ZIPR Calls

FOCUS - 1 OF 23 STORIES
Copyright 2009 CQ Transcriptions L.L.C.

All Rights Reserved.
Copyright 2009 CCBN, Inc.
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 (Fair

FOCUS
Conference Call Participants
* Jim Wilson JMP Securities - Analyst
Presentation
OPERATOR: Good morning and welcome to the ZipRealty Incorporated Second

Quarter 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 questions
following the presentation. It is now my pleasure to turn the floor over to your
host, 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 Executive
Officer of ZipRealty, and Lanny Baker, the Company's Chief Financial Officer.
Earlier today, the Company issued a press release describing its results for
the second quarter (inaudible) www. ziprealty. com under the Investor Relations
section.
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

FOCUS
activity, including 2009 business outlook and evolving market conditions involve
forward-looking statements.
Actual results may differ materially from the plans, goals, and activity
contemplated in these forward-looking statements and are subject to risks and
uncertainties, including those described in the Company's Form 10-K for fiscal
year 2008, a copy of which can be viewed on the Company's website under the
Investor Relations section. The risk factors identified in our SEC filings are
incorporated by reference into this earnings call.
Please also note that to supplement its consolidated financial statements

presented in accordance with generally accepted accounting principles in the
United States, ZipRealty uses a non-GAAP measure of net income or loss it refers
to as pro forma net income or loss earnings that exclude certain items,
including stock-based compensation, non-cash income taxes, and certain one-time
items if any.
The presentation of this additional information should not be considered in

isolation or as a substitute for results prepared in accordance with GAAP and
can be viewed at the Company's website under the Investor Relations section.

FOCUS
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 achieved
solid volume and revenue growth in the second quarter and further expanded
market 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 prices
in our margins and operating loss. But we ended the quarter with roughly the
same amount of cash as we started with. And we're focused on getting to
profitability while investing in the Company's future.
I'll first review ZipRealty's operating and financial performance in the

second quarter and first half of 2009, then update you on a couple additional
financial 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, lower
average home sale prices, and sharply higher transaction volumes in most
markets. But we also saw some new developments in the second quarter with
entory, greater price stability, and new regulations that may
FOCUS
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 the
second quarter's closed transaction volume exceeded our prior quarterly record
by 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 Florida
markets.
I mentioned that some fundamentals began to change in the second quarter. And
one such area is nonstandard transactions. Foreclosures and short sales
represented 43% of our volume in the quarter. And while that's well above the
29% 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 sway

over the market for several more quarters. But they're signs that the influence
of nonstandard transactions may be stabilizing.
On the price side, ZipRealty's transaction revenue per close of $5,269 in the
second quarter was slightly higher than our first quarter results, marking the
first sequential uptick we've seen in eight quarters. Year to year,
FOCUS
transaction revenue per close was still down 17% in the second quarter, though
the decline moderated some from the 21% decline we experienced in the first
quarter.
The reduced influence of nonstandard transactions, which typically occur at

about a 25% discount to regular transactions contributed to better revenue per
close trends in the quarter. With transaction volume up 29% and revenue per
close down 17%, our second quarter transaction revenue rose 6% to $31.7 million
from $30 million a year ago.
Referral and other revenue was $432,000 in the second quarter, still lower
than a year ago, but improved from the first quarter. And Pat will talk about a
new agreement which should put us back on track on this small but promising and
high-margin revenue stream.
Moving to expenses, cost of revenue grew 10% in the second quarter, outpacing
revenue growth of 6%. As a result, our gross margin declined by 245 basis points
year to year. And gross profit was essentially flat year to year for the
quarter.
Almost two-thirds of the gross margin compression during the second quarter
is linked to the deleveraging effect of lower average revenue per transaction
FOCUS
and the decline in non-transaction revenue, which work against semivariable
cost, such as expense reimbursement and health insurance within our cost of
goods. The remaining piece of the margin decline reflects slightly higher splits
paid to our agents.
At the end of the period, we had 3,172 agents, a 24% increase from a year
ago. And we continue to attract great people with the strength of our technology
platform and its ability to make agents more knowledgeable and productive.
Although agent productivity was essentially flat year to year in the second
quarter, our more experienced agents have continued to make year-to-year
productivity gains across each of the last four quarters.
Moving onto corporate costs, our operating expenses reflected a continued

focus on driving operating leverage against centralized investments in
technology, marketing, and G&A. Corporate and field operating expenses of $15.9
million 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 he
operating leverage afforded by our unique model.
Product development expense increased 10% in the second quarter from a year
ago and at $2.3 million was consistent with Q1 on a dollar basis. Higher
FOCUS
website traffic, a new data and hosting location, and product investments that
Pat will highlight accounted for the higher spend.
Sales and marketing cost of $10.2 million declined slightly compared with the
year-earlier period as we continue to expand our client pipeline with effective
online marketing and the organic drawing power of our website in consumer
offering. Customer acquisition spending was flat with last year. And lead volume
grew double digits. We believe we have room to further improve our marketing
efficiency. But we do expect falling lead prices to stabilize at some point.
General and administrative expenses were up $340,000 year to year to $3.3

million 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 to

year for an operating loss of $2.6 million in the second quarter of 2009. Year
to 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 in
last year's first quarter.
Before moving on, looking at our second quarter results in the existing
veals the revenue growth contribution of the new
FOCUS
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 to
2007 was down 1% year to year to $27.1 million, while revenue in our 13 new
markets 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 margin
before the allocation of technology and corporate expense. In the new markets,
strong revenue growth trimmed our market level operating loss from $650,000 in
the 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 markets
group, providing a return on the investment we've made since opening these
markets in 2007 and 2008.
Returning to the P&L, below the operating line, interest income of $200,000
in the second quarter was well below $600,000 in interest a year ago, due to
lower interest rates and a lower cash balance.

FOCUS
Our net loss for the second quarter was $2.4 million compared with a net loss
of $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 in
the 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 of
cash, cash equivalents, and short-term investments and without any long-term
debt. As noted earlier, our cash balances ended the second quarter very close to
where they ended the first quarter, down just $130,000 in the period. And we
continue to be comfortable with our capital and liquidity positions as well as
our ability to fund our growth plan.
Before discussing the financial outlook, I want to point out that we
completed a stock option exchange program during the second quarter to
strengthen the incentive and retention attributes of the Company's equity
compensation program. As a result, we have an additional $600,000 to $700,000 in
equity compensation expense that will be amortized over the three-year vesting
period 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 country
FOCUS
starting to show signs of bottoming while others still work their way through
the cycle. We expect strong transaction volume growth to continue in the second
half following record performances in recent months with foreclosures and short
sales continuing to run well above year-earlier levels in most regions.
We plan to invest in our agents and attract growing numbers of new customers
throughout 2009. And we will aggressively manage field and overhead expenses in
the 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-earlier
levels. On the bottom line, we expect the GAAP net loss for 2009 to be narrower
than the 2008 net loss of $14.7 million, excluding legal settlements. On that
basis, our pro forma net loss should also improve from the $10.8 million
recorded 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 just
heard, ZipRealty continued its growth momentum in the second quarter. And I'll
add a little color to Lanny's comments, including a regional discussion and
update on our market share progress. I'll also talk about the macro
FOCUS
environment.
But what I really want to focus on and what I'm most excited about are the
things we're doing to continue to drive ZipRealty's internal growth and
innovation as this is where we expect to separate ZipRealty from the competition
and create value in the long term.
In terms of the quarter, we started to see transaction volumes pick up in

February. And that momentum continued in May and June, where we set records.
Rising lead volume and an improved lead-to-close conversion rate propelled our
transaction volume growth, underscoring the power of our business model, which
combines 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 to
June, the lowest quarterly decline in eight quarters. But that doesn't mean
we've reduced investment, just the opposite. We made some exciting investments
in our products during the quarter, which I'll describe in a moment.
On a regional and market level, conditions were mixed. And business trends
evenue gainsile. For example, we were encouraged by year-to-year r
FOCUS
in 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 revenue
growth we saw in the first quarter in California and Florida faded in the second
quarter, while markets in Texas, the mid-Atlantic, and Midwest fared much
better.
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 in
26 of our markets year to year, including four of our five highest-share
markets, making the Zip brand ever more prominent in our leading markets. We
continue to be very focused on growing market share, even in these turbulent
times.
As Lanny mentioned, we saw an improvement in the mix between standard and

nonstandard transactions in the quarter. And the mix improved sequentially
across the country. Nonstandard transactions remain highest in the west and
relatively less predominant in the east. The mix issue is not going to go away
overnight. But the upward trend has flattened. And if the trend continues to
hold or improve, median home price stabilization should eventually follow.

FOCUS
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 the

investment thesis we laid out in 2007. We believe that investing in the down
cycle while others are retrenching will position ZipRealty for stronger,
profitable growth coming out of the other side. And based on what we're seeing
in the marketplace, we see no reason to deviate from that plan.
It's important to note, however, that falling inventory levels and

affordability can't be analyzed in isolation. We believe that shadow inventory
is affecting inventory levels. Shadow inventory are properties not on the market
because banks cannot foreclose on them or are choosing not to foreclose on them
right now or because sellers do not want to sell at the current housing market
price.
We believe that banks' biggest priorities these days is repaying TARP and
reducing government control. So they're very selective about writing loans
currently. The federal subsidy for first-time homebuyers has certainly mitigated
this mindset. But these buyers still have to save for a significant down
payment, even at lower home prices.

FOCUS
Meanwhile, the jumbo loan market is a significant challenge with lenders
hesitant to loan any amount above what Freddie and Fannie will guarantee. As
evidence of the problems at premium price levels, the supply of homes for sale
at prices above $750,000 is more than 40 months in 2009, up from 19 months in
2007. 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 guidelines

that 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
real estate appraisers to inflate property values. Instead, it could aversely
affect the very consumers it's supposed to protect.
The new rules prohibit mortgage brokers from ordering the appraisal on a
home, leaving the lender to select an in-house appraiser or outside appraisal
company. Regardless, neither the lender nor the mortgage broker is allowed to
talk to the appraiser about the value of the property in question.
We've observed over the last few months that lenders are increasingly
selective of appraisal management companies based on low fees and quick
tual knowledgeof the local market.sideration to the appraiser's ac

FOCUS
Let me give you an example of how this can hurt transaction growth and price
across the industry. We recently had a home on the market for $280,000 with 32
offers, the winning one being $310,000. Under the new guidelines, the lender
utilized an appraiser of little local market knowledge that appraised the home
at $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 between
the appraisal and their $310,000 offer.
In this economy, the unexpected additional expense can be a deal breaker. The
good news is that the government has shown that it's open to refining
ineffective policies. And various industry groups are lobbying for attention to
the HVCC matter.
More broadly, we believe the Obama Administration has signaled continued

support for the real estate industry. And there's a bill in front of Congress
that 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 have
wide geographic and demographic appeal.
So to summarize the macro environment, the supply-demand equation has

improved in most markets. Prices have gone down sharply from prior years. And
FOCUS
affordability remains high. However, credit remains tough. And rising
unemployment could still impact a recovery. It has a direct bearing on consumer
confidence. And we need our consumers to feel a sense of stability, which was
the case in the second quarter. Ultimately, we are hopeful that we're near or at
the bottom. But any unexpected shock by the factors I just mentioned could delay
housing'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 the
industry. We're in the midst of a transition from industry upstart to
increasingly influential player. And we are not waiting around for the real
estate cycle to turn. We are organizing and prioritizing for profitability and
long-term growth. And you will hear more detail about our strategy in the months
ahead.
We will remain true to several key traits that differentiate ZipRealty.

