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FD (Fair Disclosure) Wire

August 4, 2009 Tuesday

TRANSCRIPT: 080409a2339041.741

LENGTH: 5029 words

HEADLINE: Q2 2009 ZipRealty Inc. Earnings Conference Call - Final

BODY:

Corporate Participants

* Raphael Gross ZipRealty Inc. - IR * Pat Lashinsky ZipRealty Inc. - CEO,

President * Lanny Baker ZipRealty Inc. - CFO, EVP

Q2 2009 ZipRealty Inc. Earnings Conference Call - Final FD (FairFOCUS

Conference Call Participants

* Jim Wilson JMP Securities - Analyst

Presentation

OPERATOR: Good morning and welcome to the ZipRealty Incorporated SecondQuarter 2009 Earnings Conference Call. At this time, all participants have

been placed in a listen-only mode. And the floor will be open for your questionsfollowing the presentation. It is now my pleasure to turn the floor over to yourhost, Mr. Raph Gross. Please go ahead.

RAPHAEL GROSS, IR, ZIPREALTY INC.: Thank you and good afternoon, everyone.With me on the call today are Pat Lashinsky, President and Chief ExecutiveOfficer of ZipRealty, and Lanny Baker, the Company's Chief Financial Officer.

Earlier today, the Company issued a press release describing its results forthe second quarter (inaudible) www. ziprealty. com under the Investor Relationssection.

Before we begin, I'd like to note that during the course of this call,various remarks we make about our future business, our plans, goals, and


activity, including 2009 business outlook and evolving market conditions involveforward-looking statements.

Actual results may differ materially from the plans, goals, and activitycontemplated in these forward-looking statements and are subject to risks anduncertainties, including those described in the Company's Form 10-K for fiscalyear 2008, a copy of which can be viewed on the Company's website under theInvestor Relations section. The risk factors identified in our SEC filings are


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incorporated by reference into this earnings call.

Please also note that to supplement its consolidated financial statementspresented in accordance with generally accepted accounting principles in theUnited States, ZipRealty uses a non-GAAP measure of net income or loss it refersto as pro forma net income or loss earnings that exclude certain items,including stock-based compensation, non-cash income taxes, and certain one-timeitems if any.

The presentation of this additional information should not be considered inisolation or as a substitute for results prepared in accordance with GAAP andcan be viewed at the Company's website under the Investor Relations section.


With that out of the way, I'll turn the call over to Lanny Baker.

LANNY BAKER, CFO, EVP, ZIPREALTY INC.: Thank you, Raph. ZipRealty achievedsolid volume and revenue growth in the second quarter and further expandedmarket share at a time of turmoil in the real estate market. We also made

progress on key strategic initiatives intended to drive value in the long term.And Pat will discuss these in more detail in a few minutes.

On the bottom line, we again saw the effect of sharply lower home sale pricesin our margins and operating loss. But we ended the quarter with roughly thesame amount of cash as we started with. And we're focused on getting toprofitability while investing in the Company's future.

I'll first review ZipRealty's operating and financial performance in thesecond quarter and first half of 2009, then update you on a couple additionalfinancial items, and close with our outlook for the rest of the year.

The market backdrop in the second quarter resembled that of the last few

quarters with large year-to-year increases in foreclosure activity, loweraverage home sale prices, and sharply higher transaction volumes in mostmarkets. But we also saw some new developments in the second quarter withentory, greater price stability, and new regulations that may


affect the business going forward.

In the second quarter, ZipRealty's total revenue increased 6% year to year to$32.1 million, propelled by a record quarter in terms of closed transactions.May and June were the highest closing volume months in our history. And thesecond quarter's closed transaction volume exceeded our prior quarterly recordby 1,000 transactions or 20%. Our closing volumes rose 28.5% year to year in the

second quarter, led again by Arizona and many of our California and Floridamarkets.

I mentioned that some fundamentals began to change in the second quarter. Andone such area is nonstandard transactions. Foreclosures and short salesrepresented 43% of our volume in the quarter. And while that's well above the29% a year ago, it is lower than the 53% mix we saw in the first quarter.

We believe the foreclosure-short sale phenomenon will continue to hold swayover the market for several more quarters. But they're signs that the influenceof nonstandard transactions may be stabilizing.


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On the price side, ZipRealty's transaction revenue per close of $5,269 in thesecond quarter was slightly higher than our first quarter results, marking thefirst sequential uptick we've seen in eight quarters. Year to year,


transaction revenue per close was still down 17% in the second quarter, thoughthe decline moderated some from the 21% decline we experienced in the first

quarter.

The reduced influence of nonstandard transactions, which typically occur atabout a 25% discount to regular transactions contributed to better revenue perclose trends in the quarter. With transaction volume up 29% and revenue perclose down 17%, our second quarter transaction revenue rose 6% to $31.7 millionfrom $30 million a year ago.

Referral and other revenue was $432,000 in the second quarter, still lowerthan a year ago, but improved from the first quarter. And Pat will talk about anew agreement which should put us back on track on this small but promising andhigh-margin revenue stream.

Moving to expenses, cost of revenue grew 10% in the second quarter, outpacingrevenue growth of 6%. As a result, our gross margin declined by 245 basis pointsyear to year. And gross profit was essentially flat year to year for thequarter.

Almost two-thirds of the gross margin compression during the second quarteris linked to the deleveraging effect of lower average revenue per transaction


and the decline in non-transaction revenue, which work against semivariablecost, such as expense reimbursement and health insurance within our cost ofgoods. The remaining piece of the margin decline reflects slightly higher splitspaid to our agents.

At the end of the period, we had 3,172 agents, a 24% increase from a yearago. And we continue to attract great people with the strength of our technologyplatform and its ability to make agents more knowledgeable and productive.

Although agent productivity was essentially flat year to year in the secondquarter, our more experienced agents have continued to make year-to-yearproductivity gains across each of the last four quarters.

Moving onto corporate costs, our operating expenses reflected a continuedfocus on driving operating leverage against centralized investments intechnology, marketing, and G&A. Corporate and field operating expenses of $15.9million were up by less than 2% from a year ago, even as we increased our agent

count by 24% and grew transaction volume by 29% year to year, demonstrating heoperating leverage afforded by our unique model.

Product development expense increased 10% in the second quarter from a yearago and at $2.3 million was consistent with Q1 on a dollar basis. Higher


website traffic, a new data and hosting location, and product investments thatPat will highlight accounted for the higher spend.

Sales and marketing cost of $10.2 million declined slightly compared with the


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year-earlier period as we continue to expand our client pipeline with effectiveonline marketing and the organic drawing power of our website in consumeroffering. Customer acquisition spending was flat with last year. And lead volumegrew double digits. We believe we have room to further improve our marketingefficiency. But we do expect falling lead prices to stabilize at some point.

General and administrative expenses were up $340,000 year to year to $3.3million for the second quarter. Bonus accruals and some additional hires since a

year ago impacted the second quarter cost comparisons.

Putting the pieces together, operating income declined by $300,000 year toyear for an operating loss of $2.6 million in the second quarter of 2009. Yearto date, our operating loss is $10.5 million compared with an operating loss of$9.9 million in the first half of 2008, excluding a legal charge incurred inlast year's first quarter.

Before moving on, looking at our second quarter results in the existingveals the revenue growth contribution of the new


markets while also spotlighting the profitability traits of these two groups of

markets.

In the second quarter, total revenue in the 23 existing markets open prior to2007 was down 1% year to year to $27.1 million, while revenue in our 13 newmarkets opened after January 2007 was up more than 70% to $4.7 million versus$2.6 million a year ago.

Income in existing markets was flat year to year with a 17% operating marginbefore the allocation of technology and corporate expense. In the new markets,strong revenue growth trimmed our market level operating loss from $650,000 inthe second quarter of '08 to less than $150,000 in the most recent quarter.

