In addition, the corporate charter documents require the Company to provide
indemnification rights to the Company’s directors and officers to the fullest extent permitted by the Delaware General Corporation
Law, and permit the Company to provide indemnification rights to our other employees and agents, for certain events that occur
while these persons are serving in these capacities. The Company’s charter documents also protect each of its directors,
to the fullest extent permitted by the Delaware General Corporation Law, from personal liability to the Company and its stockholders
from monetary damages for a breach of fiduciary duty as a director. The Company has also entered into indemnification agreements
with the Company’s directors and each of our officers with a title of Vice President or higher.
The maximum potential amount of future
payments the Company could be required to make under these indemnification agreements is unspecified. The Company is not aware
of any material indemnification liabilities for actions, events or occurrences that have occurred to date. The Company maintains
insurance on some of the liabilities the Company has agreed to indemnify, including liabilities incurred by the Company’s
directors and officers while acting in these capacities, subject to certain exclusions and limitations of coverage.
7. RESTRUCTURING CHARGES, NET
2012 Restructuring Plan
During February 2012, the Company announced
a restructuring, including a work force realignment to more appropriately allocate resources to its key strategic initiatives.
The workforce realignment involved investing resources in some areas, reducing resources in others and eliminating some areas of
the Company’s business that did not support its strategic priorities. During March 2012, the Company announced the transition
of its owned-and-operated brokerage office in Salt Lake City to a third-party brokerage joining the Company’s Powered by
Zip network. The Company recorded restructuring charges of approximately $1.1 million related to the 2012 Restructuring Plan during
the three months ended March 31, 2012 and expects to incur additional restructuring charges in the remainder of 2012 as it continues
to execute the 2012 Restructuring Plan. Accrued restructuring charges as of March 31, 2012 are expected to be substantially paid
out by June 30, 2012.
2011 Restructuring Plan
During January 2011, the Company announced
a restructuring, including closing brokerage operations in selected underperforming markets and a workforce reduction in sales
support and administration functions. The associated restructuring charges included employee severance pay and related expenses,
non-cancelable lease obligations and other exit costs. As of March 31, 2012, the Company has recorded the majority of the cost
of this restructuring. Accrued 2011 Restructuring Plan charges as of March 31, 2012 relate primarily to non-cancelable lease obligations
and related facility costs which the Company expects to pay over the remaining terms of the obligations, which extend to 2016.
Restructuring charges activity, relating
to the 2012 and 2011 Restructuring Plans, was as follows for the three months ended March 31, 2012 (in thousands):
|
|
|
|
Balance as
of
December 31,
2011
|
|
|
Charges
|
|
|
Payments
|
|
|
Non-cash
adjustments
|
|
|
Balance as
of
March 31,
2012
|
|
|
|
Total
charges to
date as of
March 31, 2012
|
|
2012
|
|
Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance
and related expenses
|
|
$
|
—
|
|
|
$
|
1,031
|
|
|
$
|
(801
|
)
|
|
$
|
—
|
|
|
$
|
230
|
|
|
$
|
1,031
|
|
|
|
Lease obligation and other
exit costs
|
|
|
—
|
|
|
|
28
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
|
|
28
|
|
|
|
Non-cash charges
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
1,061
|
|
|
|
(801
|
)
|
|
|
(2
|
)
|
|
|
258
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance and related
expenses
|
|
|
39
|
|
|
|
1
|
|
|
|
(40
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,451
|
|
|
|
Lease obligation and other
exit costs
|
|
|
377
|
|
|
|
—
|
|
|
|
(68
|
)
|
|
|
—
|
|
|
|
309
|
|
|
|
830
|
|
|
|
Non-cash charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416
|
|
|
|
1
|
|
|
|
(108
|
)
|
|
|
—
|
|
|
|
309
|
|
|
|
2,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
416
|
|
|
$
|
1,062
|
|
|
$
|
(909
|
)
|
|
$
|
(2
|
)
|
|
$
|
567
|
|
|
$
|
3,401
|
|
Accrued restructuring charges were included
in the Company’s consolidated balance sheet as follows (in thousands):
|
|
March 31,
2012
|
|
|
December 31,
2011
|
|
Accrued restructuring charges (current liabilities)
|
|
$
|
526
|
|
|
$
|
250
|
|
Other long-term liabilities
|
|
|
41
|
|
|
|
166
|
|
Total accrued restructuring charges
|
|
$
|
567
|
|
|
$
|
416
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations:
|
The following discussion should be read
together with our financial statements and related notes appearing elsewhere in this report. This discussion contains forward-looking
statements based upon current expectations that involve numerous risks, uncertainties and assumptions. Our actual results could
differ materially from those anticipated in these forward-looking statements for many reasons, including but not limited to those
described under “Risk Factors” in Item 1A of Part I of our annual report on Form 10-K for our fiscal year ended
December 31, 2011. Those reasons include, without limitation, those described at the beginning of this report under “Statement
regarding forward-looking statements,” as well as those that may be set forth elsewhere in this report. Except as otherwise
required by law, we do not intend to update any information contained in these forward-looking statements.
OVERVIEW
General
We are a leading national provider of proprietary
technology and online marketing capabilities in the residential real estate brokerage industry. For home buyers and sellers
who increasingly demand control, choice and seamless, customized service, we offer Internet-enabled, state-of-the-art technology
and access to information that real estate professionals can combine with their own local knowledge and personal expertise to offer
an exceptional start-to-finish experience to their clients. For real estate professionals who seek more productive ways to
conduct business in our fiercely competitive industry, we provide technology and online marketing tools to enhance their online
sales channel, including the attraction, incubation and service of their clients. Our technology and online marketing products
serve our full-service, owned-and-operated residential real estate brokerage business, as well as our Powered by Zip network of
leading third-party local brokerages in select markets that we provide with access to our proprietary information and systems.
Both our owned-and-operated brokerage and
our Powered by Zip network share the same internal engine: the powerful proprietary technology and online marketing capabilities
that are the hallmarks of our business. We conduct our owned-and-operated brokerage in 20 markets nationwide, all of which were
opened prior to May 2009: Austin, TX, Baltimore, MD, Boston, MA, Chicago, IL, Dallas, TX, Denver, CO, Houston, TX, Las Vegas, NV,
Long Island, NY, Los Angeles, CA, Orange County, CA, Orlando, FL, Phoenix, AZ, Richmond, VA, Sacramento, CA, San Diego, CA,
the San Francisco Bay area, CA, Seattle, WA, Portland, OR, and Washington, DC. Our Powered by Zip network serves leading local
brokerages in eight markets where we do not otherwise conduct business, including Atlanta, GA, Jacksonville, FL, Nashville, TN,
the Greater Philadelphia area, PA, Raleigh-Durham, NC, Salt Lake City, UT, Tucson, AZ, and Westchester/Bronx, NY. The markets in
our owned-and-operated brokerage and Powered by Zip network are served by over 1,800 local, licensed real estate agents, all of
whom are independent contractors.