First, ZipRealty is focused on the customer and committed to providing
outstanding service levels, information, and value. Second, ZipRealty is built
around supercharged proprietary technology that's efficiently centralized.
Third, we push that technology out to our customers and more than 3,000 local
, all of whom are employed with ZipRealty.

FOCUS
And we provide leads, training, and support designed to make our agents more
knowledgeable and more productive than their peers. We close the loop with an
emphasis 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 evolve
and develop, attracting strong user activity as a result. Unique visitors to our
site rose 23% year over year in the second quarter. The lead pipeline continued
to grow at double-digit rates. And the strong online activity translated into a
45% 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 detail
pages on over 60 million homes in the US as well as school district boundaries
on our maps and key word search tools for hunting through listings. Then in
mid-July we hit again, releasing an onsite communication tool, enabling clients
to chat about specific properties and save those discussion right on the home
detail page for easy future reverence and follow up.
All of these innovations are aimed squarely at broadening our consumer appeal
and enhancing the functionality of the Zip site, which itself is designed to
help customers become more informed and more confident as they approach the home
buying and selling process.

FOCUS
Our July release emphasizes another feature I'm equally excited about, one
that clearly demonstrates ZipRealty's ability and determination to connect great
internet technology with the expertise of our agents in the field. The updated
agent block, which appears every time a registered user logs onto ZipRealty, now
displays 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 homes
they've shown, helping our customers to instantly see the activity and local
knowledge possessed by each of our agents.
Another leg of our competitive advantage resides in our employee agents. At a

time when many brokerages are shrinking, we added about 180 to the Zip team in
the second quarter. We have rolled out new online training materials with a
whole new set of courses and internal certifications around the listing side of
our business. We enhance the Zip agent platform to support more personalized
communication with clients and to deliver improved marketing tools and analysis
for agents.
We're in the early stages of another promising initiative around scoring,

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

FOCUS
Finally, the satisfaction we're able to consistently deliver to customers has
increased ZipRealty's brand recognition and trust. According to Real Trend,
ZipRealty is now the ninth largest brokerage in terms of closed transaction size
in 2008. And we rank tenth in terms of dollar volume. And we made these upward
moves without acquisitions.
And then of course, the ZipRealty website maintaining its number one position
and wide online audience lead among real estate brokerages, according to date
from research firm Hit Wise.
This kind of visibility and scale, both online and offline, positions
ZipRealty to thrive in the transactions core of our business and also to develop
referral, advertising, and other revenue streams over time. In that vein, we are
very pleased to inform that important and value marketing alliance during the
second quarter with one of the largest financial institutions in the world.
Our new alliance with Bank of America will leverage ZipRealty's online reach
to millions of interested home buyers in conjunction with our local agent
presence to help consumers access Bank of America's full range of home mortgage
services as well as its local lending team. As part of the agreement, Bank of
America is committed to providing superior customer service. We've been working
with B of A on a test basis for some months. And the bank is now present
FOCUS
across the breadth of our online products. The new alliance is scheduled to be
fully rolled out to all over our markets by the end of August.
Specifically, customers will have access to current mortgage rates and

financial calculators while shopping for their home online. And by September,
buyers using ZipRealty's website will be able to research various loan types and
get preapproved online.
So in closing, our position in the marketplace combines a strong and

innovative technology platform with a savvy local force. And these can be used
to drive profitable growth along a number of avenues. We're supported by a
strong balance sheet, another leg of our competitive advantage. While many
larger peers are dealing with their own financial issues and many smaller
competitors are in pursuit of capital to keep going, we're simply in the mode of
investing 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 some
trends are starting to move in the right direction. We remain encouraged by our
market share gains, thrilled by customer response to what we're doing, and
committed to investing in ZipRealty's long-term future.

FOCUS
With that, I'd like to open the line up for questions.
Questions and Answers
OPERATOR: Thank you. (Operator Instructions). And our first question comes
from 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 ticked
up from Q1, at least what I'm calculating. Was just wondering that pure mix or
anything else you can color that you saw in individual markets? I know you said
actually some of the markets that I would think of as a little cheaper markets
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 that
increase that you know. First of all, one of the things that Lanny noted was
that the percentage of deals that were done in the mix that were done as
distressed properties were down. And those tend to have a larger reduced price
than the others. Additionally, the resale homes that we sold, those price
FOCUS
points were actually up over the period as well.
So we got the benefit on both the fact of the actual homes that we were
selling, 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 the
biggest momentum came in fairly likely places, some of the large cities in
California and in the mid-Atlantic.
JIM WILSON: Okay. All right. And then you're still growing the agent count
very 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 is
it arguably even staying just as easy or getting easier to still find good
people, 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 we
continue to work very hard at it and put a lot of effort into it. That being
said, one of the advantages that we have is that we have a lot of clients. And
we have a lot of demand. And as other agents struggle with their ability to find
clients and to stay in the business, they found that we provide a great
opportunity for them to come in, to use the technology, the leads, the
FOCUS
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 continue

to be able to grow the agent counts, take care of the clients that we have. We
think that the number of clients we have allows us to continue to focus on
growing that agent count. And we think that it will continue on this path for
the near term.
JIM WILSON: Okay. Very good. Thanks.
OPERATOR: (Operator Instructions). And there are no further questions. I

would now like to turn the floor back over to Patrick Lashinsky.
PAT LASHINSKY: Thank you all for being on the call and for the second
quarter. I'd like to thank all of our employees and agents for their excellent
efforts in what was done to get through in these difficult conditions. We're
excited about the future and look forward to talking to you on the third quarter
call. Thank you very much.
OPERATOR: That does conclude our conference. We thank you for your
participation.
FOCUS
[Thomson Financial reserves the right to make changes to documents, content,
or other information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies may
make projections or other forward-looking statements regarding a variety of
items. Such forward-looking statements are based upon current expectations and
involve risks and uncertainties. Actual results may differ materially from those
stated in any forward-looking statement based on a number of important factors
and risks, which are more specifically identified in the companies' most recent
SEC filings. Although the companies may indicate and believe that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate or incorrect and, therefore, there can be no
assurance that the results contemplated in the forward-looking statements will
be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF

THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE
AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR
INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO
WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY
ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED
FOCUS
UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS
ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE
APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER
DECISIONS.]
LOAD-DATE: August 8, 2009

May 5, 2009 Tuesday
TRANSCRIPT: 050509a2184894.794
LENGTH: 5777 words
BODY:
* Raphael Gross ZipRealty Inc. - IR * Pat Lashinsky ZipRealty Inc. -

President & CEO * Lanny Baker ZipRealty Inc. - CFO

FOCUS
* 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 first

quarter 2009 earnings conference call. Today's conference is being recorded.
At this time, all participants have been placed in 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. Please go
ahead, sir.
RAPHAEL GROSS, IR, ZIPREALTY INC.: Thanks. And good afternoon, everyone.
With me on the call today are Pat Lashinsky, President and Chief Executive
the first quarter ended March 31st, 2009. A copy of that release can be viewed
on the Company's website at www. ziprealty. com under the Investor Relations
section.

FOCUS
various remarks we make about our future performance, including 2009 business
outlook and guidance, evolving market conditions, timing of a potential real
estate bottom, and our plans, goals, expectations, and prospects for the
Company, involve forward-looking statements.
Forward-looking statements also include comments regarding investing in our

business, improving agent productivity, gaining market share, focusing on
sustained profitability, and our confidence that we're positioned to create
significant shareholder value over time. All of these constitute forward-looking
statements for the purposes of the safe harbor provisions under the Private
Securities Litigation Reform Act of 1995.
Actual results may differ materially from the expectations, plans, and
prospects contemplated in these forward-looking statements and are subject to
risks and uncertainties, including those described in the Company's Form 10-K
for fiscal year 2008 and other filings with the Securities and Exchange
Commission, copies of which can also be viewed on the Company's website under
the Investor Relations section. The risk factors identified in our SEC filings
are incorporated by reference into this conference call.