As the newer markets continue to grow and gain scale, their overall

profitability levels should more closely resemble that of our existing marketsgroup, providing a return on the investment we've made since opening thesemarkets in 2007 and 2008.

Returning to the P&L, below the operating line, interest income of $200,000in the second quarter was well below $600,000 in interest a year ago, due tolower interest rates and a lower cash balance.


Our net loss for the second quarter was $2.4 million compared with a net lossof $1.7 million in the year-ago period. For the first half, our net loss was

$9.9 million compared to a loss of $8.9 million a year ago. Pro forma earnings,excluding noncash stock-compensation costs were a net loss of $1.3 million inthe second quarter versus an $800,000 loss in the second quarter of '08.

Turning to the balance sheet, we ended the quarter with $44.8 million ofcash, cash equivalents, and short-term investments and without any long-termdebt. As noted earlier, our cash balances ended the second quarter very close towhere they ended the first quarter, down just $130,000 in the period. And wecontinue to be comfortable with our capital and liquidity positions as well asour ability to fund our growth plan.


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Before discussing the financial outlook, I want to point out that wecompleted a stock option exchange program during the second quarter tostrengthen the incentive and retention attributes of the Company's equitycompensation program. As a result, we have an additional $600,000 to $700,000 inequity compensation expense that will be amortized over the three-year vestingperiod of the newly issued options or roughly $50,000 per quarter.

Shifting to the financial outlook, we expect declines in home prices to

persist year over year throughout 2009 with some portions of the countryQ2 2009 ZipRealty Inc. Earnings Conference Call - Final FD (Fair

FOCUSstarting to show signs of bottoming while others still work their way throughthe cycle. We expect strong transaction volume growth to continue in the secondhalf following record performances in recent months with foreclosures and shortsales continuing to run well above year-earlier levels in most regions.

We plan to invest in our agents and attract growing numbers of new customersthroughout 2009. And we will aggressively manage field and overhead expenses inthe second half.

Consistent with our prior outlook, we expect revenue growth in the mid-single

digits to low-double digit range for the full year 2009 compared to year-earlierlevels. On the bottom line, we expect the GAAP net loss for 2009 to be narrowerthan the 2008 net loss of $14.7 million, excluding legal settlements. On thatbasis, our pro forma net loss should also improve from the $10.8 millionrecorded for the full year of 2008.

I'll now turn the call over to Pat.

PAT LASHINSKY, CEO, PRESIDENT, ZIPREALTY INC.: Thanks, Lanny. As you justheard, ZipRealty continued its growth momentum in the second quarter. And I'lladd a little color to Lanny's comments, including a regional discussion andupdate on our market share progress. I'll also talk about the macro

Q2 2009 ZipRealty Inc. Earnings Conference Call - Final FD (Fair

FOCUSenvironment.

But what I really want to focus on and what I'm most excited about are thethings we're doing to continue to drive ZipRealty's internal growth andinnovation as this is where we expect to separate ZipRealty from the competitionand create value in the long term.

In terms of the quarter, we started to see transaction volumes pick up inFebruary. And that momentum continued in May and June, where we set records.Rising lead volume and an improved lead-to-close conversion rate propelled ourtransaction volume growth, underscoring the power of our business model, whichcombines efficient marketing with centralized technology to empower a talented,

local agent force to serve customers exceptionally well.

On another note, I'm pleased with our success in allocating resources wisely.As Lanny mentioned, our cash position declined by just $130,000 from March toJune, the lowest quarterly decline in eight quarters. But that doesn't meanwe've reduced investment, just the opposite. We made some exciting investmentsin our products during the quarter, which I'll describe in a moment.

On a regional and market level, conditions were mixed. And business trendsevenue gainsile. For example, we were encouraged by year-to-year r



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FOCUSin roughly 60% of our markets in the second quarter, about the same as in Q1.However, the makeup of this group has changed. And the double-digit revenuegrowth we saw in the first quarter in California and Florida faded in the secondquarter, while markets in Texas, the mid-Atlantic, and Midwest fared muchbetter.

We continue to outpace the real estate industry overall with our 29% increase

in close transaction volume comparing to a 3% decline in nationwide home sales,as reported by the National Association of Realtors. We gained market share in26 of our markets year to year, including four of our five highest-sharemarkets, making the Zip brand ever more prominent in our leading markets. Wecontinue to be very focused on growing market share, even in these turbulenttimes.

As Lanny mentioned, we saw an improvement in the mix between standard andnonstandard transactions in the quarter. And the mix improved sequentiallyacross the country. Nonstandard transactions remain highest in the west andrelatively less predominant in the east. The mix issue is not going to go awayovernight. But the upward trend has flattened. And if the trend continues tohold or improve, median home price stabilization should eventually follow.


Additionally, all of our markets have seen an inventory decline since March.And inventory in our markets is down about 20% year to year June 2009.

As supply-demand dynamics improve, we believe they will validate theinvestment thesis we laid out in 2007. We believe that investing in the downcycle while others are retrenching will position ZipRealty for stronger,profitable growth coming out of the other side. And based on what we're seeingin the marketplace, we see no reason to deviate from that plan.

It's important to note, however, that falling inventory levels andaffordability can't be analyzed in isolation. We believe that shadow inventoryis affecting inventory levels. Shadow inventory are properties not on the marketbecause banks cannot foreclose on them or are choosing not to foreclose on themright now or because sellers do not want to sell at the current housing marketprice.

We believe that banks' biggest priorities these days is repaying TARP andreducing government control. So they're very selective about writing loanscurrently. The federal subsidy for first-time homebuyers has certainly mitigatedthis mindset. But these buyers still have to save for a significant downpayment, even at lower home prices.


Meanwhile, the jumbo loan market is a significant challenge with lendershesitant to loan any amount above what Freddie and Fannie will guarantee. Asevidence of the problems at premium price levels, the supply of homes for saleat prices above $750,000 is more than 40 months in 2009, up from 19 months in2007. Hard-to-get and hard-to-close loans lengthen the closing cycle.

Another factor we see as lengthening the cycle is a new set of guidelinesthat went into effect on May 1st known as the Home Valuation Code of Conduct.The HVCC was intended to eliminate conflicts of interest that put pressure on


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real estate appraisers to inflate property values. Instead, it could averselyaffect the very consumers it's supposed to protect.

The new rules prohibit mortgage brokers from ordering the appraisal on ahome, leaving the lender to select an in-house appraiser or outside appraisalcompany. Regardless, neither the lender nor the mortgage broker is allowed totalk to the appraiser about the value of the property in question.

We've observed over the last few months that lenders are increasinglyselective of appraisal management companies based on low fees and quicktual knowledgeof the local market.sideration to the appraiser's ac


Let me give you an example of how this can hurt transaction growth and priceacross the industry. We recently had a home on the market for $280,000 with 32offers, the winning one being $310,000. Under the new guidelines, the lenderutilized an appraiser of little local market knowledge that appraised the homeat $285,000 rather than the closer-to-the-market price established by 32 offers.Because the appraisal came in below the offer price in addition to the 20% down

and $57,000, the buyer also had to raise another $25,000, the difference betweenthe appraisal and their $310,000 offer.

In this economy, the unexpected additional expense can be a deal breaker. Thegood news is that the government has shown that it's open to refiningineffective policies. And various industry groups are lobbying for attention tothe HVCC matter.

More broadly, we believe the Obama Administration has signaled continuedsupport for the real estate industry. And there's a bill in front of Congressthat will give all homebuyers, regardless of income, not just first-time buyers,a $15,000 tax credit when they purchase a home. If passed, the bill will havewide geographic and demographic appeal.

So to summarize the macro environment, the supply-demand equation hasimproved in most markets. Prices have gone down sharply from prior years. And


affordability remains high. However, credit remains tough. And risingunemployment could still impact a recovery. It has a direct bearing on consumerconfidence. And we need our consumers to feel a sense of stability, which wasthe case in the second quarter. Ultimately, we are hopeful that we're near or atthe bottom. But any unexpected shock by the factors I just mentioned could delayhousing's progress.