We derive the majority of our net revenues
from commissions earned in our owned-and-operated brokerage representing buyers and sellers in residential real estate transactions.
We record commission revenues net of any commission discount, transaction fee adjustment or, when applicable, rebate. Net transaction
revenues are principally driven by the number of transactions closed and the average net revenue per transaction. Average net revenue
per transaction is a function of the home sales price and percentage commission received on each transaction and can vary significantly
by market.
We also derive commission referrals from
net commission earned by brokerages in our Powered by Zip network and we derive revenues from certain marketing arrangements with
residential mortgage service providers, the sale of online marketing, lead referral fees and other revenues. Historically, non-commission
revenues represented less than 5% of our net revenues during any period, although they have exceeded 5% since the fourth quarter
of 2010 due to relatively weak transaction revenues, as well as efforts to diversify our revenue stream. In April 2012, we terminated
our exclusive marketing agreement with Bank of America, a mortgage lender that paid us a flat marketing fee, and we have entered
into a new non-exclusive marketing agreement with another mortgage lender at a lower revenue rate. We are seeking to enter into
other such non-exclusive agreements with participants in the mortgage lending and related fields. However, we expect that the time
required to attract and bring new marketing arrangements online will negatively impact non-commission revenues in the near term.
We routinely explore opportunities to grow our non-commission revenues through marketing and other business arrangements for offering
services related to the purchase, sale and ownership of a home.
Restructuring and realignment
: In
early 2011, we restructured our business to heighten our focus on our core strengths in technology, online marketing
and our most attractive local real estate markets. To that end, we closed our offices in twelve markets in the first quarter of
2011: Fresno/Central Valley, CA, Charlotte, SC, Naples, FL, Jacksonville, FL, Miami, FL, Palm Beach, FL, Tampa, FL, Hartford, CT,
Minneapolis, MN, Virginia Beach, VA, Tucson, AZ, and Atlanta, GA. As we closed our offices in Tucson and Atlanta, we transitioned
our local operations to third-party brokerages in our Powered by Zip network, and after we closed our offices in Jacksonville,
we added a third-party brokerage in that market to our Powered by Zip network, as discussed below. We also reorganized local management
responsibilities and significantly reduced our corporate sales support and administration, which encouraged greater local independence
and efficiency. In the fourth quarter of 2011, we continued our restructuring by closing our offices in Raleigh-Durham, NC, and
the Greater Philadelphia area, PA, while transitioning our operations in those markets to our Powered by Zip network, and in early
2012 we did likewise in Salt Lake City, UT, and in the Westchester/Bronx portion of our New York office, all as discussed below.
We also began to realign our organization to operate more efficiently and to refocus our resources on the highest value priorities,
including by combining our product and marketing functions, and by separating our brokerage operations from our technology and
marketing functions. We also created and filled a new position — President of Brokerage Operations — to drive our owned-and-operated
brokerage going forward.
Introduction of Powered by Zip network
:
In early 2011, we began to build our Powered by Zip network with select third-party local brokerages. We have since transitioned
our previous owned-and-operated brokerage business in the markets of Atlanta, GA, the Greater Philadelphia area, PA, Raleigh-Durham,
NC, Salt Lake City, UT, Tucson, AZ, and the Westchester/Bronx portion of our New York office to the third-party brokers who have
joined our Powered by Zip network. We also service brokerages through our Powered by Zip network in the markets of Jacksonville,
FL, where we had ceased to conduct brokerage operations prior to the time we added that market to our network, and in the new market
of Nashville, TN.
End of buyer rebates
: Until recently,
for home buyers in our owned-and-operated brokerage business, we typically shared 20% of our commissions with them in the form
of a cash rebate, where permitted by law. On July 1, 2011, we announced that we were discontinuing our commission rebate program,
although home buyers who entered into a contract to purchase a home by July 15, 2011, and who closed escrow on the transaction
by August 31, 2011, remained eligible to receive the rebate, subject to certain additional restrictions. By eliminating buyer rebates,
we have focused consumer attention on our full-service, technology-enhanced customer service, as well as improved the financial
productivity of real estate professionals in our owned-and-operated brokerage business. We expect that the termination of our rebate
program will increase our average net revenue per transaction, but it may negatively impact our transaction volume. Also, net revenue
increases resulting from the termination of the rebate program may be offset by increases in our agent compensation programs. We
believe that the termination of our rebate program had a modest positive impact on our financial results for the second half of
2011. We believe it had a positive impact on the first quarter of 2012 and expect it to continue to have a positive impact on our
financial results for full year 2012.
Market conditions and trends in our business
Macroeconomic forces
. For the past
few years, the residential real estate market has been negatively impacted by macroeconomic conditions. We believe that conditions
such as tight lending criteria, high numbers of distressed properties, and high unemployment continue to exert negative pressure
on the residential real estate market, and may continue to do so for some time, although demand for housing may have been bolstered
in 2011 and early 2012 by historically low mortgage rates. For the foreseeable future in 2012, we currently believe that the health
of the residential housing market will continue to be significantly affected by the availability of credit, shadow inventory levels,
and interest rates, as well as any significant change in unemployment levels. We cannot predict any changes in those macroeconomic
forces, nor can we predict the combined impact of those changes on the residential real estate market.
Speed of foreclosures
. In late 2010,
concern grew that mortgage lenders were possibly not fulfilling all the legal requirements for valid foreclosure proceedings. As
regulators began investigating mortgage lending practices, banks began processing foreclosures more cautiously. A settlement between
the federal government and five of the country’s largest banks concerning their mortgage lending practices was reached and,
in April 2012, was approved by a federal judge. However, regulators may continue to pursue legal action against these and other
banks. It is presently unclear what impact this settlement and future regulatory activity will have on foreclosure activities by
banks. We cannot predict the pace at which banks will process their foreclosure pipelines and what impact, if any, this situation
will have on the residential real estate market.
Federal action
. The federal government,
state governments and related agencies have acted repeatedly to address the decline in the residential real estate market and the
availability of home mortgage credit. For example, federal legislation sought to ease the tightness in mortgage lending in certain
higher-priced markets by increasing the cap on loans guaranteed by federally insured mortgage programs from a maximum of $625,500
to a maximum of $729,750. This increase expired in October 2011 and has not been reinstated for loans guaranteed by Fannie Mae
and Freddie Mac, which may negatively impact the availability of mortgages and the housing market in certain higher-priced markets.
Also, under the Dodd-Frank Wall Street Reform Act, federal regulators must develop rules to discourage risky home mortgage lending
practices by requiring lenders to retain 5% of the risk in the mortgages they originate, other than qualified residential mortgages,
also known as QRMs, and other than mortgages that are backed by federally insured mortgage programs. Mortgages that do not meet
these exemptions could carry higher interest rates or be less available to home buyers, which could dampen the housing market,
particularly if the definition of a QRM is drawn narrowly. It is too soon to tell what the final rules will require. To the extent
that governments and related agencies take actions to address the residential real estate market or the home mortgage market, there
can be no assurance that those activities will have a positive, meaningful and lasting impact on either market, or that they will
not result in unintended consequences.