FOCUS
Please note that to supplement its consolidated financial statements
items if any.
These non-GAAP adjustments are provided to enhance the user's overall

understanding of ZipRealty's current financial performance and its prospects for
the future. ZipRealty believes these non-GAAP results provide useful information
to both management and investors by excluding certain items the Company believe
are not indicative of its core operating results and thus presents a more
meaningful basis for comparison between periods.
Further, this non-GAAP method involves key data management uses for planning
and forecasting its future operations. The presentation of this additional
information should not be considered in isolation or as a substitute for results
prepared in accordance with GAAP and can be viewed at the Company's website
under the Investor Relations section.
Please note that we believe it is appropriate to modify our definition of

existing markets given the industry downturn as new markets take more time to
FOCUS
reach scale. Accordingly, beginning with this reporting cycle, new markets will
be combined with existing markets once they have been in operation for two full
calendar 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 to
everyone on the call today. ZipRealty's results for the first quarter of 2009
reflect the strength of the Company's strategic position. Despite a difficult
market environment that brought our margins and bottom line down relative to a
year ago, we grew the top line and sustained the operating momentum we have
built with an innovative online presence, unmatched behind-the-scenes operating
technology, and a growing customer-oriented local agent force.
We were pleased to achieve a 33.6% increase in closed transactions, resulting

in our net revenues increasing 5.3% for the period to $21.7 million.
Within the quarter, we saw strengths and weaknesses. And January was
particularly difficult for our clients. We believe numerous factors contributed
to January being such a difficult month. First, layoff announcements filled the
news. 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 to
drop dramatically. Third, many potential buyers were concerned that they would
still not be able to qualify for a conventional loan.
FOCUS
Finally, there was uncertainty about President Obama's and Congress's
economic plan. And we believe this uncertainty slowed loan approvals by banks
and credit suppliers until they better understood the new regulations and
requirements. The clients who were active in January tended to be extreme value
seekers, hitting 20% or more below listing price and also finding little seller
interest.
So the net result in January was continued steep declines in home prices
throughout much of the nation without the resulting bouts in transaction volume
that we would've normally expected.
As we moved into February, however, we started to see changes and

improvement. Transaction volumes picked up. Buyers were more willing to make
offers. Sellers were more willing to negotiate. And inventory did not have the
seasonal increase we normally see in February. The momentum carried into March.
And we exited the quarter with healthier transaction volume, although at lower
price points year over year.
With that as a backdrop, let me discuss some of our key metrics for the full
quarter. Closed transaction volume was up more than 30% year to year for the
third consecutive quarter. Distressed property transactions continued to be very
important, accounting for 53% of our transaction mix for the period, up from
FOCUS
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 you
recall, home prices were down between 15% and 19% in each quarter of 2008. So
the early 2009 price declines were more pronounced than what we experienced last
year. 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 in
one quarter of our markets, we've seen price declines in more than 45% over that
period.
During the first quarter, we grew our agent base by 173. And we now have 704
more agents than we did one year ago. We continue to attract great people with
the strength of our technology and platform. And that is especially the case
given current market conditions.
Agent productivity was flat compared to last year's first quarter at 0.48
transactions per agent per month. Our experienced agents achieved increased
productivity. But that improvement was countered by lower productivity among new
Zip agents who are taking longer to become productive in the current climate.
As always, we focused on controlling costs during the period. And we managed

provement in G&A costas evidenced by the year-to-year im
FOCUS
as a percentage of revenue. Overall, total operating expenses were down from
last year's first quarter despite higher revenues, all good signs.
To sum up the quarter, as tough as January was, volumes for the quarter were
solid. But both net revenue and profits were lower than we would've liked. We
are encouraged by what we have seen moving into the key spring season. And I
will comment further after Lanny reviews our financial results in greater
detail. Lanny?
LANNY BAKER, CFO, ZIPREALTY INC.: Thank you, Pat. At the end of the first
quarter of 2009, we are still working our way through a very challenging
operating environment with home prices under great pressure. The effects of home
price declines are evident in our gross margins and our net loss for the first
quarter, both of which were below year-earlier levels.
Our loss per share was larger than a year ago, impacted additionally by lower
interest income and fewer outstanding shares in the current period. And yet we
are seeing early hints of stabilization in some regional markets. And we believe
that our ability to gain share today will provide attractive returns and expand
our growth potential into an eventual recovery.
FOCUS
We plan to continue prudent investment in marketing, technology, and our
agent force while keep a close watch on the bottom line and our cash position.
Consistent with this overview, the operating highlights of the first quarter
include strong website traffic; a 15% year-to-year increase in new customer
leads; and more importantly a 44% increase in client activity as measured in
actual home visits and offers; an increase in our agent count, and steady
productivity; an improved lead-to-close conversion rate, which helped propel
ZipRealty's transaction volume gain even as nationwide transaction volume
declined about 7% year to year according to the National Association of
Realtors.
The first quarter also presented its challenges, the most significant of
which was a 23% year-to-year decline in the average value of homes sold by
ZipRealty and net transaction revenue per close, which declined by about $1,300
or 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've
seen in the cycle. And it put pressure on gross margins, which were 36.3% in the
first quarter compared to 40.2% a year ago. I'll provide more color on gross
margins shortly.

FOCUS
Turning to the P&L, first quarter 2009 net revenue totaled $21.7 million, a
5% increase year over year. Due to seasonality, the first quarter is usually the
smallest quarter of the year in terms of revenue.
Net transaction revenue, which excludes referral and other revenue, was $21.4
million, a 6% increase from last year. Transaction revenue per close was down
year to year in all but 4 of our 40 districts with the steepest declines in
Nevada and California. Here and elsewhere, non-standard transactions, such as
foreclosure and short sale, represent an increasing share of our transaction
volume and have a negative effect on average price since these transactions are
typically occurring at prices up to 25% below our normal resale transactions.
The cycle of home price correction and an increasing mix of non-standard

transactions began three years ago. And as tough as it's been and challenging as
conditions remain today, we are starting to see slightly different trends.
First, in the regions most exposed to foreclosures and short sales, while that
kind of activity is still very high and it's likely to remain so for the next
several quarters, the year-to-year rate of increase in foreclosures and short
sales 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,
FOCUS
ZipRealty's revenue from California, Nevada, Arizona, and Florida districts grew
by 12% year to year in the first quarter, even though the combined revenue in
our other markets was still down about 1% for the quarter.
As encouraging as this looks, however, we're still very cautious about the
near-term outlook. And note that the fundamentals are a mixed bag. In the
Northeast, for example, our first quarter revenue from existing markets was down
16% year to year in the first quarter. And both volume and prices were down year
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 typically
high-margin revenues for the Company. We are working on rebuilding revenue and
expanding 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 almost
four 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 first
quarter was due to a 25% increase in costs related to agent health insurance,
expense reimbursement, and awards for tenure and experience. These
FOCUS
semi-variable expenses typically account for less than one-quarter of cost of
revenue. And they tend to move in relation to headcount, not in relation to
prices, 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 price
comparisons eventually move upward in our business, these costs of revenue
should 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 the
impact going forward.
Another one point of the decline in gross margins came from slightly higher
commissions paid to our agents in the first quarter of 2009 than a year ago.
This reflects higher productivity among more seasoned agents with higher
payouts. Finally, the decline in non-transaction revenue compared with a year
ago accounted for about 0.5 point of reduction in gross margin in the first
quarter.
Moving down to corporate costs, excluding a $625,000 one-time legal expense

incurred in the first quarter of 2008, our underlying operating expenses were
down about 1% year to year in the first quarter, reflecting a focus on driving
operating leverage against centralized investments in technology marketing and
FOCUS
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 this
year's first quarter than a year ago.
We believe that this operating leverage is an important component of our

business model that will help drive significant earnings and earnings growth as
revenue and gross profit reach a certain scale and growth returns to our market.
Product development expenses increased 8% in the first quarter but were
relatively unchanged as a percent of revenue. Higher website traffic, a new data
site in Colorado, and continued investments in the site and agent tools drove
the higher spend.
Sales and marketing costs declined slightly year to year. We invested more in
customer acquisition in the first quarter, increasing our spend at a
mid-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
a percentage of revenue. Unfortunately, though, tight operating costs and 5%
revenue growth were not enough to offset the decline in gross margins in the
first quarter. And our operating loss was $7.9 million in the first quarter of

FOCUS
2009 compared to a $7.6 million loss, excluding the legal charge, in the first
quarter of 2008.
Below the operating line, interest income was $309,000 in the first quarter
of 2009, down from $911,000 in the first quarter of last year, reflecting lower
average 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 first
quarter of '08, our net loss was $6.6 million versus a $5.6 million loss in the
first quarter of last year.
A lower share count due to last year's share repurchase increased the
calculation 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 of
2008.
Let me discuss the first quarter results for our 23 existing and 12 new
markets. 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 than
offset by a 20.9% decrease in average net revenue per transaction in our
FOCUS
existing markets. Market-level income from existing markets was $384,000
compared 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 revenue
in the quarter. Our new markets collectively lost approximately $950,000 during
the 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. We
plan to invest further in our business in 2009. And we remain comfortable with
our capital and liquidity position.
Shifting to our financial outlook, we expect declines in home prices to

persist throughout 2009 with some portions of the country starting to show signs
of bottoming while others still work their way through the cycle. We expect
strong transaction volume across 2009 with foreclosures and short sales
continuing to run well above year-earlier levels in most regions. We plan to
invest in our agents and seek to attract growing numbers of new customers
throughout 2009. And we will be vigilant on overhead expenses.

FOCUS
For the full year, we continue to expect revenue growth in the
mid-single-digit to low-double-digit range compared to 2008 levels. In terms of
geographic expansion, we recently added the Portland, OR, market at the end of
April. Other newer markets, like Virginia Beach, Raleigh-Durham, Charlotte, and
Salt Lake City, are making strong progress on market share, revenue, and
profitability. And we expect developing markets to help propel above-average
growth for ZipRealty this year and beyond.
At the same time, we see significant opportunity to go deep within our

existing markets and build our market share and profitability in places where we
already operate. Accordingly, we will focus on existing market growth and
profitability ahead of adding new markets.
On the bottom line, we expect the GAAP net loss for 2009 to be narrower than
the 2008 net loss of $14.7 million, excluding legal settlements. On that basis,
our pro forma net loss should also improve from the $10.8 million recorded for
the full year of 2008. I'll now turn the call back to Pat.
PAT LASHINSKY: Thanks, Lanny. By the end of March, all of our markets saw
inventories decline on a year-over-year basis and in many of our key markets,
do, Sacramento, Las Vegas, Charlotte, all
showed inventory declines versus February despite seasonality that usually
FOCUS
dictates inventory increases.
Additionally, the median home list price in many of these markets increased
during Q1 for the first time in approximately 18 months. And while one month or
one quarter doesn't make a trend, March was certainly positive, reaffirming what
we said on our last call about certain markets across the country being in
various stages of deterioration and repair.
Let's take California for example. As we exited the quarter, we saw increased
activity between buyers and sellers, particularly at low- to mid-level price
points. We are participating in multiple bids on homes. And there are active
negotiations taking place around many transactions. This was unheard of six
months ago.
One reason for the improvement is that banks are using a different approach
for bringing foreclosures to the market. Rather than just dumping inventory,
they've become better at metering out supply, doing so gradually in an effort to
preserve price.
Increased affordability is another reason California is showing signs of

stabilization. With home prices declining, interest rates at record lows, and
government programs for buyers on the rise, the affordability index is at an
FOCUS
11-year high in the state. So affordability is counteracting the continuing
unemployment issue.
On a nationwide level, we are seeing similar trends. In fact, while the

headlines mainly focus on unemployment and falling prices, the silver lining is
that the national housing affordability has quietly increased.
In February, for example, the National Association of Realtors Housing