Now turning to ZipRealty, we remain excited about our market opportunity and

confident about our advantages in an approach that makes us unique in theindustry. We're in the midst of a transition from industry upstart toincreasingly influential player. And we are not waiting around for the realestate cycle to turn. We are organizing and prioritizing for profitability andlong-term growth. And you will hear more detail about our strategy in the monthsahead.

We will remain true to several key traits that differentiate ZipRealty.First, ZipRealty is focused on the customer and committed to providingoutstanding service levels, information, and value. Second, ZipRealty is builtaround supercharged proprietary technology that's efficiently centralized.


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Third, we push that technology out to our customers and more than 3,000 local, all of whom are employed with ZipRealty.


And we provide leads, training, and support designed to make our agents moreknowledgeable and more productive than their peers. We close the loop with anemphasis on customer satisfaction that has resulted in a 95% or greater

satisfaction level and valuable customer referrals to start the cycle again.

Let me talk about technology first. The ZipRealty website continues to evolveand develop, attracting strong user activity as a result. Unique visitors to oursite rose 23% year over year in the second quarter. The lead pipeline continuedto grow at double-digit rates. And the strong online activity translated into a45% year-over-year increase in home visits and offers made by ZipRealty clients.

We launched a new website version in March of this year, adding home detailpages on over 60 million homes in the US as well as school district boundarieson our maps and key word search tools for hunting through listings. Then inmid-July we hit again, releasing an onsite communication tool, enabling clientsto chat about specific properties and save those discussion right on the homedetail page for easy future reverence and follow up.

All of these innovations are aimed squarely at broadening our consumer appealand enhancing the functionality of the Zip site, which itself is designed tohelp customers become more informed and more confident as they approach the homebuying and selling process.


Our July release emphasizes another feature I'm equally excited about, onethat clearly demonstrates ZipRealty's ability and determination to connect greatinternet technology with the expertise of our agents in the field. The updatedagent block, which appears every time a registered user logs onto ZipRealty, nowdisplays not just an agent's contact information and customer feedback rating

but also provides a running catalog of the homes they've sold and the homesthey've shown, helping our customers to instantly see the activity and localknowledge possessed by each of our agents.

Another leg of our competitive advantage resides in our employee agents. At atime when many brokerages are shrinking, we added about 180 to the Zip team inthe second quarter. We have rolled out new online training materials with awhole new set of courses and internal certifications around the listing side ofour business. We enhance the Zip agent platform to support more personalizedcommunication with clients and to deliver improved marketing tools and analysisfor agents.

We're in the early stages of another promising initiative around scoring,

screening, and segmenting our leads and customers to help agents become moreproductive and deliver better service.


Finally, the satisfaction we're able to consistently deliver to customers hasincreased ZipRealty's brand recognition and trust. According to Real Trend,ZipRealty is now the ninth largest brokerage in terms of closed transaction sizein 2008. And we rank tenth in terms of dollar volume. And we made these upwardmoves without acquisitions.


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And then of course, the ZipRealty website maintaining its number one positionand wide online audience lead among real estate brokerages, according to datefrom research firm Hit Wise.

This kind of visibility and scale, both online and offline, positionsZipRealty to thrive in the transactions core of our business and also to developreferral, advertising, and other revenue streams over time. In that vein, we are

very pleased to inform that important and value marketing alliance during thesecond quarter with one of the largest financial institutions in the world.

Our new alliance with Bank of America will leverage ZipRealty's online reachto millions of interested home buyers in conjunction with our local agentpresence to help consumers access Bank of America's full range of home mortgageservices as well as its local lending team. As part of the agreement, Bank ofAmerica is committed to providing superior customer service. We've been workingwith B of A on a test basis for some months. And the bank is now present


across the breadth of our online products. The new alliance is scheduled to befully rolled out to all over our markets by the end of August.

Specifically, customers will have access to current mortgage rates andfinancial calculators while shopping for their home online. And by September,buyers using ZipRealty's website will be able to research various loan types andget preapproved online.

So in closing, our position in the marketplace combines a strong andinnovative technology platform with a savvy local force. And these can be usedto drive profitable growth along a number of avenues. We're supported by astrong balance sheet, another leg of our competitive advantage. While manylarger peers are dealing with their own financial issues and many smallercompetitors are in pursuit of capital to keep going, we're simply in the mode ofinvesting in our business and ultimately redefining the residential real estate

experience for customers.

The real estate market certainly remains choppy. But we do believe that sometrends are starting to move in the right direction. We remain encouraged by ourmarket share gains, thrilled by customer response to what we're doing, andcommitted to investing in ZipRealty's long-term future.


With that, I'd like to open the line up for questions.

Questions and Answers

OPERATOR: Thank you. (Operator Instructions). And our first question comesfrom Jim Wilson with JMP Securities.

JIM WILSON, ANALYST, JMP SECURITIES: Thanks. Good afternoon, guys.

PAT LASHINSKY: Hi, Jim.

JIM WILSON: Was wondering your -- first question -- your average price tickedup from Q1, at least what I'm calculating. Was just wondering that pure mix oranything else you can color that you saw in individual markets? I know you saidactually some of the markets that I would think of as a little cheaper markets


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compared to California actually are the ones that kicked in for the quarter.

LANNY BAKER: Well, there were I think a number of factors that go into thatincrease that you know. First of all, one of the things that Lanny noted wasthat the percentage of deals that were done in the mix that were done asdistressed properties were down. And those tend to have a larger reduced pricethan the others. Additionally, the resale homes that we sold, those price


FOCUSpoints were actually up over the period as well.

So we got the benefit on both the fact of the actual homes that we wereselling, that home price was up. And we sold fewer of the distressed properties.And the combination led to the increase that you were talking about.

PAT LASHINSKY: And I think the only thing I would add to that is that thebiggest momentum came in fairly likely places, some of the large cities inCalifornia and in the mid-Atlantic.

JIM WILSON: Okay. All right. And then you're still growing the agent countvery nicely at a good jump in Q2. Any -- I would assume not -- but any further

pressures or any real competitive pressures in trying to find good people? Or isit arguably even staying just as easy or getting easier to still find goodpeople, given what's going on in general and on how well you guys are doing?

LANNY BAKER: Well, it's always a challenge to find good people. And wecontinue to work very hard at it and put a lot of effort into it. That beingsaid, one of the advantages that we have is that we have a lot of clients. Andwe have a lot of demand. And as other agents struggle with their ability to findclients and to stay in the business, they found that we provide a greatopportunity for them to come in, to use the technology, the leads, the


resources that we have, and to actually take care of clients that are interested

in doing business.

So we have found that while it is difficult to find good people, we continueto be able to grow the agent counts, take care of the clients that we have. Wethink that the number of clients we have allows us to continue to focus ongrowing that agent count. And we think that it will continue on this path forthe near term.

JIM WILSON: Okay. Very good. Thanks.

OPERATOR: (Operator Instructions). And there are no further questions. Iwould now like to turn the floor back over to Patrick Lashinsky.

PAT LASHINSKY: Thank you all for being on the call and for the secondquarter. I'd like to thank all of our employees and agents for their excellentefforts in what was done to get through in these difficult conditions. We'reexcited about the future and look forward to talking to you on the third quartercall. Thank you very much.

OPERATOR: That does conclude our conference. We thank you for yourparticipation.


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LOAD-DATE: August 8, 2009





May 5, 2009 Tuesday

TRANSCRIPT: 050509a2184894.794

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* Raphael Gross ZipRealty Inc. - IR * Pat Lashinsky ZipRealty Inc. -President & CEO * Lanny Baker ZipRealty Inc. - CFO



* Claus Van Schtuderhan - Analyst * Jim Wilson JMP Securities - Analyst *Matt Chesler Deutsche Bank - Analyst

Presentation

OPERATOR: Good afternoon and welcome to the ZipRealty Incorporated's firstquarter 2009 earnings conference call. Today's conference is being recorded.At this time, all participants have been placed in a listen-only mode. And thefloor will be open for your questions following the presentation. It is now mypleasure to turn the floor over to your host, Mr. Raphael Gross. Please goahead, sir.