Current residential real estate market
conditions.
Recent indicators of national residential real estate market conditions include the following:
|
•
|
Volume
: According to the National Association of REALTORS®, or NAR, existing home sales nationwide in March 2012
were up 5.2% year-over-year, with volume increases in all major regions of the country except the West. March 2012 represented
the ninth consecutive month of year-over-year volume increases nationwide. The year-over-year volume increase in March 2012 may
have been due, in part, to lower mortgage interest rates and improvements in the job market and other macroeconomic conditions,
although the residential real estate market continues to be impacted by the lingering economic pressures discussed above. In addition,
sales volume in the West and portions of the South may have been depressed by inventory shortages, as discussed below.
|
|
•
|
Price
: According to NAR, in March 2012, the national median existing home sales price increased by 2.5% year-over-year.
March 2012 represented the largest, and only the third, year-over-year price increase in any month since before 2011. That increase
may have been due, in part, to a decrease in the percentage of national home sales that represented distressed properties, which
dropped to 29% in March 2012 from 40% in March 2011. We perceive that median prices continue to be negatively impacted by the tight
lending criteria for non-conforming “jumbo” loans and the resulting constriction of the market for higher-priced homes.
|
|
•
|
Inventory
: According to NAR, the nationwide inventory of existing homes available for sale decreased by 21.8% year-over-year.
NAR believes that home sales volume could be impaired by supply shortages, particularly in the West and South Florida.
|
|
•
|
Distressed Properties
: Currently, a significant percentage of our sales transaction volume is composed of distressed
properties. Distressed properties are homes that are in foreclosure, are bank owned (or REO), or are “short sales,”
meaning a sale where the sale price is less than the loans or debt secured by the home listed for sale. In March 2012, the percentage
of our sales transactions composed of distressed properties in our owned-and-operated markets was approximately 37%, which was
down from 45% in March 2011 for those same markets. Distressed properties not only tend to sell at reduced prices, but they also
tend to put downward pressure on the values of other homes for sale in the same and nearby neighborhoods. We expect distressed
properties to continue to represent a significant portion of the residential real estate market and of our business for the foreseeable
future.
|
|
•
|
Shadow Inventory
: “Shadow inventory” refers to distressed and other properties that have not yet been listed
for sale, as well as properties that homeowners wish to sell, but will not sell at current market prices. Shadow inventory can
occur when lenders put REO properties (properties that have been foreclosed or forfeited to lenders) on the market gradually, rather
than all at once, or delay the foreclosure process. They may choose to do so because of regulations and foreclosure moratoriums,
because of the additional costs and resources required to process and sell foreclosed properties, or because they want to avoid
depressing housing prices further by putting many distressed properties up for sale at the same time. It is difficult to assess
the current volume of shadow inventory and its future impact on the residential real estate market, particularly given the uncertainty
surrounding the foreclosure processing delays instituted by many major mortgage lenders, discussed above.
|
Fluctuations in quarterly profitability.
We
have experienced fluctuations in profitability from period to period. Our profitability has been impacted by various factors, including
ongoing market challenges, government intervention, seasonality, and, in previous years, new market expansion and legal settlements.
Industry seasonality and cyclicality.
The
residential real estate brokerage market is influenced both by seasonal factors and by overall economic cycles. While individual
markets vary, transaction volume nationally tends to increase progressively from January through the summer months, then to slow
gradually over the last three to four months of the calendar year. Revenues in each quarter are significantly affected by activity
during the prior quarter, given the typical 30- to 45-day time lag between contract execution and closing for traditional home
purchases. For non-traditional sales, the time lag from contract execution to closing can be longer. We have been, and believe
we will continue to be, influenced by overall market activity and seasonal forces. We generally experience the most significant
impact in the first and fourth quarters of each year, when our revenues are typically lower relative to the second and third quarters
as a result of traditionally slower home sales activity and reduced listings inventory between Thanksgiving and Presidents’
Day.
The impact of seasonality can be masked
by the general health of the residential real estate market at any given point in time, whether affected by macroeconomic events
(such as the federal tax credit program discussed above), periodic business cycles or other factors. Generally, when economic conditions
are fair or good, the housing market tends to perform well. If the economy is weak, if interest rates dramatically increase, if
mortgage lending standards tighten, or if there are disturbances such as terrorist attacks or threats, the outbreak of war or geopolitical
uncertainties, the housing market likely would be negatively impacted.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements are prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs
and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Accordingly, our actual results
may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are
described in Note 1 of the Notes to Consolidated Financial Statements contained in our Form 10-K for the year ended December
31, 2011, and of those policies, we believe that the following accounting policies are the most critical to understand and evaluate
our financial condition and results of operations.
Revenue recognition
We derive the majority of our net revenues
from commissions earned in our owned-and-operated residential real estate brokerage, and from commission referrals earned from
brokers in our Powered by Zip network. We recognize commission based revenues upon closing of a sale and purchase transaction,
net of any rebate, commission discount or transaction fee adjustment. These transactions typically do not have multiple deliverable
arrangements.
Non-commission based revenues are derived
primarily from marketing agreements with residential mortgage service providers, the sale of online advertising, lead referral
fees and other revenues. We classify these revenues as marketing and other revenues. Marketing service revenues are recognized
over the term of the agreements as the contracted services are delivered. Advertising revenues on contracts are recognized as impressions
are delivered or as clicks are provided to advertisers. Advertising and marketing contracts may consist of multiple deliverables
which generally include a blend of various impressions or clicks as well as other marketing deliverables. Revenues related to revenue
sharing arrangements are recognized based on revenue reports received from our partners, provided that collectability is reasonably
assured.
Revenue is recognized only when the price
is fixed or determinable, persuasive evidence an arrangement exists, the service has been delivered and collectability of the resulting
receivable is reasonably assured.
Internal-use software and website development costs
We account for internal-use software and
website development costs, including the development of our ZipRealty Agent Platform (“ZAP”) in accordance with the
guidance set forth in the related accounting standards. We capitalize internal costs consisting of payroll and direct payroll-related
costs of employees who devote time to the development of internal-use software, as well as any external direct costs. We amortize
these costs over their estimated useful lives, typically 24 months. Our judgment is required in determining the point
at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized
costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on management’s
judgment as to the product life cycle.
Stock-based compensation
We follow the provisions of accounting
standards for share-based payments, which requires the measurement and recognition of compensation expense for all stock-based
payment awards made to employees, consultants and directors, including employee stock options and employee stock purchases, based
on estimated fair values. Under the fair value recognition provisions of the accounting standards, stock-based compensation cost
is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense using the straight-line
method over the requisite service period of the award.
We estimate the fair value of stock options
using the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected life and interest
rates. The expected volatility is based on the historical volatility of our common stock. The expected life of options is estimated
by taking the average of the vesting term and the contractual term of the option. We estimate expected forfeitures based on various
factors including employee class and historical experience. The estimation of stock awards that will ultimately vest requires judgment,
and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative
adjustment in the period the estimates are revised.