Affordability Index was at a near record high of 174.4, roughly 38 percentage
points higher than a year ago. The index, which uses consistent values and
assumptions over time, shows that the relationship between home prices, mortgage
interest rates, and family income is now the most favorable since tracking began
in 1970.
Also helping the cause nationally, as we saw last week, was a bounce back in
consumer confidence levels. So all and all, we remain cautious. But we're
optimistic. We still believe that a market bottom could form sometime in the
back half of 2009 or more probably early into 2010, although numerous factors
could certainly affect that timeframe.
And while the market works through this process, we remain energized and
excited about our market position and continue to invest in initiatives that
FOCUS
improve the customer experience and our agents' productivity.
One area where we continue to make progress is technology, specifically tools

that make agents productive and in turn lead to customer satisfaction scores in
the high 90s. To that point, we launched a new website version in March. One of
our most exciting features is the home information pages for more than 66
million homes. This feature is available regardless of registration status and
gives consumers the ability to compare the home they're looking at to others in
the 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 to
comparables in their neighborhood from three different estimate sources. All of
these features are designed to make ZipRealty clients better informed and
prepared than other buyers in the market.
In terms of our market position, it's worth briefly restating that most of
our competitors are either very large or fairly small. Some of the larger
players are dealing with expansion costs and debt levels taken on in the last
cycle. And many of our small peers are challenged by a lack of capital. In
either case, we don't believe they are necessarily in an investment mode like
ZipRealty. And few if any of them share our level of commitment to developing
FOCUS
technology that makes the process easier, more transparent, and satisfying for
consumers and agents.
Bringing our unique technology-driven platform to markets across the US has

elevated our brand and caused both agents and consumers to rethink the
traditional residential real estate model. And ZipRealty's national rankings
prove that out.
According to Real Trend, ZipRealty is now the ninth largest brokerage in

terms of closed transaction size in 2008, a jump of six positions over 2007. We
also ranked tenth in terms of dollar volume. And we made these upward moves
without acquisitions.
The centerpiece of our momentum, as always, is the ZipRealty website, which

is consistently the most trafficked brokerage site in the residential real
estate. And our users' engagement on the site is almost unmatched within the
category.
So in closing, during a difficult time in our industry, we will continue to

invest in technology and quality people. And as we begin to look for signs of
stabilization in the market, we're as confident as ever that we are positioned
to move further ahead of most in our industry and create significant value for
FOCUS
shareholders over time.
With that, I'd like to open the line up for questions. Operator?
OPERATOR: Thank you, sir. (Operator Instructions) All right, and we'll take
our first question from [Claus Van Schtuderhan].
CLAUS VAN SCHTUDERHAN, ANALYST: Claus Van Schtuderhan. Hi, guys. Did I get it
right? The cash burn in the quarter was the $6.6 million non-GAAP loss. Is that
right?
LANNY BAKER: No, the cash in the quarter was -- if you look at the cash flow
statement, about $4.1 million from operations and another $400,000, $500,000
from capital expenditures.
CLAUS VAN SCHTUDERHAN: That's was what, $5 million cash burn? Is that what
you'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 $4.5
FOCUS
million.
CLAUS VAN SCHTUDERHAN: $4.5 million? Okay. And did you say what you expect
the cash burn for the year to be and the cash position at the end of the year
therefore?
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 first
quarter is the smallest in terms of revenue. And therefore, it's simply our
heaviest 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. We
expect to narrow our GAAP net loss for the year from $14.7 million. Depreciation
and amortization is running about $2.5 million in the last 12 months. Non-cash
compensation expenses are about $4 million annually. Capital expenditures should
be less than the $2 million we invested last year. So if you put those pieces
together, cash used from operations less CapEx would be about $10 million. And
the year-end balance should be in the range of $40 million, as we've said
previously.
CLAUS VAN SCHTUDERHAN: Okay. I've got a couple of other questions. Well, let
me just ask one. And then I'll go back in the queue. I don't want to monopolize
it. On market share, I mean, previously you said what -- increases in market
FOCUS
share. And I always thought that was one of the strong points. So can you talk
about market share increases? I assume there's only increase, right?
LANNY BAKER: Sure. There are a couple of ways to look at it. I think
historically the way we've talked about market share is we've compared
ZipRealty's growth rate to the growth rate of the markets in which we operate
into the national market overall.
CLAUS VAN SCHTUDERHAN: Right.

LANNY BAKER: So if you start with us and you look at transaction volume, our
transaction 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 national
picture is about a 7% decline in transaction volume in the quarter. So that's
one way of looking at it.
Another way would be to go into each one of the individual markets and look
at our share of size or our share of --.
CLAUS VAN SCHTUDERHAN: How about California? I mean, that was your first
market. That's the number you've quoted in the past.

FOCUS
LANNY BAKER: Yes. In California, our volume was up 62% in the quarter year
over year. The California market was up about 80% for the quarter in terms of
transaction volume. And I think the difference between our growth and that in
the market is the foreclosure phenomenon, which is providing foreclosure and
short-sale specialists with a temporary surge in their market share that I think
is reflected in those numbers.
So while we're participating pretty fully in the foreclosure and short-sale

side of the market, there's some players out there who really make this a
specialty. It's all they do. And they're seeing tenfold increases in volume
right 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 market
during 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.

FOCUS
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 got
something else wrong here that you're expecting your transaction count per
agent, which is basically flat year over year in Q1 to start improving the rest
of the year.
PAT LASHINSKY: Yes, I think that that's true. I mean, there are a couple
reasons for that. Historically, that's happened because as you go into
seasonality and you get into the main selling season, we do see productivity
increases. Second of all, as we've hired a large number of people in the first
quarter and as they become more seasoned and they get more experience going
forward, that will drive up our productivity as well as we get to that point. So
there's probably a couple of things that will all drive together to drive up
that agent productivity starting in the second quarter.
JIM WILSON: Okay. And that should obviously help gross margins as well?
FOCUS
PAT LASHINSKY: Yes.
JIM WILSON: Okay. All right. And could you comment maybe just -- another
question on sales pace in some of your other individual markets. Obviously, you
noted California, but anything else of note particularly good or particularly
bad?
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 energized
by and have felt the best about is that other markets that have been through
really difficult times, such as Nevada and Florida, seem to really be coming
back and seeing some positive energy that we haven't seen in awhile,
particularly Florida. Florida has really been hammered significantly over the
last 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 quite
awhile.
JIM WILSON: Okay. All right. Great. Thanks.

FOCUS
PAT LASHINSKY: Thanks, Jim.
OPERATOR: (Operator Instructions) We'll take our next question from Matt
Chesler 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're
pretty detailed about breaking down the contributors to the margin decline in
the quarter. Apart from the productivity you just mentioned in response to
another caller's question, were there any quarter-specific issues that drove
down the margin? Or was it really just what you cited and that the business
comes 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 was
anything 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 while
the bulk of our cost of revenue is commission and variable income that moves
right along with that change in price, as Pat said, we're now looking at
FOCUS
prices that over the last 24 months are down 35% and more than that in some of
our markets. And there's a component of the cost of revenue that's related to
things like expense reimbursement and health insurance and some of the awards
programs that is not variable with house price. And there was some really kind
of deleveraging or compression against that.
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. Those
are very high margin dollars. And we were down about $160,000 in revenue year to
year. 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 that
referrals and other line. What's the update on how -- the timeline for when that
line item might begin to show some rebound?
PAT LASHINSKY: As Lanny said, it's been a priority for us for awhile now. And
we continue to make pretty good progress on it. I expect that we will have some
real results to show sooner rather than later, not sure on the exact timing. But
we've put a lot of time and effort into it. We understand the importance. And we
think that in a fairly short period of time we'll have something to share there.

FOCUS
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 of
our agent employees for their great efforts in this quarter and for the busy
time we had. We look forward to talking with you all next quarter. Thank you
very much.
OPERATOR: And that concludes today's conference. We thank you for your
participation and hope that you have a wonderful day.

such changes.
FOCUS
be realized.

ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON
THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE
ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE
DECISIONS.]
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

FOCUS
* Jeetil Patel Deutsche Bank - Analyst * Jim Wilson JMP Securities - Analyst
Presentation
OPERATOR: Please stand by. We're about to begin. Good day, everyone. And
welcome to the ZipRealty Inc.'s fourth quarter 2008 earnings conference
call. 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. Please
go ahead, sir.
RAPHAEL GROSS, IR, ZIPREALTY INC.: Thanks. And good afternoon, everyone.
With me on the call today is Pat Lashinsky, President and Chief Executive
the fourth quarter and full year ended December 31st, 2008. A copy of that
release can be viewed on the Company's website at www. ziprealty. com under the
Investor Relations section.
FOCUS
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, and our plans, goals, expectations,
and prospects for the Company involve forward-looking statements.
Forward-looking statements also include comments on outperforming the market and
gaining share, focusing on sustained profitability, opening new markets,
investing in our business, improving productivity, and the timing of a potential
real estate bottom. All of these constitute forward-looking statements for the
purposes of the safe harbor provisions under the Private Securities Litigation
Reform Act of 1995.
risks and uncertainties, including those described in the Company's Form 10-Q
for the third quarter ending September 30th, 2008, and other filings with the
Securities and Exchange Commission, copies of which can also be viewed on the
Company's website under the Investor Relations section. The risk factors
identified in our SEC filings are incorporated by reference into this earnings
call.
Please also note that the supplement is consolidated financial statements

FOCUS
United States. ZipRealty uses a non-GAAP measure of net income or loss it refers
to as pro forma net income or loss earnings that excludes certain items,
items if any.

the future. ZipRealty believes that these non-GAAP results provide useful
information to both management and investors by excluding certain items the
Company believes are not indicative of its core operating results and thus
presents a more meaningful basis for comparison between periods.
prepared in accordance with GAAP and can 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 Pat.
PAT LASHINSKY, PRESIDENT & CEO, ZIPREALTY INC.: Thanks, Raph. And thanks to
everyone on the call today. Let me start by making a few high-level comments
FOCUS
on the quarter and the year. We are pleased to report that net revenues
increased 18% in the fourth quarter to $25 million, in line with our
expectations 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
decline of about 5.25%. And that growth rate advantage for ZipRealty widened
steadily throughout 2008.
Our strength on volume was partially offset by lower average home sale
prices, which dropped 18% year to year. That softness in home prices impacted
our profitability. And we were disappointed to fall below our bottom line
outlook for the quarter and the year. However, there were signs in 2008
indicating that our strategy is working. And our market position is as strong as
ever.
Specifically, we increased revenues and gained market share once again. And
2008 marked the tenth consecutive year of top line growth for ZipRealty, no easy
task in any industry.
We believe that our value proposition and technology enhancements continue to

attract more people to our website. Further, increased agent productivity led
FOCUS
to higher conversion rates and overall market share gains. And finally, these
gains 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 to

manage the business tightly in the current environment, as evidenced by a nice
decline in G&A as a percentage of revenue year over year. That said, we have not
stopped making investments designed to enhance the customer experience, to
attract new customers and agents, make our agents more productive, and to scale
effectively when the market recovers. We believe these investments will be
important factors fueling our future growth.
We don't know when a recovery may occur. But as we look at the country, we
see different regions in varying stages of either deterioration or recovery. And
I'd like to share a bit of that with you now.
In California, the volume spikes we've seen at lower average transaction

values suggests that the market has begun to stabilize. In many cases, we're
seeing an increased meeting of the minds between buyers and sellers,
particularly at low- to mid-level home price points. And while the market
overall 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
FOCUS
of Southern California, distress prices have gotten to the point that we are
dealing with multiple offers as our clients are trying to buy homes.
Florida, Nevada, and Arizona are also working their way toward stability but
currently lag California. Simply put, there's still significant inventory levels
in these markets. And they haven't shown the same level of price capitulation as
on the West Coast. And we have seen that there's a certain amount of price
capitulation and affordability required before the housing market starts to
really move.
The east and the northeast have shown some stability over the last years. But
prices are certainly declining. Our sense is that this region was never as
inflated as California, Florida, Arizona, or Nevada. So the markets in the east
may 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
starting to see foreclosures increase here as the economy deteriorates and
unemployment rises. All of this leads us to believe that a market bottom could
possibly form sometime in the back half of 2009 or more probably early into
2010, although numerous factors could certainly affect the timeframe.