RAPHAEL GROSS, IR, ZIPREALTY INC.: Thanks. And good afternoon, everyone.With me on the call today are Pat Lashinsky, President and Chief ExecutiveOfficer of ZipRealty, and Lanny Baker, the Company's Chief Financial Officer.

Earlier today, the Company issued a press release describing its results forthe first quarter ended March 31st, 2009. A copy of that release can be viewedon the Company's website at www. ziprealty. com under the Investor Relationssection.


Before we begin, I'd like to note that during the course of this call,various remarks we make about our future performance, including 2009 business

outlook and guidance, evolving market conditions, timing of a potential realestate bottom, and our plans, goals, expectations, and prospects for theCompany, involve forward-looking statements.

Forward-looking statements also include comments regarding investing in ourbusiness, improving agent productivity, gaining market share, focusing onsustained profitability, and our confidence that we're positioned to createsignificant shareholder value over time. All of these constitute forward-lookingstatements for the purposes of the safe harbor provisions under the PrivateSecurities Litigation Reform Act of 1995.

Actual results may differ materially from the expectations, plans, andprospects contemplated in these forward-looking statements and are subject to

risks and uncertainties, including those described in the Company's Form 10-Kfor fiscal year 2008 and other filings with the Securities and ExchangeCommission, copies of which can also be viewed on the Company's website underthe Investor Relations section. The risk factors identified in our SEC filingsare incorporated by reference into this conference call.


Please note that to supplement its consolidated financial statementspresented in accordance with generally accepted accounting principles in the


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United States, ZipRealty uses a non-GAAP measure of net income or loss it refersto as pro forma net income or loss earnings that exclude certain items,including stock-based compensation, non-cash income taxes, and certain one-timeitems if any.

These non-GAAP adjustments are provided to enhance the user's overallunderstanding of ZipRealty's current financial performance and its prospects forthe future. ZipRealty believes these non-GAAP results provide useful information

to both management and investors by excluding certain items the Company believeare not indicative of its core operating results and thus presents a moremeaningful basis for comparison between periods.

Further, this non-GAAP method involves key data management uses for planningand forecasting its future operations. The presentation of this additionalinformation should not be considered in isolation or as a substitute for resultsprepared in accordance with GAAP and can be viewed at the Company's websiteunder the Investor Relations section.

Please note that we believe it is appropriate to modify our definition ofexisting markets given the industry downturn as new markets take more time to


FOCUSreach scale. Accordingly, beginning with this reporting cycle, new markets willbe combined with existing markets once they have been in operation for two fullcalendar years. With that out of the way, I'll turn the call over to Pat.

PAT LASHINSKY, PRESIDENT & CEO, ZIPREALTY INC.: Thanks, Raph. And thanks toeveryone on the call today. ZipRealty's results for the first quarter of 2009reflect the strength of the Company's strategic position. Despite a difficultmarket environment that brought our margins and bottom line down relative to ayear ago, we grew the top line and sustained the operating momentum we havebuilt with an innovative online presence, unmatched behind-the-scenes operatingtechnology, and a growing customer-oriented local agent force.

We were pleased to achieve a 33.6% increase in closed transactions, resultingin our net revenues increasing 5.3% for the period to $21.7 million.

Within the quarter, we saw strengths and weaknesses. And January wasparticularly difficult for our clients. We believe numerous factors contributedto January being such a difficult month. First, layoff announcements filled thenews. And potential buyers were left wondering if they were going to have jobs.Second, there were great fears in the markets that home prices would continue todrop dramatically. Third, many potential buyers were concerned that they wouldstill not be able to qualify for a conventional loan.


Finally, there was uncertainty about President Obama's and Congress's

economic plan. And we believe this uncertainty slowed loan approvals by banksand credit suppliers until they better understood the new regulations andrequirements. The clients who were active in January tended to be extreme valueseekers, hitting 20% or more below listing price and also finding little sellerinterest.

So the net result in January was continued steep declines in home pricesthroughout much of the nation without the resulting bouts in transaction volumethat we would've normally expected.

As we moved into February, however, we started to see changes and


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improvement. Transaction volumes picked up. Buyers were more willing to makeoffers. Sellers were more willing to negotiate. And inventory did not have theseasonal increase we normally see in February. The momentum carried into March.And we exited the quarter with healthier transaction volume, although at lowerprice points year over year.

With that as a backdrop, let me discuss some of our key metrics for the fullquarter. Closed transaction volume was up more than 30% year to year for the

third consecutive quarter. Distressed property transactions continued to be veryimportant, accounting for 53% of our transaction mix for the period, up from


46% in the fourth quarter and 36% in the third quarter.

Home prices for the first quarter dropped by about 23% year over year. If yourecall, home prices were down between 15% and 19% in each quarter of 2008. Sothe early 2009 price declines were more pronounced than what we experienced lastyear. And the 2009 trend is compounding price erosion we experienced last year.Since the start of 2007, our average home sale price has now fallen 35%. And inone quarter of our markets, we've seen price declines in more than 45% over thatperiod.

During the first quarter, we grew our agent base by 173. And we now have 704more agents than we did one year ago. We continue to attract great people withthe strength of our technology and platform. And that is especially the casegiven current market conditions.

Agent productivity was flat compared to last year's first quarter at 0.48transactions per agent per month. Our experienced agents achieved increasedproductivity. But that improvement was countered by lower productivity among newZip agents who are taking longer to become productive in the current climate.

As always, we focused on controlling costs during the period. And we managedprovement in G&A costas evidenced by the year-to-year im


as a percentage of revenue. Overall, total operating expenses were down fromlast year's first quarter despite higher revenues, all good signs.

To sum up the quarter, as tough as January was, volumes for the quarter weresolid. But both net revenue and profits were lower than we would've liked. Weare encouraged by what we have seen moving into the key spring season. And Iwill comment further after Lanny reviews our financial results in greaterdetail. Lanny?

LANNY BAKER, CFO, ZIPREALTY INC.: Thank you, Pat. At the end of the firstquarter of 2009, we are still working our way through a very challenging

operating environment with home prices under great pressure. The effects of homeprice declines are evident in our gross margins and our net loss for the firstquarter, both of which were below year-earlier levels.

Our loss per share was larger than a year ago, impacted additionally by lowerinterest income and fewer outstanding shares in the current period. And yet weare seeing early hints of stabilization in some regional markets. And we believethat our ability to gain share today will provide attractive returns and expandour growth potential into an eventual recovery.


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We plan to continue prudent investment in marketing, technology, and ouragent force while keep a close watch on the bottom line and our cash position.Consistent with this overview, the operating highlights of the first quarterinclude strong website traffic; a 15% year-to-year increase in new customerleads; and more importantly a 44% increase in client activity as measured inactual home visits and offers; an increase in our agent count, and steady

productivity; an improved lead-to-close conversion rate, which helped propelZipRealty's transaction volume gain even as nationwide transaction volumedeclined about 7% year to year according to the National Association ofRealtors.

The first quarter also presented its challenges, the most significant ofwhich was a 23% year-to-year decline in the average value of homes sold byZipRealty and net transaction revenue per close, which declined by about $1,300or 20% year to year to an average of $5,119 in the first quarter.

The compression in revenue per transaction was the most severe that we'veseen in the cycle. And it put pressure on gross margins, which were 36.3% in thefirst quarter compared to 40.2% a year ago. I'll provide more color on gross

margins shortly.


Turning to the P&L, first quarter 2009 net revenue totaled $21.7 million, a5% increase year over year. Due to seasonality, the first quarter is usually thesmallest quarter of the year in terms of revenue.