Income taxes
Deferred
tax
assets and liabilities arise from the differences between the tax basis of an asset or liability and its reported amount in the
financial statements as well as from net operating loss and tax credit carry forwards. The measurement of current and deferred
tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not
anticipated. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense or benefit is the tax payable or refundable, respectively, for the period adjusted for the change during the
period in deferred tax assets and liabilities.
The accounting g
uidance
for income taxes requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to
the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization
of our deferred tax assets, including our recent historical results and our expectations for the future. Historically, we have
recorded a valuation allowance on our deferred tax assets, the majority of which relate to net operating loss carryforwards and
we maintain that a full valuation allowance should be accounted for against our net deferred tax assets at
March 31, 2012.
Restructuring costs
In
connection
with our cost reduction initiatives, we record restructuring charges for employee termination costs, costs related to leased facilities
to be abandoned or subleased, fixed asset impairments and other exit-related costs. Formal plans are developed and approved by
management. Restructuring costs related to employee severance and related expenses are recorded when probable and estimable. Fixed
assets impaired as a result of restructuring are typically accounted for as assets held for sale or are abandoned. The recognition
of restructuring charges requires us to make judgments and estimates regarding the nature, timing, and costs associated with the
planned restructuring activity, including estimating sublease income and the fair value, less selling costs, of fixed assets being
disposed of. Estimates of future liabilities may change, requiring us to record additional restructuring charges or to reduce or
reverse the amount of liabilities already recorded. At the end of each reporting period, we evaluate the remaining accrued liabilities
to ensure their adequacy, that no excess accruals are retained and that the utilization of the provisions is for the intended purpose
in accordance with the approved restructuring plan. In the event circumstances change and the provision is no longer required,
the provision is reversed.
Litigations
We
are involved
in legal proceedings on an ongoing basis. Based upon our evaluation and consultation with outside counsel handling our defense
in these matters and an analysis of potential results, we accrue for losses related to litigation if we determine that a loss is
probable and it can be reasonably estimated. If only a range of estimated losses can be determined, then we record an amount within
the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate
than any other amount, we record the low end of the range. Any such accrual is charged to expense in the appropriate period. We
record litigation expenses in the period in which the litigation services were provided.
RESULTS OF OPERATIONS
The following table summarizes certain
financial data related to our operations for the periods indicated:
|
|
Three Months Ended
March 31,
|
|
Consolidated statements of operations data (unaudited)
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands, except per share data)
|
|
Net revenues
|
|
$
|
16,073
|
|
|
$
|
19,745
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of amortization)
(1)
|
|
|
8,336
|
|
|
|
10,708
|
|
Product development
(1)
|
|
|
1,802
|
|
|
|
2,200
|
|
Sales and marketing
|
|
|
5,831
|
|
|
|
8,155
|
|
General and administrative
|
|
|
2,106
|
|
|
|
2,357
|
|
Restructuring charges, net
|
|
|
1,062
|
|
|
|
2,264
|
|
Total operating costs and expenses
|
|
|
19,137
|
|
|
|
25,684
|
|
Loss from operations
|
|
|
(3,064
|
)
|
|
|
(5,939
|
)
|
Interest income
|
|
|
7
|
|
|
|
28
|
|
Loss before income taxes
|
|
|
(3,057
|
)
|
|
|
(5,911
|
)
|
Provision for (benefit from) income taxes
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(3,057
|
)
|
|
$
|
(5,911
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.29
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,573
|
|
|
|
20,494
|
|
|
|
|
|
|
|
|
|
|
(1) Amortization of internal-use software and website development costs included in product development
|
|
$
|
285
|
|
|
$
|
251
|
|
The following table presents our operating
results as a percentage of net revenues for the periods indicated:
|
|
Three Months Ended
March 31,
|
|
Consolidated statements of operations data (unaudited)
|
|
2012
|
|
|
2011
|
|
Net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
51.9
|
|
|
|
54.3
|
|
Product development
|
|
|
11.2
|
|
|
|
11.1
|
|
Sales and marketing
|
|
|
36.3
|
|
|
|
41.3
|
|
General and administrative
|
|
|
13.1
|
|
|
|
11.9
|
|
Restructuring charges, net
|
|
|
6.6
|
|
|
|
11.5
|
|
Total operating costs and expenses
|
|
|
119.1
|
|
|
|
130.1
|
|
Loss from operations
|
|
|
(19.1
|
)
|
|
|
(30.1
|
)
|
Interest income
|
|
|
0.0
|
|
|
|
0.1
|
|
Loss before income taxes
|
|
|
(19.1
|
)
|
|
|
(30.0
|
)
|
Provision for (benefit from) income taxes
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(19.1
|
)%
|
|
|
(30.0
|
)%
|
Comparison of the three months ended March 31, 2012 and
2011
Other operating data (1)
|
|
Three Months Ended
March 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
Change
|
|
Number of markets at end of period - same markets (2)
|
|
|
20
|
|
|
|
20
|
|
|
|
—
|
|
|
|
|
|
Number of markets at end of period – total markets (2)
|
|
|
20
|
|
|
|
23
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of transactions closed during the period - same markets (3)
|
|
|
2,358
|
|
|
|
3,198
|
|
|
|
(840
|
)
|
|
|
(26.3
|
)%
|
Number of transactions closed during the period - total markets (3)
|
|
|
2,412
|
|
|
|
3,636
|
|
|
|
(1,224
|
)
|
|
|
(33.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average net revenue per transaction - same markets (4)
|
|
$
|
6,103
|
|
|
$
|
5,234
|
|
|
$
|
869
|
|
|
|
16.6
|
%
|
Average net revenue per transaction - total markets (4)
|
|
$
|
6,077
|
|
|
$
|
5,058
|
|
|
$
|
1,019
|
|
|
|
20.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of agents at end of the period - same markets
|
|
|
1,624
|
|
|
|
2,206
|
|
|
|
(582
|
)
|
|
|
(26.4
|
)%
|
Number of agents at end of the period - total markets
|
|
|
1,624
|
|
|
|
2,422
|
|
|
|
(798
|
)
|
|
|
(32.9
|
)%
|
|
(1)
|
Other operating data includes our owned-and-operated markets only.
|
|
(2)
|
S
ame markets operating data excludes markets closed as the result of our 2011 and 2012 restructuring
plans. These plans included closing our owned-and-operated brokerage operations in selected underperforming markets and, in certain
markets, transitioning operations to a third-party brokerage joining our Powered by Zip network. We closed our owned-and-operated
brokerage offices in Fresno/Central Valley, Charlotte, Naples, Jacksonville, Miami, Palm Beach, Tampa, Hartford, Minneapolis, Virginia
Beach, Atlanta, and Tucson during the quarter ended March 31, 2011 and we closed Philadelphia and Raleigh-Durham during the quarter
ended December 31, 2011. Operations in Atlanta, Tucson, Raleigh, and Philadelphia were transitioned to our Powered by Zip network
of third-party brokerages. Our brokerage operations in Salt Lake City were closed and transitioned to a brokerage in the Powered
by Zip network during the quarter ended March 31, 2012.