FOCUS
First, rising unemployment is a concern as people struggle to save for down
payments. Second, the credit markets remain tight. And the availability of
purchased mortgages is still a bottleneck. Third, the current foreclosure market
surge is adversely affecting home prices and traditional sellers. Traditional
sellers are finding the market particularly difficult as they are not only
competing against an enlarged inventory of homes, but they also have to compete
against banks, whose prices on foreclosed homes are significantly below
traditional sellers' expectations.
Mixed in with these cautionary factors are potential sources of

encouragement. It is obvious that the current administration in Congress believe
that riding the housing market is a cornerstone to getting the rest of the
economy going. To that end, we have seen the introduction of several programs
designed to help homeowners reduce foreclosures and to make sure that credit
continues flowing into housing. The $8,000 first-time homebuyer program and the
foreclosure abatement program are both good examples.
Unfortunately, we have yet to see the programs really stimulate or help

demand. And the program that could and should've done that, the $15,000 credit
s pulled from the budget. Nonetheless, we are encouraged by
the amount of interest and effort at the federal level to get the housing market
stabilized and moving again.
FOCUS
Despite these market dynamics, we believe ZipRealty is extremely well
positioned. 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 for
nearly 40% of the real estate market in the United States. It's been a
controlled and conservative expansion, where we've been careful not to
overextend our resources.
We've also invested in technology, specifically in tools that are designed to

make our customers happier and our agents more productive. Evidence that we're
making progress includes the fact that the ZipRealty website is consistently the
most 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, which
means 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 into
ZipRealty real estate customers in record numbers. Consequently, we believe we
have a great footprint. Our brand is increasingly well known. And we're making
the most of our market position to outperform our peers.
Our competitors fall into two groups generally, either very large or fairly
small. Some of the larger players are dealing with expansion costs and debt
FOCUS
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
today's prevailing conditions.
As a midsized company with a strong liquidity position, we approach 2009

cautiously but with an understanding that we have an opportunity to prudently
invest while others may be pulling back. It's an opportunity to gain share. And
we 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. In

fact, we're launching a new website version later in March. As with all
improvements, we've listened to our clients and are responding to their
requests.
Included in this release is a keyword search that will allow clients to

search for certain words in the text of a description, such as a granite
countertop. We've added neighborhood and school boundaries on our maps. And
we're also launching home information pages on more than 66 million homes. All
of these features are designed to make ZipRealty clients better informed and
prepared than other buyers in the market.

FOCUS
These and a few other new features, along with local agent expertise should
position us for productivity gains, which has been a bright spot recently. In
fact, our productivity in the fourth quarter increased year over year for the
second straight quarter. And we credit better recruitment and training,
retention of great agents, and our willingness to part with agents that haven't
contributed.
Ultimately, we believe it's critical that buyers and sellers work with
knowledgeable agents in this environment. And that's where we believe our
technology and business model have an edge. So at the end of the day, we're
executing well in a tough environment. And we've demonstrated that we can grow
in up markets and down markets.
We're certainly cautious about 2009. But we like our seat at the table and
have a great deal of confidence in the future, given our progress.
And now, I'm very pleased to introduce Lanny Baker, who joined ZipRealty in
December as our Chief Financial Officer. Prior to joining ZipRealty, Lanny was
Chief Financial Officer of Monster Worldwide, the global leader in online
recruitment. In addition to managing financial operations and reporting, Lanny
a series ofster's strategic and financial planning, including
important acquisitions, partnerships, and capital allocation decisions.
FOCUS
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 to
make to all facets of our business. Lanny?
LANNY BAKER, CFO, ZIPREALTY INC.: Thank you, Pat. I am tremendously excited
to 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 and
what 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 the
long-term opportunity that emanates from creating an outstanding, innovative,
and deeply customer-oriented company, leveraging technology and the internet in
the process.
The leadership and employees of ZipRealty know real estate, the internet, and
the consumer cold. The team is passionate about near-term execution, serving
customers, employees, and shareholders, and about values that are essential to
me, including analytical rigor, integrity, transparency, and teamwork.
Second, I see not only enormous potential at ZipRealty in the long term, but
also convincing momentum in the present. ZipRealty has opened a wide growth
FOCUS
rate advantage over most of its peers in an environment that has brought of the
industry to its knees.
And I believe ZipRealty's combination of leading online real estate assets

with customer-focused local agents is a powerful advantage far ahead of most of
the industry and positioned to deliver strong long-term growth.
Third, we also share a view that there is much more we can do to serve
customers in the real estate industry, given ZipRealty's unique collection of
assets. I'm excited to help chart our strategic course toward those
opportunities over time. But let me also reiterate a key point. The top priority
for ZipRealty remains gaining market share within the $50 billion real estate
brokerage industry and doing so on the path to profitability.
In my first 100 days at ZipRealty, I've been thrilled to get to know a

wonderful team of highly committed people working with world-class technology in
an environment of teamwork and healthy challenge. Where we've seen room for
changes in process and practice, we've acted quickly. And we have additional
opportunities like that ahead.
But the reality is that Pat, Dave Rector, [Jenny Coombs], and the team have
ty forreat work on the financial operating side, providing the opportuni
FOCUS
us to focus on strategy, the business model, and the Company's long-term growth
and profitability.
Now turning to the financials, ZipRealty's results for the fourth quarter and
the full-year 2008 reflect the fundamental strength of the Company's strategic
position, as well as the significant impact of turbulence in the real estate
market. We entered 2009 positioned for continued volume, revenue, and market
share growth with operating costs under tight control and a balance sheet that
is 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 ZipRealty
website, which positions the Company as the online leader amongst real estate
brokerages. Next, higher lead-to-customer conversion resulted in a 43%
year-to-year increase in close transactions, accelerating from 31% in the third
quarter and 10% in the first half, driven in part by improved agent
productivity.
Revenue growth of 18% year over year compares to 12% growth in our third
quarter. And revenues declined for many of our peers. And a healthy year-to-year
improvement in our net loss was propelled by a 47% incremental operating margin
on the revenue growth we achieved over the fourth quarter of '07.
FOCUS
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 by
ZipRealty during the fourth quarter. And net transaction revenue per close
declined 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 with
40.5% in Q4 '07. We expect a decline in home prices and its impact on revenue
per 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 other
revenue, was $24.7 million, a 19% increase from last year. As mentioned, close
transactions increased by 42.8% for the quarter. But this was offset by lower
home 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 as
REO, foreclosure, and short sale. Nearly 46% of our transactions in the fourth
quarter were non-standard transactions, which roughly matches the National
iation of Realtors data. The mix shift toward non-standard is pulling
overall revenue per close down as these transaction values are currently about
FOCUS
27% lower than those on standard transactions.
The referral and other revenue line dropped about 19% for the fourth quarter
versus the prior period, reflecting the end of our E-LOAN relationship in
October. Though the absolute dollar amount is small, these are typically
high-margin revenues for the Company. We are working to replace the E-LOAN
relationship and see non-transaction revenue as a real source of revenue and
profit opportunity in the future.
Our net loss for the fourth quarter was $2.7 million compared with a net loss
of $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 and
excluding non-cash stock compensation cost in both periods, our net loss was
$3.7 million versus a $5 million pro forma net loss in Q4 '07. The pro forma net
loss per share was $0.18 in Q4 compared with a pro forma net loss of $0.22 per
share in the fourth quarter of '07.
Now let me discuss results for our 23 existing and 12 new markets. I'll start
with our existing markets, where net transaction revenue for the quarter
increased by 12% to $21.9 million, driven by two main factors, a 33% increase in
the number of transactions closed offset by an 18% decrease in the average home
selling price.
FOCUS
We're pleased that productivity increased to 0.55 from 0.46 a year ago in our
existing markets. As we gain scale and efficiency, the contribution margin
improved by 400 basis points from the same period last year, resulting in market
level income of approximately $2.5 million compared to $1.4 million a year ago.
Moving to new markets, net transaction revenue for the quarter was $2.7
million, almost 2.5 times last year and representing approximately 11% of our
total net transaction revenue. Our new markets lost approximately $700,000
during the quarter compared to a loss of just over $900,000 last year as we
continue to march toward profitability with these investments.
On the agent front, we ended 2008 with 2816 ZipRealty agents about even with
September 2008 and up 29% or 636 relative to a year ago. Of the agent additions
year to year, 285 were added in existing markets while 351 came onboard in new
markets.
Pat and the team have talked for some time about ZipRealty offering a unique
and attractive agent platform for agents. And we're seeing increasing evidence
of that. Over the last eight quarters, while agents have generally left the
industry, we've grown our agent count by over 1,000 new agents. And our
d with the agent turnover rate lower year to year in each
corner of 2008.