Net transaction revenue, which excludes referral and other revenue, was $21.4million, a 6% increase from last year. Transaction revenue per close was downyear to year in all but 4 of our 40 districts with the steepest declines inNevada and California. Here and elsewhere, non-standard transactions, such as

foreclosure and short sale, represent an increasing share of our transactionvolume and have a negative effect on average price since these transactions aretypically occurring at prices up to 25% below our normal resale transactions.

The cycle of home price correction and an increasing mix of non-standardtransactions began three years ago. And as tough as it's been and challenging asconditions remain today, we are starting to see slightly different trends.First, in the regions most exposed to foreclosures and short sales, while thatkind of activity is still very high and it's likely to remain so for the nextseveral quarters, the year-to-year rate of increase in foreclosures and shortsales appears to be moderating.

And second, in the markets that were first to experience the downdraft, we

are starting to see slightly more encouraging business trends. For instance,Q1 2009 ZipRealty Inc. Earnings Conference Call - Final FD (Fair

FOCUSZipRealty's revenue from California, Nevada, Arizona, and Florida districts grewby 12% year to year in the first quarter, even though the combined revenue inour other markets was still down about 1% for the quarter.

As encouraging as this looks, however, we're still very cautious about thenear-term outlook. And note that the fundamentals are a mixed bag. In theNortheast, for example, our first quarter revenue from existing markets was down16% year to year in the first quarter. And both volume and prices were down year


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to year.

Returning to the P&L, the referral and other revenue line declined about 28%for the first quarter versus the prior period. And these are typicallyhigh-margin revenues for the Company. We are working on rebuilding revenue andexpanding our opportunity in this part of the business.

Moving onto expenses, cost of revenue grew 12.1% in the first quarter,

outpacing revenue growth at 5%. As a result, our gross margin declined by almostfour points. And gross profit was down 5% year to year in the first quarter.

Slightly more than two points of the decline in gross margins in the firstquarter was due to a 25% increase in costs related to agent health insurance,expense reimbursement, and awards for tenure and experience. These


semi-variable expenses typically account for less than one-quarter of cost ofrevenue. And they tend to move in relation to headcount, not in relation toprices, home prices.

Accordingly, when home prices are as weak as they were in the first quarter,

these expenses contribute to reducing our gross margin. And when pricecomparisons eventually move upward in our business, these costs of revenueshould have an opposite and positive effect on gross margins. In the meantime,we will manage our field costs aggressively and have taken steps to reduce theimpact going forward.

Another one point of the decline in gross margins came from slightly highercommissions paid to our agents in the first quarter of 2009 than a year ago.This reflects higher productivity among more seasoned agents with higherpayouts. Finally, the decline in non-transaction revenue compared with a yearago accounted for about 0.5 point of reduction in gross margin in the firstquarter.

Moving down to corporate costs, excluding a $625,000 one-time legal expenseincurred in the first quarter of 2008, our underlying operating expenses weredown about 1% year to year in the first quarter, reflecting a focus on drivingoperating leverage against centralized investments in technology marketing and


G&A. We're proud of our ability to keep corporate costs flat, even as we had 29%growth in traffic to the website, 30% more agents, and 34% more closes in thisyear's first quarter than a year ago.

We believe that this operating leverage is an important component of ourbusiness model that will help drive significant earnings and earnings growth asrevenue and gross profit reach a certain scale and growth returns to our market.

Product development expenses increased 8% in the first quarter but wererelatively unchanged as a percent of revenue. Higher website traffic, a new datasite in Colorado, and continued investments in the site and agent tools drovethe higher spend.

Sales and marketing costs declined slightly year to year. We invested more incustomer acquisition in the first quarter, increasing our spend at amid-single-digit rate from last year. But we continued to become more efficient.And our cost per lead was down 7% year to year in the first quarter.

General and administrative expenses were down 6% year to year and declined as


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a percentage of revenue. Unfortunately, though, tight operating costs and 5%revenue growth were not enough to offset the decline in gross margins in thefirst quarter. And our operating loss was $7.9 million in the first quarter of


2009 compared to a $7.6 million loss, excluding the legal charge, in the firstquarter of 2008.

Below the operating line, interest income was $309,000 in the first quarterof 2009, down from $911,000 in the first quarter of last year, reflecting loweraverage cash balances and reduced interest rates in the current period.

Our net loss for the quarter was $7.5 million compared with a net loss of$7.3 million in the first quarter of 2008. On a pro forma earnings basis,excluding non-cash stock compensation costs and the legal charge in the firstquarter of '08, our net loss was $6.6 million versus a $5.6 million loss in thefirst quarter of last year.

A lower share count due to last year's share repurchase increased thecalculation of pro forma net loss per share to $0.33 in the first quarter

compared to a pro forma net loss of $0.24 per share in the first quarter of2008.

Let me discuss the first quarter results for our 23 existing and 12 newmarkets. In existing markets, net revenue for the quarter decreased by 0.6% to$18.5 million with a 25.6% increase in the number of transactions more thanoffset by a 20.9% decrease in average net revenue per transaction in our


existing markets. Market-level income from existing markets was $384,000compared to $700,000 a year ago in the first quarter.

In new markets, net revenue for the quarter was $2.9 million, up 86% from the

first quarter of 2008. And it represented approximately 14% of total net revenuein the quarter. Our new markets collectively lost approximately $950,000 duringthe quarter compared to a loss of roughly $940,000 last year.

Turning to the balance sheet, we ended the quarter with $45 million of cash,cash equivalents, and short-term investments and without any long-term debt. Weplan to invest further in our business in 2009. And we remain comfortable withour capital and liquidity position.

Shifting to our financial outlook, we expect declines in home prices topersist throughout 2009 with some portions of the country starting to show signsof bottoming while others still work their way through the cycle. We expectstrong transaction volume across 2009 with foreclosures and short sales

continuing to run well above year-earlier levels in most regions. We plan toinvest in our agents and seek to attract growing numbers of new customersthroughout 2009. And we will be vigilant on overhead expenses.


For the full year, we continue to expect revenue growth in themid-single-digit to low-double-digit range compared to 2008 levels. In terms ofgeographic expansion, we recently added the Portland, OR, market at the end ofApril. Other newer markets, like Virginia Beach, Raleigh-Durham, Charlotte, and


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Also helping the cause nationally, as we saw last week, was a bounce back inconsumer confidence levels. So all and all, we remain cautious. But we'reoptimistic. We still believe that a market bottom could form sometime in theback half of 2009 or more probably early into 2010, although numerous factorscould certainly affect that timeframe.

And while the market works through this process, we remain energized andexcited about our market position and continue to invest in initiatives that


improve the customer experience and our agents' productivity.

One area where we continue to make progress is technology, specifically toolsthat make agents productive and in turn lead to customer satisfaction scores inthe high 90s. To that point, we launched a new website version in March. One ofour most exciting features is the home information pages for more than 66million homes. This feature is available regardless of registration status andgives consumers the ability to compare the home they're looking at to others inthe neighborhood.

We believe this feature will provide our sell-side clients with the added

advantage of great centralized information about their home's worth relative tocomparables in their neighborhood from three different estimate sources. All ofthese features are designed to make ZipRealty clients better informed andprepared than other buyers in the market.

In terms of our market position, it's worth briefly restating that most ofour competitors are either very large or fairly small. Some of the largerplayers are dealing with expansion costs and debt levels taken on in the lastcycle. And many of our small peers are challenged by a lack of capital. Ineither case, we don't believe they are necessarily in an investment mode likeZipRealty. And few if any of them share our level of commitment to developing


technology that makes the process easier, more transparent, and satisfying forconsumers and agents.

Bringing our unique technology-driven platform to markets across the US haselevated our brand and caused both agents and consumers to rethink thetraditional residential real estate model. And ZipRealty's national rankingsprove that out.