|
|
(3)
|
The term “transaction” refers to each representation of a buyer or seller in a real estate
purchase or sale.
|
|
(4)
|
Average net revenue per transaction equals net transaction revenues divided by number of transactions
with respect to each period.
|
Net revenues
Net transaction
revenues consist primarily of commissions earned
in our owned-and-operated residential real estate brokerage. Marketing
and other revenues consist primarily of marketing agreements, lead generation, advertising and transaction referral commission,
including commission referrals earned from brokers in our Powered by Zip network.
|
|
Three Months Ended
March 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands)
|
|
Net transaction revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same markets
|
|
$
|
14,391
|
|
|
$
|
16,738
|
|
|
$
|
(2,347
|
)
|
|
|
(14.0
|
)%
|
Closed markets
|
|
|
267
|
|
|
|
1,654
|
|
|
|
(1,387
|
)
|
|
|
(83.9
|
)%
|
|
|
|
14,658
|
|
|
|
18,392
|
|
|
|
(3,734
|
)
|
|
|
(20.3
|
)%
|
Marketing and other revenues
|
|
|
1,415
|
|
|
|
1,353
|
|
|
|
62
|
|
|
|
4.6
|
%
|
Total net revenues
|
|
$
|
16,073
|
|
|
$
|
19,745
|
|
|
$
|
(3,672
|
)
|
|
|
(18.6
|
)%
|
The decrease
in
our net transaction revenues of $3.7 million or 20.3% for the three months ended March 31, 2012 compared to the three months ended
March 31, 2011 was driven primarily by a decrease in the number of transactions closed during the period of 1,224 or 33.7%. Transactions
closed during the period on a same market basis were 2,358 compared to 3,198 last year, a decrease of 840 or 26.3%.
We believe
the decrease in same market transaction volume was attributable to the impact of changes in our business model involving the conversion
of our agents to independent contractors as well as continued weak economic conditions, reduced availability of mortgage financing
and high unemployment.
Same market average net revenue per transaction for the period was $6,103 compared
to $5,234 last year, an increase of $869 or 16.6%. We discontinued our commission rebate program during late summer 2011 resulting
in lower cash rebates paid during the current quarter which increased average net revenue per transaction in the three months ended
March 31, 2012 by approximately $779. Additionally, the impact of higher average homesale prices increased average net revenue
per transaction by approximately $90. The modest increase in marketing and other revenues for the three months ended March 31,
2012 compared to the three months ended March 31, 2011 was attributable to increased transaction referrals from brokers in our
Powered by Zip network of $0.1 million and advertising income of $0.2 million, offset by decreases in lead generation fees of $0.2
million.
We
expect
our net revenues will decrease in 2012 compared to 2011, driven by a decrease in the overall number of transactions closed,
primarily as a result of closing our owned-and-operated brokerage operations in fifteen markets. We expect an increase in
average net revenue per transaction in 2012 compared to 2011 primarily resulting from the full year positive impact of the
termination of the commission rebate program.
We also expect our marketing and other revenues will decrease for 2012
compared to 2011 resulting primarily from the termination of our mortgage services marketing agreement with Bank of America
in April 2012, under which we were paid a flat monthly marketing fee. We have entered into a new non-exclusive marketing
agreement with another mortgage lender at a lower revenue rate and expect this termination to negatively impact our
marketing and other revenues until we enter into additional marketing agreements to replace this revenue source. We expect
the loss of this revenue will be partially offset by increased transaction commission referrals earned from brokers in our
Powered by Zip network
Cost of revenues
During the quarter ended March 31, 2011,
we completed the transition of our agent force from an employee model to an independent contractor model. Under the employee model,
our cost of revenues consisted principally of commissions, payroll taxes, benefits including health insurance, performance and
tenure based award programs and agent expense reimbursements. Under the independent contractor model, our cost of revenues consists
principally of commissions and related costs. Agent commissions are generally paid on net transaction revenues plus referral and
other revenues generated by our agents.
|
|
Three Months Ended
March 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands)
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same markets
|
|
$
|
8,202
|
|
|
$
|
9,681
|
|
|
$
|
(1,479
|
)
|
|
|
(15.3
|
)%
|
Closed markets
|
|
|
134
|
|
|
|
1,027
|
|
|
|
(893
|
)
|
|
|
(87.0
|
)%
|
Total
|
|
$
|
8,336
|
|
|
$
|
10,708
|
|
|
$
|
(2,372
|
)
|
|
|
(22.2
|
)%
|
The decrease in cost of revenues for the
three months ended March 31, 2012 compared to the three months ended March 31, 2011 was related to the overall decrease in net
revenues on which we pay agent commissions.
Same market cost of revenues for the
three months
ended March 31
, 2012 were $8.2 million compared to $9.7 million for the
three months ended March
31
, 2011. Agent commissions decreased by approximately $1.3 million or 14.1%. Agent performance and
tenure based programs, benefits and expense reimbursements decreased by approximately $0.2 million or 100.0% attributable to the
transition of our agents to independent contractors who do not qualify for benefits and expense reimbursements and to the elimination
of performance and tenure based programs as a component of agent compensation. Same market cost of revenues as a percentage of
net transaction revenues was 57.0% in 2012 compared to 57.8% in 2011.
We
expect our
cost of revenues will decrease in 2012, compared to 2011, because of decreased net transaction revenues. Our cost of revenues move
in relation to the market net revenues on which commissions are based and also increases or decreases as a result of the mix of
commission rates paid to our agents.
Product development
Product development expenses include our
information technology costs relating to the maintenance of our website, proprietary technology platforms and system infrastructure.
These costs consist primarily of compensation and benefits, software, equipment and infrastructure costs consisting primarily of
facilities, communications and other operating expenses. Product development expenses also include amortization of capitalized
internal-use software and website development costs.
|
|
Three Months Ended
March 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands)
|
|
Product development
|
|
$
|
1,802
|
|
|
$
|
2,200
|
|
|
$
|
(398
|
)
|
|
|
(18.1
|
)%
|
The decrease in product development expenses
for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was due primarily to decreases in salaries
and benefits of $0.4 million attributable to reductions in headcount and technology infrastructure costs of $0.1 million partially
offset by an increase in consulting fees of $0.1 million. As a percentage of net revenues, product development expenses increased
by 0.1 percentage points for the three months ended March 31, 2012 compared to the three months ended March 31,
2011.
We expect to continue enhancing tools and
features on our website and technology platform for consumers and brokers in our Powered by Zip network but expect that our product
development expenses will decrease in 2012 compared to 2011 in absolute dollars and as a percentage of net revenues.