FOCUS
Agent productivity improved year over year in the second half of 2008. And
average agent productivity was approximately 0.51 transactions per agent per
month in the fourth quarter versus 0.45 last year.
Putting the data points together, we see a motivated and growing group of
agents who are becoming more familiar and effective with the lead flow and
productivity tools that ZipRealty provides, which showcases the substantial
advantages in closing transactions and satisfying customers that our model
offers.
Moving onto expenses, total expenses, excluding the one-time legal item noted
earlier, were up 7% year to year in the fourth quarter. Corporate costs,
excluding variable agent commission and compensation were down 4% year to year
in the fourth quarter, which is noteworthy considering the 40% increase in
traffic, 43% increase in closes, and 18% gain in revenue achieved in the
quarter.
Product development for the fourth quarter increased 10% on an absolute basis
but was steady at 9% revenue. The increase in product development was due to
higher website volume, supporting new markets, and an increased agent count, as
well as continued investments to improve our consumer website and agent tools.

FOCUS
Sales and marketing costs declined slightly year to year in the fourth
quarter and fell more sharply relative to revenue levels. Customer acquisition
spending was up about 4% year to year. But we grew lead volume much more
quickly. And our cost per lead was down about 14% year to year in the fourth
quarter of 2008.
G&A, general and administrative expenses were down 16% year to year in the
fourth quarter and decreased by nearly five points percentage of revenue for the
quarter. The year-over-year improvement reflects reduced corporate compensation
cost in 2008 as well as our commitment to grow without expanding overhead.
Although some new additions and programs were built into G&A going forward, we
will manage these costs aggressively given the economic backdrop and our focus
on moving to profitability.
Turning to the balance sheet, we ended the year with $49.4 million of cash,
cash equivalents, and short-term investment and without any long-term debt. Our
cash position was $80.4 million at the start of 2008. And we used $17.5 million
to repurchase one large block of common stock. $2 million went to capital
expenditures, largely related to technology infrastructure. And cash used in
operations was $11.6 million.

FOCUS
Although we anticipate investing further in our business in 2009, we're
comfortable with our capital and liquidity positions today and believe we are
well positioned to fund future growth.
Turning to our financial outlook, we expect declines in home prices to

persist throughout 2009 with some portions of the country starting to show signs
of bottoming, while others work their way through the cycle. However, we expect
to outperform the industry on volume and revenue growth. We plan to invest in
our agents and will seek to attract greater numbers of new customers in 2009. We
plan to innovate online and to highlight the level of customer service we
provide in the field.
For the year 2009, we expect revenue to grow at a mid-single-digit to low

double-digit rate over full-year 2008 levels. In terms of geographic expansion,
we currently plan to add one to two new markets in 2009, including Portland, OR,
which should launch in April. We are excited about the opportunity in Portland.
But we'll be making some modifications to our consumer value proposition there
in return to the local prohibition on commission rebates.
We see significant opportunity to go deeper within our existing markets and

to build our market share. And we plan to focus on existing market growth and
profitability as the higher return priority right now. On the bottom line, we
FOCUS
expect the GAAP net loss for 2009 to be narrower than the 2008 net loss of $14.7
million, excluding legal settlement. On that basis, our pro forma net loss
should also improve from the $10.8 million, or $0.52 per share, recorded for the
full-year 2008. And finally, based on our current operating outlook, we would
expect to end 2009 with north of $40 million in cash and equivalents on the
balance sheet.
I'll now turn the call back to Pat.
PAT LASHINSKY: Thanks, Lanny. ZipRealty provides a stark contrast to the

traditional agency model that revolves around an independent contractor or
franchisee funding his or her own growth with limited tools. During boom times,
this model does reasonably well, although in more difficult times, like today's
environment, a sole proprietor may lack technological and financial support to
make his or her business viable. And this leads to customer satisfaction scores
that historically and today reflect a focus on lead generation over the
transaction at hand. And that has always been an industry problem.
We believe that we have a better alternative for both agents and consumers.
And it centers around online strength and experienced local agents. This
combination of resources is a blueprint for growth and market share gains in
residential real estate. And our 2008 results under very tough conditions
FOCUS
reflect just that.
In fact, I believe that without the website-agent tandem, we would not have
taken such significant market share the past few years, nor would we have driven
our top line in this economy.
So in 2009, we're investing in technology and quality people. And almost

everything we do will continue to focus on enhancing the customer experience,
driving agent productivity, and gaining market share. Unlike prior years, this
investment should skew primarily to existing markets. And we see that as a smart
use of capital and a great opportunity to drive profitability as markets turn.
As Lanny suggested, we anticipate that volumes for 2009 will be consistently

strong. However, average prices will likely still be under pressure, which
should affect our gross margin. But we're committed to managing that issue.
In closing, I think we are unique in the marketplace. And thanks to a very

strong balance sheet and liquidity position, we have options to invest and grow.
We certainly believe we can create significant value for shareholders over time
and look forward to demonstrating the leverage in our financial model as the
market stabilizes and turns.

FOCUS
With that, I'd like to open up the line for questions.
OPERATOR: (Operator Instructions) And we'll go first to Jeetil Patel with

Deutsche Bank.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: Great. Thanks. Hey, guys, I have a
couple questions here. I guess as you look at -- as you talk to your buyers in
the system everyday with your agents, I guess can you talk about whether they're
switching from buying a home in a traditional process? Or are they kind of
gravitating towards buying short-sale-oriented homes or foreclosures, et cetera?
Is there a shift in the way they're kind of looking at inventory out there? Or
is it just maybe a distinct buyer looking for that type of inventory? Or I guess
some behavior -- I just wanted to get a sense of how the customer is behaving in
general.
Second, I guess can you talk about is there any sort of rule of thumb that
you see in the business today where you see maybe a 50% pricing drop from peak
to trough. And that usually results in an up tick. And I guess maybe if you
could talk about where -- of the markets that you're in today, kind of how many
are in which camp of pricing drop of close to 50% versus maybe only down 10%
FOCUS
to 15%, 10%, to 20%? And I guess when do you kind of see the majority of your
markets coming out in terms of seeing that volume up tick in the business?
PAT LASHINSKY: Okay. I'll start with your first question, Jeetil. Hi. The
first question having to do with how consumers are looking at properties and
whether they're looking separately between distressed properties, REO,
foreclosure, and short sale versus traditional --
JEETIL PATEL: Yes.
PAT LASHINSKY: -- most clients right now are coming in, starting off with the
hope that they can find a distressed or an REO or a short sale under the
expectation and thought that they will get a better value at a lower price on
those homes. And so most people come in. And that is the part where they're
starting in the process. However, as they get into the process and they start to
find more about what those tradeoffs are and the risks and the fact that you
don't get disclosures on the home when you buy an REO home. And short sales can
take 60, 90, 120 days after you make your offer until someone accepts. We're
finding that they're going back. And they're looking at more traditional homes.
And they're kind of balancing each of them off.

FOCUS
However, it really comes down to a value proposition. If banks are being very
aggressive with their pricing and they've got pricing down low, we'll see a much
bigger set of consumers. One of the things that I think is a real advantage for
our model is that we can play in any game that the consumer wants to play in.
Whatever they're interested in, if they want to see REO, foreclosed, short-sale
homes, we'll show them those homes. If they want to see traditional, we can show
them those. Our agents are experienced and are very adept at working back and
forth between those. And that's been a real advantage I think during this model
because consumers come in really wanting to get a value but are -- as they get
into that and they find some of the tradeoffs, they are willing to go back to
traditional.
In terms of the peak to trough, that issue really does vary market by market.
In California, we've seen that once home prices drop 30% to 35%, it seems like
there's a real significant value difference that gets consumers much more
involved. And you start to see consumers getting much more active in the buying
of those homes and to the point of even seeing multiple offers.
However, in other areas, we don't think that there is as much of a peak to

rough to go through because they didn't rise as much. And we don't have the
affordability issue. So in places like California and New York, where you have
big affordability issue, where under 20% of the people could afford to buy a
FOCUS
home at what it was priced before, you need to have significant peak to trough
declines to get more people able to be into the demand side of buying these
homes. In other places like a Salt Lake City or in Texas, where the home prices
never went up as much and there wasn't as much of a lag, we don't need to see as
much of a decline.
That being said, it's pretty much all across the board. Market by market,
it's really different. It's kind of -- Lanny made some statements in his
comments. We're seeing varying degrees all throughout the country. Places like
California, we're definitely seeing home prices are down enough to be able to
move property. We're seeing Nevada and Arizona having good progress. But in
places like Chicago, we haven't seen home prices -- or Seattle, Texas -- we
haven't seen home prices drop as dramatically. And the volumes are still not
coming about as fast as they are on the West Coast.
JEETIL PATEL: And I guess we're now into March. And I'm just curious -- I
know you gave some broad comments about the year. But can you talk about how the
spring season is looking from at least a buyer activity interest level
standpoint? I guess transactions may be going into escrow as well.
LANNY BAKER: Sure, Jeetil. I can give you a little bit of a view on that. And
one way would be to go back and address the momentum in the short-sale and
FOCUS
foreclosure, non-standard transactions, where we saw accelerated growth in that
market between the start of 2008 and the end of 2008. And that has continued
even stronger probably into the first part of 2009. And that -- we're looking
there at growth rates that are 150% to 200% year over year in the non-standard
transactions. And that is clearly driving the volume for the Company. So I think
the brightest or sort of the strongest portion of the market right now is
clearly that non-standard that you stalked about.
PAT LASHINSKY: And consumer activity continues to be pretty strong. I think

relative to the news that's out there and how bad all the day-to-day press is,
we're actually seeing strong consumer adoption. There's still people out there
that are interested. There's still a big problem with credit and getting people
into homes. It's easy to help people find homes with all the inventory that's
out there. It's harder to get them into those homes. But there is still a large
consumer demand. And in fact, it feels like consumers in a lot of places feel
like there are deals to be had and they're being very active right now.
JEETIL PATEL: Thanks.
OPERATOR: Thank you. (Operator Instructions) And we'll go next to Jim Wilson
Securities.

FOCUS
JIM WILSON: Let's see. I was wondering if you could give maybe a little more
granularity on pricing trends in particularly the existing market pool and
particularly maybe differentiating California -- obviously can see the overall
number and obviously some influence with your new markets being, of course, at
lower prices than places like California. But was wondering a little bit more
about the pricing trends.
LANNY BAKER: Sure. I think looking at the overall transaction revenue and the
pricing dynamics, there are probably three main factors to focus on. One is the
general trend toward lower home sale prices is probably the leading
consideration in the market right now. Second, we talked about a minute ago the
growing mix of foreclosure and non-standard is blending the average price point
down. And as I said, the non-standard transactions typically occur at prices
that are 25% lower than the standard transactions. And then the third thing is
that with jumbo mortgages so difficult to come by right now, the proportion of
higher-priced home sales has also been reduced.