According to Real Trend, ZipRealty is now the ninth largest brokerage interms of closed transaction size in 2008, a jump of six positions over 2007. Wealso ranked tenth in terms of dollar volume. And we made these upward moveswithout acquisitions.

The centerpiece of our momentum, as always, is the ZipRealty website, whichis consistently the most trafficked brokerage site in the residential realestate. And our users' engagement on the site is almost unmatched within thecategory.

So in closing, during a difficult time in our industry, we will continue toinvest in technology and quality people. And as we begin to look for signs ofstabilization in the market, we're as confident as ever that we are positionedto move further ahead of most in our industry and create significant value for



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shareholders over time.

With that, I'd like to open the line up for questions. Operator?

Questions and Answers

OPERATOR: Thank you, sir. (Operator Instructions) All right, and we'll takeour first question from [Claus Van Schtuderhan].

CLAUS VAN SCHTUDERHAN, ANALYST: Claus Van Schtuderhan. Hi, guys. Did I get itright? The cash burn in the quarter was the $6.6 million non-GAAP loss. Is thatright?

LANNY BAKER: No, the cash in the quarter was -- if you look at the cash flowstatement, about $4.1 million from operations and another $400,000, $500,000from capital expenditures.

CLAUS VAN SCHTUDERHAN: That's was what, $5 million cash burn? Is that whatyou're saying?

LANNY BAKER: Yes, $4.1 million for cash used in operations and $200,000 in

capital expenditures. So it's about $4.5 million, a little bit less than $4.5Q1 2009 ZipRealty Inc. Earnings Conference Call - Final FD (Fair

FOCUSmillion.

CLAUS VAN SCHTUDERHAN: $4.5 million? Okay. And did you say what you expectthe cash burn for the year to be and the cash position at the end of the yeartherefore?

LANNY BAKER: No, we didn't. But I think I can address it a couple of ways.First of all, the seasonality in our business is such that normally the firstquarter is the smallest in terms of revenue. And therefore, it's simply ourheaviest in terms of cash used. And if you work with the numbers in our

financial statements and in the outlook, there's some useful direction there. Weexpect to narrow our GAAP net loss for the year from $14.7 million. Depreciationand amortization is running about $2.5 million in the last 12 months. Non-cashcompensation expenses are about $4 million annually. Capital expenditures shouldbe less than the $2 million we invested last year. So if you put those piecestogether, cash used from operations less CapEx would be about $10 million. Andthe year-end balance should be in the range of $40 million, as we've saidpreviously.

CLAUS VAN SCHTUDERHAN: Okay. I've got a couple of other questions. Well, letme just ask one. And then I'll go back in the queue. I don't want to monopolizeit. On market share, I mean, previously you said what -- increases in market


FOCUSshare. And I always thought that was one of the strong points. So can you talkabout market share increases? I assume there's only increase, right?

LANNY BAKER: Sure. There are a couple of ways to look at it. I thinkhistorically the way we've talked about market share is we've comparedZipRealty's growth rate to the growth rate of the markets in which we operateinto the national market overall.

CLAUS VAN SCHTUDERHAN: Right.


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LANNY BAKER: So if you start with us and you look at transaction volume, ourtransaction volume was up 34%. The markets in which we operate were up about 27%in volume. So we were about 7 points higher growth rate there. Now the nationalpicture is about a 7% decline in transaction volume in the quarter. So that'sone way of looking at it.

Another way would be to go into each one of the individual markets and lookat our share of size or our share of --.

CLAUS VAN SCHTUDERHAN: How about California? I mean, that was your firstmarket. That's the number you've quoted in the past.


LANNY BAKER: Yes. In California, our volume was up 62% in the quarter yearover year. The California market was up about 80% for the quarter in terms oftransaction volume. And I think the difference between our growth and that inthe market is the foreclosure phenomenon, which is providing foreclosure andshort-sale specialists with a temporary surge in their market share that I thinkis reflected in those numbers.

So while we're participating pretty fully in the foreclosure and short-saleside of the market, there's some players out there who really make this aspecialty. It's all they do. And they're seeing tenfold increases in volumeright now.

CLAUS VAN SCHTUDERHAN: These guys presumably will go away when that's over.

LANNY BAKER: Yes, I think they're special providers who ran into the marketduring these windows.

CLAUS VAN SCHTUDERHAN: Okay. I'll go back in the queue.

OPERATOR: Thank you. And we'll take our next question from Jim Wilson with

JMP Securities.


JIM WILSON, ANALYST, JMP SECURITIES: Thanks. Good afternoon, guys.

PAT LASHINSKY: Hi, Jim.

JIM WILSON: Was wondering -- I mean, as I'm playing with your guidance,trying to work through some numbers here, it suggests to me, unless I gotsomething else wrong here that you're expecting your transaction count peragent, which is basically flat year over year in Q1 to start improving the restof the year.

PAT LASHINSKY: Yes, I think that that's true. I mean, there are a couplereasons for that. Historically, that's happened because as you go intoseasonality and you get into the main selling season, we do see productivityincreases. Second of all, as we've hired a large number of people in the firstquarter and as they become more seasoned and they get more experience goingforward, that will drive up our productivity as well as we get to that point. Sothere's probably a couple of things that will all drive together to drive upthat agent productivity starting in the second quarter.

JIM WILSON: Okay. And that should obviously help gross margins as well?


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PAT LASHINSKY: Yes.

JIM WILSON: Okay. All right. And could you comment maybe just -- anotherquestion on sales pace in some of your other individual markets. Obviously, you

noted California, but anything else of note particularly good or particularlybad?

PAT LASHINSKY: Sales pace, is that what you were asking about?

JIM WILSON: Yes.

PAT LASHINSKY: I think that the thing that we've been probably most energizedby and have felt the best about is that other markets that have been throughreally difficult times, such as Nevada and Florida, seem to really be comingback and seeing some positive energy that we haven't seen in awhile,particularly Florida. Florida has really been hammered significantly over thelast few years. And we're starting to see some initial rays of sunshine coming

through and some beginning of light down there, which we have not seen in quiteawhile.

JIM WILSON: Okay. All right. Great. Thanks.


PAT LASHINSKY: Thanks, Jim.

OPERATOR: (Operator Instructions) We'll take our next question from MattChesler with Deutsche Bank.

MATT CHESLER, ANALYST, DEUTSCHE BANK: Hi. It's Matt Chesler for Jeetil Patel.

Good afternoon.

PAT LASHINSKY: Hi, Matt.

MATT CHESLER: Hi. Just wanted to revisit the gross margins -- and you'repretty detailed about breaking down the contributors to the margin decline inthe quarter. Apart from the productivity you just mentioned in response toanother caller's question, were there any quarter-specific issues that drovedown the margin? Or was it really just what you cited and that the businesscomes back, should see smaller year-over-year declines going forward?

LANNY BAKER: You're breaking up a little bit. But I don't think there wasanything out of the ordinary necessarily in the quarter. The biggest impact in

gross margins is very clearly the decline in average home sale price. And whilethe bulk of our cost of revenue is commission and variable income that movesright along with that change in price, as Pat said, we're now looking at


prices that over the last 24 months are down 35% and more than that in some ofour markets. And there's a component of the cost of revenue that's related tothings like expense reimbursement and health insurance and some of the awardsprograms that is not variable with house price. And there was some really kindof deleveraging or compression against that.


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And then the other element was the reduction in non-transaction revenue,which is a priority for us to build that pipeline and build that stream. Thoseare very high margin dollars. And we were down about $160,000 in revenue year toyear. And most of that came right off the gross profit margin line as well.

MATT CHESLER: Okay. So you said that you were working on rebuilding thatreferrals and other line. What's the update on how -- the timeline for when thatline item might begin to show some rebound?