Sales and marketing
Sales and marketing expenses consist primarily
of compensation and related costs for personnel engaged in sales, sales support and customer service as well as promotional, advertising
and client acquisition costs. These expenses have been categorized below between those incurred in our market offices and those
expenses which are incurred by the regional and corporate support functions across all markets.
|
|
Three Months Ended
March 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands)
|
|
Sales and marketing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market level
|
|
$
|
4,586
|
|
|
$
|
6,938
|
|
|
$
|
(2,352
|
)
|
|
|
(33.9
|
)%
|
Regional/corporate sales support and marketing
|
|
|
1,245
|
|
|
|
1,217
|
|
|
|
28
|
|
|
|
2.3
|
%
|
Total
|
|
$
|
5,831
|
|
|
$
|
8,155
|
|
|
$
|
(2,324
|
)
|
|
|
(28.5
|
)%
|
Market level sales and marketing expenses
decreased for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 primarily as a result of
closing markets and eliminating positions in our remaining markets attributable to our 2011 restructuring. The decrease of $2.3
million or 33.9 % was principally attributable to decreases in salaries and benefits of $0.7 million, customer acquisition and
marketing costs of $1.4 million and facilities and operating expenses of $0.1 million. Approximately $1.2 million of the overall
decrease was attributable to operations of the closed markets. As a percentage of net revenues, market level sales and marketing
expenses were 28.5% in 2012 compared to 35.1% in 2011.
Regional/corporate sales support and marketing
expenses were flat quarter over quarter and as a percentage of net revenues were approximately 7.7% in 2012 compared to 6.2% in
2011.
We expect our market level and regional/corporate
sales and marketing expenses to decrease in absolute dollars and as a percentage of net revenues for 2012 primarily as a result
of our 2011 and 2012 restructurings. The decrease in expenses consists of office operating expenses and customer acquisition and
marketing cost in the markets that were closed as well as further expense reductions in the remaining markets and in the regional
and corporate sales support and marketing operations.
General and administrative
General and administrative expenses consist
primarily of compensation and related costs for personnel, facilities and operating expenses related to our executive, finance,
human resources, facilities and legal organizations, and fees for professional services. Professional services are principally
comprised of outside legal, audit and tax services.
|
|
Three Months Ended
March 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands)
|
|
General and administrative
|
|
$
|
2,106
|
|
|
$
|
2,357
|
|
|
$
|
(251
|
)
|
|
|
(10.6
|
)%
|
General and administrative expenses for
the three months ended March 31, 2012 compared to the three months ended March 31, 2011 decreased by approximately $0.2 million
or 10.6% and were primarily attributable to decreased professional fees. As a percentage of net revenues, general and administrative
expenses were 13.1% for the three months ended March 31, 2012 to 11.9% in the three months ended March 31, 2011.
We expect our general and administrative
expenses for 2012 will decrease in absolute dollars and as a percentage of net revenues primarily as a result of our 2011and 2012
restructurings. The decrease in expenses consists of salaries, benefits and other infrastructure costs eliminated largely as a
result of the conversion of our agent force to independent contractors. This decrease may be offset by increased legal expenses
attributable to current legal proceedings.
Restructuring charges, net
|
|
Three Months Ended
March 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands)
|
|
Restructuring charges, net
|
|
$
|
1,062
|
|
|
$
|
2,264
|
|
|
$
|
(1,202
|
)
|
|
|
53.1
|
%
|
During
the
three months ended March 31, 2012, we announced a restructuring, including a work force realignment to more appropriately allocate
resources to its key strategic initiatives and the closing of brokerage operations in our Salt Lake City market. The associated
restructuring charges of $1.1 million included employee severance pay and related expenses, non-cancelable lease obligations and
other exit costs. During the three months ended March 31, 2011, we announced a restructuring, including closing brokerage operations
in selected underperforming markets and a workforce reduction in sales support and administration functions. The associated restructuring
charges of $2.3 million included employee severance pay and related expenses, non-cancelable lease obligations and other exit costs.
Some expenses
required estimates, particularly those related to our ability and the timing of generating sublease income and terminating lease
obligations, and may require future adjustments to the amount of the restructuring charge recorded. We
expect to incur additional
restructuring charges of less than $0.4 million in the remainder of 2012 as we continue to execute our 2012 Restructuring Plan.
Interest income
Interest income relates to interest we
earn on our money market deposits and short-term investments.
|
|
Three Months Ended
March 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands)
|
|
Interest income
|
|
$
|
7
|
|
|
$
|
28
|
|
|
$
|
(21
|
)
|
|
|
(72.5
|
)%
|
Interest income fluctuates as our cash
equivalents and short-term investment balances change and applicable interest rates increase or decrease. The decrease in interest
income for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, was due primarily to
lower average balances. The lower average balances were attributable primarily to cash used in our operating activities as a result
of the losses incurred during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity for
2012 are our cash, cash equivalents and short-term investments. As of March 31, 2012, we had cash, cash equivalents and short-term
investments at fair value of $18.6 million and no bank debt, line of credit or equipment facilities.
Operating activities
Our operating activities used cash in the
amount of $3.2 and $5.2 million in the three months ended March 31, 2012 and 2011, respectively. Cash used in the three months
ended March 31, 2012 resulted primarily from a net loss of $3.1 million and net changes in operating assets and liabilities of
$0.8 million offset by non-cash adjustments. Cash used of $0.8 million from the net change in operating assets and liabilities
included a $0.3 million restructuring charge accrual. The non-cash adjustments resulted primarily from $0.4 million of depreciation
and amortization and $0.2 million of stock-based compensation expense. The increase in cash used attributable to the net changes
in operating assets and liabilities was mainly driven by timing differences in accounts receivable, accounts payable and accrued
expenses relating to agent compensation, bonuses, and customer acquisition expenses. Cash used in the three months ended March
31, 2011 resulted primarily from a net loss of $5.9 million and net changes in operating assets and liabilities of $0.3 million
offset by non-cash adjustments. Cash used of $0.3 million from the net change in operating assets and liabilities included a $1.0
million restructuring charge accrual. The non-cash adjustments resulted primarily from $0.5 million of depreciation and amortization
and $0.4 million of stock-based compensation expense. The increase in cash used attributable to the net changes in operating assets
and liabilities was mainly driven by timing differences in accounts receivable, accounts payable and accrued expenses relating
to agent compensation, bonuses, and customer acquisition expenses.
Our primary
source of operating cash flow is the collection of net commission income from escrow companies or similar intermediaries in the
real estate transaction closing process,
plus marketing and other revenues. These cash collections are
offset
by cash payments for agent commissions and related costs as well as for product development, sales and marketing and general and
administrative costs including employee compensation, benefits, client acquisition costs and other operating expenses. Due to the
structure of our commission arrangements, our accounts receivable are settled in cash on a short-term basis and our accounts receivable
balances at period end have historically been significantly less than one month’s net revenues.