FOCUS
So as we look at the fourth quarter of 2008, about 7.5% of our transactions
were north of $500,000. And a year ago, that would've been about 12.5%. So
there's some regional variations. But clearly, with home prices being highest in
California and the foreclosure activity being most active in California,
California's the market where the average transaction has come -- has been
impacted the most of late. It's also the place where the volume has reacted the
most positively.
JIM WILSON: Okay. And then I guess the other question -- your marketing and
business development expense in dollars dropped off a little bit year over year.
You're only adding one or two markets anyway. Do you see a trend of probably
spending a little bit less in that area in dollars than you had been for the
last few quarters?
PAT LASHINSKY: I think that you'll see that those dollars will continue to go
up on a sequential basis. But as a percentage of sales, we're trying to keep
that under control and pull that down slightly. But we are -- as we hire new
agents, as we bring new clients on, as we generate new leads, those costs go up
in those regards. It's not about trying to launch a new market where we do a
re about making sureping a good discipline there. It's mo
that we're growing through this market. And we're growing through a time when
we're adding a lot of agents and that we've got the appropriate fuel to drive
FOCUS
their productivity and to drive their success.
JIM WILSON: Okay. All right, good. Thanks.
PAT LASHINSKY: Thanks, Jim.
OPERATOR: Thank you. (Operator Instructions) And with no further questions in

the queue, I'd like to turn the program back over to Mr. Lashinsky for any
additional or closing comments.
PAT LASHINSKY: I would like to thank you all for being part of this call. I
would like to thank all of our employees and agents for their great work and of
what was a very difficult environment and leading to results that we felt were
good in light of everything that was going on in the economy. We look forward to
talking to you again shortly and talking about the first quarter and what the
rest of the year maintains. Thank you very much.
OPERATOR: That does conclude today's conference. You may disconnect your
lines at this time.

or other information on this web site without obligation to notify any person
FOCUS
of such changes.
be realized.

FOCUS
DECISIONS.]
LOAD-DATE: April 18, 2009

November 5, 2008 Wednesday
TRANSCRIPT: 110508a2005069.769
LENGTH: 4374 words
BODY:
* Raphael Gross ZipRealty, Inc. - IR * Pat Lashinsky ZipRealty, Inc. -

President and CEO * Dave Rector ZipRealty, Inc. - SVP and CFO

FOCUS
* Jim Wilson JMP Securities - Analyst
Presentation
OPERATOR: Good day, everyone, and welcome to the ZipRealty, Incorporated,

third quarter 2008 earnings conference call. At this time, all participants
have been placed in a listen-only mode and the floor will be open for your
questions, following the presentation.
It is now my pleasure to turn the call over to your host, Mr. Raphael Gross.
Please go ahead, sir.
RAPHAEL GROSS, IR, ZIPREALTY, INC.: Thanks, and good afternoon, everyone.
Officer of ZipRealty, and David Rector, the Company's Chief Financial Officer.
Earlier today, the Company issued a press release describing its results for the
third quarter of 2008. A copy of that release can be viewed on the Company's
website at www. ziprealty. com.

FOCUS
remarks we make about future expectations, business outlook, evolving market
conditions and plans, goals and prospects for the Company, including, but not
limited to, those involving our future performance and 2008 guidance, involving
forward-looking statements.
Additional forward-looking statements include comments on gaining market

share, benefiting from a market turn, which would be characterized by
higher-quality volumes and higher transaction values, believing that conditions
will improve, scaling our business without adding significant infrastructure,
expecting many of our registered customers to enter the market when credit
stabilizes, continuing to invest in technology, which will aid clients and
improve productivity and preserving our balance sheet.
All these constitute forward-looking statements for the purposes of the Safe
Harbor provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from the expectations, plans and prospects
uncertainties, including those described in the Company's Form 10-K for fiscal
d other filings with the Securities and Exchange Commission, copies of which can
also be viewed on the Company's website. The risk factors
FOCUS
call.

including stock-based compensation, non-cash income taxes and certain one-time
items, if any. These non-GAAP adjustments are provided to enhance the user's
overall understanding of ZipRealty's current financial performance and its
prospects for the future.
ZipRealty believes these non-GAAP results provide useful information to both

management and investors by excluding certain items the Company believes are not
indicative of its core operating results and thus presents a more meaningful
basis for comparison between periods.
prepared in accordance with GAAP. With that out of the way, I'll turn the call
over to Pat.

FOCUS
PAT LASHINSKY, PRESIDENT AND CEO, ZIPREALTY, INC.: Thanks, Raph. On today's
call, I'm going to make some brief remarks upfront, then turn the call over to
our CFO, Dave Rector, to discuss third quarter results. I'll reserve the bulk of
my comments for the second half of the call, after which we'll open up the floor
up to questions. With that out of the way, I would characterize our results for
the third quarter as very encouraging in a tough environment.
Close transactions were up 31% for the period, leading to revenue growth of
12% year over year. We were able to drive double-digit revenue growth in an
environment where our average transaction value dropped significantly. And
contributing to the decrease in transaction value was the deterioration of
credit during the period, where we saw, among other things, a precipitous drop
in the number of jumbo loans underwritten.
So I think the good news is that agents and customers continue to respond
very positively to our service model and technology platforms, but unfortunately
our bottom-line results for the period were adversely affected as volumes
essentially couldn't completely offset price declines.
Based on these results, we're refining 2008 guidance, which Dave will discuss
in a moment. But I think it's fair to say that the bigger takeaway was our gains
in productivity and transaction volumes for the period. Simply put, our model
FOCUS
is working and our brand is being recognized, despite the environment. We look
forward to making strategic progress in all our markets under the circumstances
and fully believe that we'll be a major beneficiary of a market turn which
should be characterized by solid volumes and higher transaction values.
Dave?
DAVE RECTOR, SVP AND CFO, ZIPREALTY, INC.: Thanks, Pat. Our net revenues for
the quarter were $31.4 million, an 11.9% increase from the third quarter last
year. Net transaction revenues, which exclude referral and other income, were
$30.8 million, a 13% increase from last year. Those transactions increased by
31% for the quarter, offset by decreased home selling prices.
Nearly 36% of our transactions for the quarter were nonstandard transactions,
such as REO, foreclosure, and short sales, which typically feature lower selling
prices. In fact, the selling prices of these nonstandard transactions average
25% less than the selling prices of our normal transactions.
Our pro forma net loss for the quarter was approximately $680,000 on a
decline of $601,000 in interest income alone. This equated to a pro forma loss
of $0.03 per share, compared to the pro forma loss of approximately $414,000, or
ing to new and existing market results, let me
FOCUS
remind you that new markets are defined as those having been opened for less
than one full calendar year.
The third quarter this year includes 23 existing markets and 12 new markets,
including the 10 markets opened during 2007, plus Long Island, New York, opened
this March ,and Hartford, Connecticut, opened in July. Net transaction revenues
for the quarter in existing markets increased by 3.5%, or nearly $1 million.
This was driven primarily by two factors, a 17.2% increase in the number of
transactions closed, offset by a decrease in average home selling price of
14.5%. The cost of revenue percentage for existing markets increased 120 basis
points to 58.4%, attributable primarily to increased [age] and expense
reimbursements, benefit programs to promote retention, as well as some mix of
agent commissions paid. Sales support and marketing expenses decreased by
$300,000, or 4.7%, compared to last year, primarily attributable to the
cost-cutting measures taken last fall. The net result, our existing markets
delivered market-level income of approximately $5.1 million, compared to $4.7
million a year ago.
Turning to new markets, net transaction revenues in new markets for the
quarter were $3.1 million, compared to $500,000 last year, and represented
approximately 10% of our total net transaction revenues. New markets cost of
FOCUS
revenues percentage for the quarter was approximately 53.9%. Sales support and
marketing expenses were $2.1 million, an increase of approximately $870,000
versus the year-ago period. This is primarily the result of supporting for the
entire quarter the five markets opened in last year's third quarter, as well as
the three additional markets opened subsequently.
Overall, new markets lost approximately $670,000 during the quarter, compared
to nearly $1 million last year. We're pleased to report that we continued to
gain market share in many of our markets, consistent with the trend we've
experienced over the last seven quarters. California, our closed transactions
for the quarter increased by more than 60%, keeping pace with the overall market
increase of approximately 65% in our markets.
California represented 38.2% of our total net transaction revenues for the
quarter, compared to 34.9% last year and 40% in 2006. In our existing markets
outside of California, closed transactions for the quarter increased by
approximately 4.8%, outperforming the overall market contraction of
approximately 7.2% in our markets.
Existing markets average net revenue per transaction decreased by 11.7% to

the significant increase in theue primarily to
number of nonstandard transactions and overall lower housing prices. This
FOCUS
represents an improvement from the 13.5% decrease last quarter.
Average net revenue per transaction in our new markets averaged $4,684 for
the current quarter. We added 551 net new agents over last year's third quarter,
bringing the total agent headcount to 2,814 as of September 30, 2008. Of the
total net additions, 221 agents were added in our existing markets and 330 in
our new markets, bringing our total agent headcount to 2,273 in existing markets
and 541 in new markets. Total agent headcount further breaks down to 791 agents
in our California markets and 2,023 in our markets outside of California.
This represents an increase of 255 net new agents on a sequential quarterly

basis. Average agent productivity for the quarter was approximately 0.64
transactions per agent per month, versus 0.59 last year. Moving on to expenses,
product development expenses for the third quarter increased 20.8% to
approximately 2.2 million.
This represents 7.1% of net revenues, compared to 6.5% last year. This
increase was primarily due to supporting higher website volume, supporting our
new markets and continued to improve our consumer website and agent tools.
Regional and corporate sales support and marketing costs increased modestly in
dollars but declined as a percentage of net revenues over last year.