PAT LASHINSKY: As Lanny said, it's been a priority for us for awhile now. Andwe continue to make pretty good progress on it. I expect that we will have somereal results to show sooner rather than later, not sure on the exact timing. Butwe've put a lot of time and effort into it. We understand the importance. And wethink that in a fairly short period of time we'll have something to share there.


MATT CHESLER: All right, that's it for me. Thank you.

PAT LASHINSKY: Thanks.

OPERATOR: (Operator Instructions) And with no further questions at this time,I'm going to go ahead and turn the conference back over to Patrick Lashinsky.

PAT LASHINSKY: We'd like to thank everyone for being on the call and all ofour agent employees for their great efforts in this quarter and for the busytime we had. We look forward to talking with you all next quarter. Thank youvery much.

OPERATOR: And that concludes today's conference. We thank you for yourparticipation and hope that you have a wonderful day.

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LOAD-DATE: June 8, 2009





March 12, 2009 Thursday

TRANSCRIPT: 031209a2109468.768

LENGTH: 6404 words


BODY:


* Raphael Gross ZipRealty Inc. - IR * Pat Lashinsky ZipRealty Inc. -President & CEO * Lanny Baker ZipRealty Inc. - CFO



* Jeetil Patel Deutsche Bank - Analyst * Jim Wilson JMP Securities - AnalystPresentation

OPERATOR: Please stand by. We're about to begin. Good day, everyone. Andwelcome to the ZipRealty Inc.'s fourth quarter 2008 earnings conferencecall. At this time, all participants have been placed into a listen-only mode.And the floor will be open for your questions following the presentation. It is

now my pleasure to turn the floor over to your host, Mr. Raphael Gross. Pleasego ahead, sir.

RAPHAEL GROSS, IR, ZIPREALTY INC.: Thanks. And good afternoon, everyone.With me on the call today is Pat Lashinsky, President and Chief ExecutiveOfficer of ZipRealty, and Lanny Baker, the Company's Chief Financial Officer.

Earlier today, the Company issued a press release describing its results forthe fourth quarter and full year ended December 31st, 2008. A copy of thatrelease can be viewed on the Company's website at www. ziprealty. com under theInvestor Relations section.


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Before we begin, I'd like to note that during the course of this call variousremarks we make about our future performance, including 2009 business outlookand guidance, evolving market conditions, and our plans, goals, expectations,and prospects for the Company involve forward-looking statements.

Forward-looking statements also include comments on outperforming the market andgaining share, focusing on sustained profitability, opening new markets,investing in our business, improving productivity, and the timing of a potentialreal estate bottom. All of these constitute forward-looking statements for thepurposes of the safe harbor provisions under the Private Securities LitigationReform Act of 1995.

Actual results may differ materially from the expectations, plans, andprospects contemplated in these forward-looking statements and are subject torisks and uncertainties, including those described in the Company's Form 10-Qfor the third quarter ending September 30th, 2008, and other filings with theSecurities and Exchange Commission, copies of which can also be viewed on theCompany's website under the Investor Relations section. The risk factors

identified in our SEC filings are incorporated by reference into this earningscall.

Please also note that the supplement is consolidated financial statementspresented in accordance with generally accepted accounting principles in the


United States. ZipRealty uses a non-GAAP measure of net income or loss it refersto as pro forma net income or loss earnings that excludes certain items,including stock-based compensation, non-cash income taxes, and certain one-timeitems if any.

These non-GAAP adjustments are provided to enhance the user's overall

understanding of ZipRealty's current financial performance and its prospects forthe future. ZipRealty believes that these non-GAAP results provide usefulinformation to both management and investors by excluding certain items theCompany believes are not indicative of its core operating results and thuspresents a more meaningful basis for comparison between periods.

Further, this non-GAAP method involves key data management uses for planningand forecasting its future operations. The presentation of this additionalinformation should not be considered in isolation or as a substitute for resultsprepared in accordance with GAAP and can be viewed at the Company's websiteunder the Investor Relations section.

With that out of the way, I'll turn the call over to Pat.

PAT LASHINSKY, PRESIDENT & CEO, ZIPREALTY INC.: Thanks, Raph. And thanks toeveryone on the call today. Let me start by making a few high-level comments


on the quarter and the year. We are pleased to report that net revenuesincreased 18% in the fourth quarter to $25 million, in line with ourexpectations in what was a very tough economic environment.

Close transactions were up dramatically in the fourth quarter, a 42%year-over-year volume increase for ZipRealty that compares with an industry-wide


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decline of about 5.25%. And that growth rate advantage for ZipRealty widenedsteadily throughout 2008.

Our strength on volume was partially offset by lower average home saleprices, which dropped 18% year to year. That softness in home prices impactedour profitability. And we were disappointed to fall below our bottom lineoutlook for the quarter and the year. However, there were signs in 2008indicating that our strategy is working. And our market position is as strong as

ever.

Specifically, we increased revenues and gained market share once again. And2008 marked the tenth consecutive year of top line growth for ZipRealty, no easytask in any industry.

We believe that our value proposition and technology enhancements continue toattract more people to our website. Further, increased agent productivity led


to higher conversion rates and overall market share gains. And finally, thesegains were experienced while achieving customer satisfaction for 2008 in the 96%range.

In addition to revenue, however, we're focused on costs. And we continue tomanage the business tightly in the current environment, as evidenced by a nicedecline in G&A as a percentage of revenue year over year. That said, we have notstopped making investments designed to enhance the customer experience, toattract new customers and agents, make our agents more productive, and to scaleeffectively when the market recovers. We believe these investments will beimportant factors fueling our future growth.

We don't know when a recovery may occur. But as we look at the country, wesee different regions in varying stages of either deterioration or recovery. AndI'd like to share a bit of that with you now.

In California, the volume spikes we've seen at lower average transactionvalues suggests that the market has begun to stabilize. In many cases, we'reseeing an increased meeting of the minds between buyers and sellers,particularly at low- to mid-level home price points. And while the marketoverall may have yet to bottom in California, we see real progress in the state,which appears to be ahead of the rest of the country. In fact, in some parts


of Southern California, distress prices have gotten to the point that we aredealing with multiple offers as our clients are trying to buy homes.

Florida, Nevada, and Arizona are also working their way toward stability butcurrently lag California. Simply put, there's still significant inventory levels

in these markets. And they haven't shown the same level of price capitulation ason the West Coast. And we have seen that there's a certain amount of pricecapitulation and affordability required before the housing market starts toreally move.

The east and the northeast have shown some stability over the last years. Butprices are certainly declining. Our sense is that this region was never asinflated as California, Florida, Arizona, or Nevada. So the markets in the eastmay not have as far to go on the down side.

Last, the Midwest has hung in pretty well over the last two years. But we're


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starting to see foreclosures increase here as the economy deteriorates andunemployment rises. All of this leads us to believe that a market bottom couldpossibly form sometime in the back half of 2009 or more probably early into2010, although numerous factors could certainly affect the timeframe.


First, rising unemployment is a concern as people struggle to save for downpayments. Second, the credit markets remain tight. And the availability ofpurchased mortgages is still a bottleneck. Third, the current foreclosure marketsurge is adversely affecting home prices and traditional sellers. Traditionalsellers are finding the market particularly difficult as they are not onlycompeting against an enlarged inventory of homes, but they also have to competeagainst banks, whose prices on foreclosed homes are significantly belowtraditional sellers' expectations.

Mixed in with these cautionary factors are potential sources ofencouragement. It is obvious that the current administration in Congress believethat riding the housing market is a cornerstone to getting the rest of theeconomy going. To that end, we have seen the introduction of several programs

designed to help homeowners reduce foreclosures and to make sure that creditcontinues flowing into housing. The $8,000 first-time homebuyer program and theforeclosure abatement program are both good examples.

Unfortunately, we have yet to see the programs really stimulate or helpdemand. And the program that could and should've done that, the $15,000 credits pulled from the budget. Nonetheless, we are encouraged bythe amount of interest and effort at the federal level to get the housing marketstabilized and moving again.