Investing activities
Our investing activities provided cash
of $1.6 million and $7.0 million in the three months ended March 31, 2012 and 2011, respectively. Cash provided for in the
three months ended March 31, 2012 primarily represents the proceeds from the sale and maturity of short-term investments of $2.0
million less the purchase of property and equipment, including amounts for website development and internal use software. Cash
provided for the three months ended March 31, 2011 represent the net proceeds from the sales and maturity of short-term investments
of $7.4 million less the purchase of property and equipment, including amounts for website development and internal use software.
Currently, we expect our remaining 2012
capital expenditures to be approximately $1.5 million primarily attributable to amounts capitalized for internal-use software
and website development costs as well as expenditures for increased server capacity and software. In the future, our ability to
make significant capital investments may depend on our ability to generate cash flow from operations and to obtain adequate financing,
if necessary and available.
Financing activities
Our financing activities provided cash
of $0.1 million in the three months ended March 31, 2012 and were not significant in the three months ended March 31, 2011.
Cash provided for the three months ended March 31, 2012 represents proceeds from stock option exercises.
Future needs
We believe
that
our current cash, cash equivalents and short-term investments will be sufficient to fund cash used in our operations, restructurings
and capital expenditures for at least the next twelve months. Our future capital requirements will depend on many factors, including
our level of investment in technology and online marketing initiatives, our rate of growth in our local markets and in expanding
our Powered by Zip broker referral network and possible litigation settlements and legal fees. In addition, if the current macroeconomic
environment and depressed state of the residential real estate market continues or worsens, we may have a greater need to fund
our business by using our cash, cash equivalent and short-term investment balances, which could not continue indefinitely without
raising additional capital.
We
currently
have no bank debt or line of credit facilities. In the event that additional financing is required, we may not be able to raise
it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business and results of
operations will likely suffer.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
We lease office space under non-cancelable
operating leases with various expiration dates through July 2017. The following table provides summary information concerning our
future contractual obligations and commitments at March 31, 2012.
|
|
Payments due by period
|
|
|
|
Less than
1 year
|
|
|
1 to 3 years
|
|
|
3 to 5 years
|
|
|
More than
5 years
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Minimum lease payments
|
|
$
|
1,999
|
|
|
$
|
2,602
|
|
|
$
|
1,750
|
|
|
$
|
261
|
|
|
$
|
6,612
|
|
OFF-BALANCE SHEET ARRANGEMENTS AND INDEMNIFICATIONS
We do not have any off balance-sheet arrangements,
investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts
or synthetic leases. Our indemnifications agreements are described in note 6, “Commitments and Contingencies” of the
unaudited condensed consolidated financial statements.
NON-GAAP MEASURE
The table below shows the trend of Adjusted
EBITDA as a percentage of revenue for the periods indicated:
|
|
Three Months Ended
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
Net revenue
|
|
$
|
16,073
|
|
|
$
|
19,745
|
|
Adjusted EBITDA
|
|
$
|
(1,341
|
)
|
|
$
|
(2,798
|
)
|
Adjusted EBITDA margin
|
|
|
(8.3
|
)%
|
|
|
(14.2
|
)%
|
We present Adjusted EBITDA, a non-GAAP
financial measure, as a supplemental measure of our performance. We believe Adjusted EBITDA provides useful information regarding
the operating results of our core business activity and prospects for the future. We define 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 we do not consider reflective of our ongoing core operating
performance.
We present Adjusted EBITDA because we believe
it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding
items that we do not believe are reflective of our core operating performance. In addition, we use Adjusted EBITDA to evaluate
our financial results and business strategies, develop budgets, manage expenditures and as a factor in evaluating management’s
performance when determining incentive compensation.
Our use of Adjusted EBITDA has limitations
as an analytical tool. Some of these limitations are:
|
•
|
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
|
|
•
|
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
|
•
|
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced
in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
|
|
•
|
non-cash stock-based compensation is and will remain a key element of our overall long-term incentive compensation package,
although we exclude it as an expense when evaluating our ongoing operating performance for a particular period;
|
|
•
|
Adjusted EBITDA does not reflect the impact of certain cash charges or credits resulting from matters we consider not to be
reflective of our core ongoing operations, and
|
|
•
|
other companies, including companies in our industry, may calculate Adjusted EBITDA differently than we do, which limits its
usefulness as a comparative measure.
|
Because of these limitations, Adjusted
EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. When
evaluating our performance, Adjusted EBITDA should be considered alongside other financial measures, including net income and our
other GAAP results.
The following is a reconciliation of Adjusted
EBITDA to the most comparable GAAP measure, net loss for the three months ended March 31, 2012 and 2011:
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
Net loss
|
|
$
|
(3,057
|
)
|
|
$
|
(5,911
|
)
|
Add back
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(7
|
)
|
|
|
(28
|
)
|
Depreciation and amortization
|
|
|
437
|
|
|
|
489
|
|
Stock-based compensation expense
|
|
|
224
|
|
|
|
388
|
|
Restructuring charges, net
|
|
|
1,062
|
|
|
|
2,264
|
|
Non-GAAP Adjusted EBITDA
|
|
$
|
(1,341
|
)
|
|
$
|
(2,798
|
)
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk:
|
Interest rate sensitivity
Our investment policy requires us to invest
funds in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal,
provide liquidity and maximize income consistent with minimizing risk of material loss. We believe this investment policy is prudent,
and helps to reduce, but does not prevent, loss of principal, and results in minimal interest rate exposure on our investments.
As of March 31, 2012 and 2011, our cash
and cash equivalents consisted primarily of money market funds and our short-term investments consisted primarily of investment
grade, highly liquid interest-bearing securities. The recorded carrying amounts of cash and cash equivalents approximate fair value
due to their short maturities and short-term investments are carried at fair value. The amount of credit exposure to any one issue,
issuer and type of instrument is limited. Our interest income is sensitive to changes in the general level of interest rates in
the United States, particularly since the majority of our investments are fixed income investments. If market interest rates were
to increase or decrease immediately and uniformly by 10% from levels at March 31, 2012 and 2011, there would be a negligible increase
or decline in fair market value of the portfolio.
Exchange rate sensitivity
We consider our exposure to foreign currency
exchange rate fluctuations to be minimal, as we do not have any revenues or expenses denominated in foreign currencies. We have
not engaged in any hedging or other derivative transactions to date.
|
Item 4.
|
Controls and Procedures:
|
(a)
Disclosure controls and procedures
.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures (as such items are defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report are effective to ensure that information we are required
to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure,
and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
(b)
Changes in internal control over
financial reporting
. There were no changes in our internal control over financial reporting during the quarter ended March
31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
|
Item 1.
|
Legal Proceedings:
|
On March 26, 2010, we were named as
one of fourteen defendants in a lawsuit filed in the United States District Court for the District of Delaware,
Smarter Agent
LLC v. Boopsie, Inc., et al.
, by plaintiff, Smarter Agent LLC. The complaint alleges that the defendants have each infringed
on patents owned by Smarter Agent relating to mobile device application technology and seeks unspecified damages and injunctive
relief. After completing our initial investigation of this matter, we do not currently believe that we have infringed on any patent,
or that we have any liability for the claims alleged, and, thus, we intend to vigorously defend against this lawsuit.
On January 18, 2012, we were named as a
defendant in a lawsuit filed in the United States District Court for the Northern District of Illinois,
Earthcomber, LLC v.
ZipRealty, Inc.
, by plaintiff, Earthcomber, LLC. The complaint alleges that we have infringed on patents owned by Earthcomber
relating to a feature in our mobile device application technology and seeks unspecified damages. The plaintiff has filed similar
complaints against several other defendants. On or about March 13, 2012, the plaintiff voluntarily dismissed its action against
us.
On September 26, 2011, the California State
Labor Commissioner filed a lawsuit against us in the Superior Court of California, Alameda County,
State Labor Commissioner,
etc., v. ZipRealty, Inc
. The complaint concerns our compensation practices regarding real estate agents in California, who
at the time at issue were classified as employees. Specifically, the complaint alleges that we failed to pay these persons minimum
wage and overtime, and failed to provide itemized wage statements, as required by California laws. In addition to wages and overtime,
the complaint seeks liquidated damages, for a total claim in excess of $17 million. We have filed an answer denying these allegations
as we believe that our sales agents, whose job duties consisted exclusively of selling residential real estate, were properly classified
as “Outside Salespersons” and were compensated accordingly in full compliance with California law. Accordingly,
we believe that this claim is without merit and, thus, we intend to vigorously defend against this lawsuit.
On February 17, 2012, two real estate sales
agents formerly employed by us, on behalf of themselves and all other similarly situated individuals, filed a lawsuit against us
in the United States District Court, District of Arizona,
Patricia Anderson and James Kwasiborski v. ZipRealty, Inc
. The
complaint concerns our compensation practices nationwide regarding our real estate agents, who at the time at issue were classified
as employees. Specifically, the complaint alleges that we failed to pay these persons minimum wage and overtime as required by
federal law. In addition to the federal law allegations, the complaint also alleges violations of the Arizona Minimum Wage law. The
complaint seeks liquidated and treble damages in addition to wages and overtime for an unspecified amount. We have filed an answer
denying these allegations as we believe that our sales agents, whose job duties consisted exclusively of selling residential real
estate, were properly classified as “Outside Salespersons” and were compensated accordingly in full compliance with
federal and state law. Accordingly, we believe that this claim is without merit and, thus, we intend to vigorously defend
against this lawsuit.
On February 29, 2012, one real estate agent
formerly employed by us, on behalf of herself and all other similarly situated individuals, filed a lawsuit against us in the Superior
Court of California, Los Angeles County,
Tracy Adewunmi v. ZipRealty, Inc.
concerning our compensation practices regarding
real estate agents in California. Specifically, the complaint alleges that we failed to pay these persons minimum wage and overtime,
failed to provide meal and rest periods, failed to reimburse employee expenses and failed to provide itemized wage statements as
required by California laws. The complaint seeks unspecified damages including penalties and attorneys’ fees in addition
to wages and overtime. We believe that the claims in this case are nearly identical to those in the
State Labor Commissioner,
etc., v. ZipRealty, Inc
. We have filed an answer denying these allegations as we believe that our sales agents, whose job duties
consisted exclusively of selling residential real estate, were properly classified as “Outside Salespersons” and were
compensated accordingly in full compliance with California law. Additionally, we filed a cross complaint against Ms. Adewumni
for fraud and breach of contract, in which we alleged that she created false client accounts that resulted in her receiving higher
commission payments than she was entitled to receive under her written employment agreement. Accordingly, we believe Ms. Adewumni’s
claim is without merit and, thus, we intend to vigorously defend against this lawsuit.
We are not currently subject to any other
material legal proceedings. From time to time we have been, and we currently are, a party to litigation and subject to claims incident
to the ordinary course of the business. The amounts in dispute in these matters are not material to us, and we believe that the
resolution of these proceedings will not have a material adverse effect on the business, financial position, results of operations
or cash flows.
Our business is subject to a number of
risks and uncertainties. Because of risks and uncertainties affecting our operating results and financial condition, past financial
performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results
or trends in future periods. You should consider carefully the risk factors described under “Risk Factors” in Item 1A
of Part I of our annual report on Form 10-K for our fiscal year ended December 31, 2011. At this time, we are not aware of
any material changes to the nature of those risk factors. We intend to set forth material changes to the nature of those risk factors
in our future reports on Form 10-Q as required by Item 1A of Part II thereof. For business, market and other developments
in the quarter ended March 31, 2012, please see Item 2 of Part I of this report, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
|
Item 5.
|
Other Information:
|
Not applicable.
The exhibits listed in the Exhibit Index
are filed as a part of this report.
SIGNATURE
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
ZIPREALTY, INC.
|
|
|
|
|
By:
|
/s/ Eric
L. Mersch
|
|
|
Eric L. Mersch
|
|
|
Senior Vice President and
Chief Financial
Officer
|
Date: May 11, 2012
Exhibit Index
Exhibit
number
|
|
Description
|
|
3.1(1)
|
|
Certificate of Correction to Amended and Restated Certificate of Incorporation
|
|
|
|
|
|
3.2(a)(2)
|
|
Bylaws
|
|
|
|
|
|
4.1(2)
|
|
Form of Common Stock Certificate
|
|
|
|
|
|
10.3(b)(3)*
|
|
First Amendment under 2004 Equity Incentive Plan
|
|
|
|
|
|
10.5(a)(3)*
|
|
Director Compensation Policy, revised March 8, 2012
|
|
|
|
|
|
10.9(4)*
|
|
Management Incentive Plan – Fiscal Year 2012
|
|
|
|
|
|
10.15*
|
|
Offer Letter of Eric L. Mersch effective April 9, 2012
|
|
|
|
|
|
10.16(5)*
|
|
Offer Letter of Franklin V. (Van) Davis effective May 7, 2012
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer, as required by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
|
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer, as required by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
|
|
|
|
|
|
101.INS**
|
|
XBRL Instance Document
|
|
|
|
|
|
101.SCH**
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
101.CAL**
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
101.DEF**
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
101.LAB**
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
101.PRE**
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
(1)
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 000-51002)
filed with the Securities and Exchange Commission on December 16, 2008.
|
|
(2)
|
Incorporated by reference to the exhibit of the same number to the Registrant’s Registration Statement on Form S-1 (File
No. 333-115657) filed with the Securities and Exchange Commission on May 20, 2004, as amended.
|
|
(3)
|
Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K (File
No. 000-51002) filed with the Securities and Exchange Commission on March 13, 2012.
|
|
(4)
|
Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K (file No. 000-51002)
filed with the Securities and Exchange Commission on March 9, 2012.
|
|
(5)
|
Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K (File
No. 000-51002) filed with the Securities and Exchange Commission on May 8, 2012.
|
|
*
|
Identifies a management contract or compensatory plan of arrangement required to be filed as an exhibit to this report.
|
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