Despite these market dynamics, we believe ZipRealty is extremely wellpositioned. As you know, we've invested in 12 new markets over the past 24

months and now have a presence in 35 metros, which collectively account fornearly 40% of the real estate market in the United States. It's been acontrolled and conservative expansion, where we've been careful not tooverextend our resources.

We've also invested in technology, specifically in tools that are designed tomake our customers happier and our agents more productive. Evidence that we'remaking progress includes the fact that the ZipRealty website is consistently themost trafficked brokerage site in residential real estate. And our users'engagement on the site is almost unmatched within the category.

Typically 40% of the visitors who come to the site do so organically, whichmeans we don't pay to attract these users. Best of all, our website continues to

be of great value to our agents. And we're converting our online leads intoZipRealty real estate customers in record numbers. Consequently, we believe wehave a great footprint. Our brand is increasingly well known. And we're makingthe most of our market position to outperform our peers.

Our competitors fall into two groups generally, either very large or fairlysmall. Some of the larger players are dealing with expansion costs and debt


levels taken on in the last cycle that are forcing them to cut back and retract.Our smaller peers often lack the capital necessary to survive and grow through


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today's prevailing conditions.

As a midsized company with a strong liquidity position, we approach 2009cautiously but with an understanding that we have an opportunity to prudentlyinvest while others may be pulling back. It's an opportunity to gain share. Andwe feel very good about allocating modest levels of capital to the business,given the trends in many of the metrics shared earlier.

Not surprisingly, a portion of what we'll invest will be in technology. Infact, we're launching a new website version later in March. As with allimprovements, we've listened to our clients and are responding to theirrequests.

Included in this release is a keyword search that will allow clients tosearch for certain words in the text of a description, such as a granitecountertop. We've added neighborhood and school boundaries on our maps. Andwe're also launching home information pages on more than 66 million homes. Allof these features are designed to make ZipRealty clients better informed andprepared than other buyers in the market.


FOCUSThese and a few other new features, along with local agent expertise should

position us for productivity gains, which has been a bright spot recently. Infact, our productivity in the fourth quarter increased year over year for thesecond straight quarter. And we credit better recruitment and training,retention of great agents, and our willingness to part with agents that haven'tcontributed.

Ultimately, we believe it's critical that buyers and sellers work withknowledgeable agents in this environment. And that's where we believe ourtechnology and business model have an edge. So at the end of the day, we'reexecuting well in a tough environment. And we've demonstrated that we can growin up markets and down markets.

We're certainly cautious about 2009. But we like our seat at the table andhave a great deal of confidence in the future, given our progress.

And now, I'm very pleased to introduce Lanny Baker, who joined ZipRealty inDecember as our Chief Financial Officer. Prior to joining ZipRealty, Lanny wasChief Financial Officer of Monster Worldwide, the global leader in onlinerecruitment. In addition to managing financial operations and reporting, Lannya series ofster's strategic and financial planning, includingimportant acquisitions, partnerships, and capital allocation decisions.


Earlier in his career, Lanny spent 16 years as a top-rated sell-side research

analyst. And we are excited about the contribution he has already started tomake to all facets of our business. Lanny?

LANNY BAKER, CFO, ZIPREALTY INC.: Thank you, Pat. I am tremendously excitedto be part of the ZipRealty team. And it's a privilege to be on the call today.Before I get into the quarter, I want to share what brought me to ZipRealty andwhat I've found here in my first three months.

First, I have enormous admiration and respect for Pat, the executive team,and the Board of Directors at ZipRealty. Like me, this group is focused on thelong-term opportunity that emanates from creating an outstanding, innovative,


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and deeply customer-oriented company, leveraging technology and the internet inthe process.

The leadership and employees of ZipRealty know real estate, the internet, andthe consumer cold. The team is passionate about near-term execution, servingcustomers, employees, and shareholders, and about values that are essential tome, including analytical rigor, integrity, transparency, and teamwork.

Second, I see not only enormous potential at ZipRealty in the long term, butalso convincing momentum in the present. ZipRealty has opened a wide growth


rate advantage over most of its peers in an environment that has brought of theindustry to its knees.

And I believe ZipRealty's combination of leading online real estate assetswith customer-focused local agents is a powerful advantage far ahead of most ofthe industry and positioned to deliver strong long-term growth.

Third, we also share a view that there is much more we can do to servecustomers in the real estate industry, given ZipRealty's unique collection of

assets. I'm excited to help chart our strategic course toward thoseopportunities over time. But let me also reiterate a key point. The top priorityfor ZipRealty remains gaining market share within the $50 billion real estatebrokerage industry and doing so on the path to profitability.

In my first 100 days at ZipRealty, I've been thrilled to get to know awonderful team of highly committed people working with world-class technology inan environment of teamwork and healthy challenge. Where we've seen room forchanges in process and practice, we've acted quickly. And we have additionalopportunities like that ahead.

But the reality is that Pat, Dave Rector, [Jenny Coombs], and the team havety forreat work on the financial operating side, providing the opportuni


us to focus on strategy, the business model, and the Company's long-term growthand profitability.

Now turning to the financials, ZipRealty's results for the fourth quarter andthe full-year 2008 reflect the fundamental strength of the Company's strategicposition, as well as the significant impact of turbulence in the real estatemarket. We entered 2009 positioned for continued volume, revenue, and marketshare growth with operating costs under tight control and a balance sheet thatis strong and liquid.

Consistent with those observations, the highlights of our fourth quarter

include a 40% year-to-year increase in unique visitors coming to the ZipRealtywebsite, which positions the Company as the online leader amongst real estatebrokerages. Next, higher lead-to-customer conversion resulted in a 43%year-to-year increase in close transactions, accelerating from 31% in the thirdquarter and 10% in the first half, driven in part by improved agentproductivity.

Revenue growth of 18% year over year compares to 12% growth in our thirdquarter. And revenues declined for many of our peers. And a healthy year-to-yearimprovement in our net loss was propelled by a 47% incremental operating marginon the revenue growth we achieved over the fourth quarter of '07.


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At the same time, we continue to battle the cyclical headwinds Pat described.We saw an 18% year-to-year decline in the average value of homes sold byZipRealty during the fourth quarter. And net transaction revenue per closedeclined a little over $1,100 year to year for an average of $5,690.

The pressure on revenue per transaction and a reduction in non-transaction

revenue lowered our gross margin to 39% in the fourth quarter compared with40.5% in Q4 '07. We expect a decline in home prices and its impact on revenueper transaction and gross margin to remain a primary challenge during 2009.

Turning to the P&L in greater detail, fourth quarter 2008 net revenue totaled$25.1 million. Net transaction revenue, which excludes referral and otherrevenue, was $24.7 million, a 19% increase from last year. As mentioned, closetransactions increased by 42.8% for the quarter. But this was offset by lowerhome selling prices.

As you might expect, we've seen a moderation in sales of new homes. However,this has been more than offset by a surge in non-standard transactions, such asREO, foreclosure, and short sale. Nearly 46% of our transactions in the fourth

quarter were non-standard transactions, which roughly matches the Nationaliation of Realtors data. The mix shift toward non-standard is pullingoverall revenue per close down as these transaction values are currently about


27% lower than those on standard transactions.

The referral and other revenue line dropped about 19% for the fourth quarterversus the prior period, reflecting the end of our E-LOAN relationship inOctober. Though the absolute dollar amount is small, these are typicallyhigh-margin revenues for the Company. We are working to replace the E-LOANrelationship and see non-transaction revenue as a real source of revenue andprofit opportunity in the future.

Our net loss for the fourth quarter was $2.7 million compared with a net lossof $5.9 million in the final quarter of 2007. On a pro forma basis, excluding a$2 million one-time gain from legal settlement in the recent quarter andexcluding non-cash stock compensation cost in both periods, our net loss was$3.7 million versus a $5 million pro f

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