FOCUS
General and administrative expenses decreased by nearly 7% year over year to
$3.1 million for the quarter. As a percentage of net revenue, G&A expenses
decreased to 10%, compared to 12% in the third quarter last year. This trend
continues in the right direction and we feel we have significant leverage in our
model, particularly under more normalized market conditions.
Turning to the balance sheet, we ended the period with 51.9 million of cash,
cash equivalents and short-term investments and without any long-term debt. In
October, we reached a settlement in a pending lawsuit which provides for a
payment to us in the amount of $3.2 million.
Net of attorneys' fees, we expect to recognize a gain of approximately $1.9

million in the fourth quarter and receive payment before the end of the year.
Let me wrap up by refining our guidance for 2008. For the year, we now expect
net revenues of between $107 million and $109 million, representing growth of 3%
to 5% compared to our 2007 net revenues of approximately $104 million.
These revised expectations reflect a change in activity by our customers

during the month of October. Pat will discus later on the call. In terms of our
lion, whichss, we now expect between $11.1 million and $12.1 mil
equates to a loss of $0.53 to $0.58 per share, based on approximately 20.9
million average shares outstanding.
FOCUS
On a pro forma basis, this equates to a loss between $8.5 million to $9.5
million, or $0.41 to $0.45 per share, compared with the 2007 pro forma loss of
$7.6 million, or $0.34 per share. This translates into fourth quarter revenues
of approximately $24.6 million to $26.6 million. While we're certainly
disappointed with these revised revenue expectations, it is important to note
that they do reflect a continuation of the revenue acceleration trend that we
experienced in the third quarter.
Specifically, this new revenue range represents the year-over-year growth

rate of 16% to 26%, versus the 12% growth we experienced in the third quarter.
We continue to manage our expenses aggressively and anticipate a pro forma loss
of $1.4 million to $2.4 million, which is a significant improvement from the $5
million loss experienced in the fourth quarter of 2007. We expect that our
referral revenues for 2008 will decrease, primarily as the result of a continued
reduction in our fees from our mortgage services marketing relationships.
In October 2008, E-LOAN announced plans to shut down operations as a direct

first mortgage lender, and as a result our marketing relationship with E-LOAN
terminated October 31, 2008. Our marketing relationship with E-LOAN has been the
primary source of our corporate referral income. We're actively pursuing other
mortgage partners to replace this source of revenue and to continue providing
our clients with excellent service and financial benefits.
FOCUS
In terms of new markets, as it stands today, we've opened two markets during
2008, Long Island, New York, and Hartford, Connecticut. We'll update our outlook
for 2009 on our fourth quarter call, although we would expect just one to two
new markets next year and, as Pat will tell you, a focus on driving performance
in our existing markets. And I'll turn the call back over to Pat.
PAT LASHINSKY: Thanks, Dave. This is certainly a historic period for credit
markets and residential real estate. And, as distracting as the headlines may be
from day to day, I think it's important to step back and realize that people are
still living their lives, relocating, moving into higher-valued homes and, in
many cases, lower-valued homes, but they're moving nonetheless. And although we
don't see current trends in the market necessarily reversing in the near term,
we may be seeing the early stages of inventory reductions in some of our key
markets.
This was particularly evident in areas where price points had declined by 30%
or more. In these areas, transaction volumes continued to increase
significantly. Let me take a minute to talk about California to illustrate my
point. Throughout the state, overall market transaction volumes in the third
ased 65% on the heels of a 13% increase in transaction volumes in
Q2. This spike in our view signaled more capitulation on the part of banks and
sellers and a step forward. Within California, there continued to be a lack of
FOCUS
consistency as volume increases were largely driven by the inland areas, such as
Sacramento and the southern California Inland Empire, with increases trending at
or above 100% year over year.
In these areas, much like last quarter, we estimate that foreclosures

represented more than half the volume, with median home prices continuing to be
down more than 30%, as sellers, including banks, unloaded their holdings.
Generally speaking, the coastal markets of California continued to tell a

different story, as foreclosures represented a much smaller percentage of
transaction volume. However, transaction volumes began to demonstrate strength
in the third quarter versus last year, as well as versus the second quarter of
2008, as home prices declined.
Overall, months of inventory have come down significantly year over year in
California, from about 16 months in September of 2007 to about seven months this
year. So what does this mean for California? Well, we believe that rising
volumes due to foreclosures is necessary. These transactions show no signs of
abating right now, but like we said last quarter, as these homes are cycled out
of existing inventory, market volumes will likely soften, positioning ZipRealty
for higher-quality volumes and presumably higher prices.

FOCUS
On the coast, the volume pickup I mentioned is also encouraging and, assuming
it's sustainable, it appears as if buyers and sellers are slowly coming
together, but one quarter doesn't make a trend. To that point, although we don't
usually comment on inter-quarter performance, we're going to share some data
points from October.
While our business was up versus October 2007, we did see a sequential
decline in pending transactions relative to September and the drop-off in our
opinion was largely due to a customer base that became distracted and very
cautious based on a daily rash of bank failures, bank mergers and what was
billed nightly by the press as the collapse of the US financial system. That
slowly morphed into talk of nationwide layoffs and recession.
As a result, we witnessed a slowing of growth in almost every category,
including registrations, offers, opens and close transactions, versus September.
We believe that these conditions are temporary and in 2009 and 2010 we believe
we can gain more ground in California through an increased emphasis on hiring
more aggressively, increasing our share of the foreclosure market and benefiting
as the jumbo loan market comes back. In markets outside of California, the story
third quarter.e

FOCUS
In the markets where foreclosures represent a large percentage of
transactions, such as Las Vegas and Phoenix, we witnessed trends similar to
inland California. Other markets, such as DC, Boston and Minneapolis witnessed
solid improvements in year-over-year transaction growth and stabilizing months
of inventory during the third quarter.
Still, other markets, such as Seattle, Houston, Austin and Dallas witnessed
significant year-over-year volume declines during the third quarter that were
fairly similar to those experienced in the first half of 2008. Generally
speaking, these markets have not witnessed significant home price declines, but
in October there was the same hesitancy we saw in California.
We're hopeful that recent government action will ease these short-term
concerns, and, as such, we remain busy managing costs and investing in areas of
the business that will allow us to scale without adding significant
infrastructure when the market turns. We've invested in several new markets over
the past 18 months and will continue to concentrate on driving performance.
Simply put, we view these markets as great opportunities for growth and we
plan to keep directing capital and human resources towards maximizing our
customer opportunities. Part of that planned effort will include technology, as
we continue to invest in features and tools on our website.
FOCUS
Recent additions to the site include the ability for our clients to search
for bank-owned foreclosed properties, community walkability scores and agent
ratings, submitted by their clients. We believe that these and other new
features will further aid our clients in their home search, provide for a better
customer experience and also increase productivity.
In fact, our productivity this quarter increased year over year for the first
time in four years, and we credit better recruitment and training, retention of
great agents and our willingness to part with agents that haven't contributed.
Ultimately, it's critical that buyers and sellers work with knowledgeable agents
in this environment, and that's where we believe our technology and business
model have an edge.
Much like every other quarter in 2008, we continue to see high levels of
activity on our website, and third quarter registered visits were up 78% year
over year. The increase in visitation has also helped us identify and
communicate with lots of potential customers. In fact, we have a significant
database of buyers who, over the past two to four years, may have felt they
couldn't afford to enter the market at high prices. We're continuing a dialogue
mers and expect many of them to reenter the market
when credit stabilizes.
FOCUS
Moving to costs, we continue to benefit from our 2007 cost rationalization
plan as evidenced by our decreased G&A as a percentage of sales over the past
two quarters. We're actively looking to become even more efficient but do not
intend to sacrifice the agent and customer experience to do so.
So, in closing, I think we continue to make strategic progress despite

current market conditions and we measure that in terms of volumes and
productivity. We need credit to start flowing again, and, as I just stated, we
feel very good about recent steps taken by the government to inject liquidity
into the banking system. We also believe that the Housing Recovery Act, signed
into law earlier this year, has been a step in the right direction and other
positive indicators for ZipRealty right now are low interest rates and declining
home prices which, as we've seen, drive volumes. On the negative side of the
ledger, consumer confidence is certainly low, unemployment is a concern and
buyers in many cases have lost a percentage of their down payments due to stock
market volatility.
So, in the meantime, we are focusing on the agent and customer experience,
pulling back on new market development versus prior years and allocating dollars
and resources prudently to existing markets. We're also focused on preserving
our balance sheet strength and in combination we believe we'll be strongly
positioned for a market turn. We look forward to our next call and keeping you
FOCUS
posted on what we're seeing in the industry and, more importantly, our business.
Operator, we'd like to open the line for questions.
OPERATOR: Thank you. The question and answer session will be conducted
electronically. (Operator Instructions)
And we'll go to Jim Wilson with JMP Securities.
JIM WILSON, ANALYST, JMP SECURITIES: Oh, thanks, good afternoon, everyone.
Pat, I guess if -- I was looking at market share, both California and then non
California, so I guess by the numbers it was obviously a big bounce up in the
marketplace in general, but your sales growth was a little below obviously the
robust 65% for the whole state in total.
How did it look outside of California? Do you think you were still gaining
share and can you quantify it? The other question about California is, is there
-- you've been gaining share almost every quarter, I think, prior to this.
Anything structural that wouldn't prevent you to keep gaining share in the
future, even though it's slipped a little bit this quarter?

FOCUS
PAT LASHINSKY: Sure. Thanks, Jim. Well, first of all, when it comes to
California, even though we were slightly down versus the total market growth, we
think that a lot of the growth that was driven in California was due to these
foreclosure and specialty properties. And there are some brokerages out there
that have this as their niche and they're getting a large portion. We think that
the growth that we've shown in these distressed properties actually is a good
sign and it's shown good growth. Our market is actually doing fairly well in
California relative to what's going on out there.
We still think we can make a lot of improvements in California and we can
definitely continue to get better, but we feel like we were a little bit slower
in our growth, but relative to what's going on in the rest of the market, in the
traditional market, we think we're good.
In terms of outside of California, yes, we felt like our market share

continued to gain. The business was down about -- the markets that we were in
were down about 7.2%. We were plus 4.8. So there's a pretty significant gain of
over 11% difference between GAAP between what was happening in our markets and
t'sjust driven we think by the heavy percentage of distressed properties.n, i

FOCUS
JIM WILSON: Okay, great. That makes sense. All right, thanks a lot.
PAT LASHINSKY: Thank you.
OPERATOR: Thank you. (Operator Instructions)
And at this time it appears we have no further questions.
PAT LASHINSKY: Great. I'd like to end with just a message from me to our
employees. I want to thank you all for all you continue to do to continue to
ensure that our clients get the best service possible, and all the information
and support they need to get through these difficult times, while maintaining
our 96% satisfaction as you're doing it all.
In my travels to visit you, I continue to be impressed with your resilience

and attitude. Thanks again to all of our employees for all you're doing to make
this a great company. Thanks, everyone, and we'll talk to you at the end of next
quarter.
lines at this time.

FOCUS
such changes.
be realized.

FOCUS
DECISIONS.]
LOAD-DATE: November 19, 2008
Copyright 2008 ASC Partners L.L.C.

August 7, 2008 Thursday
TRANSCRIPT: 080708an.794
LENGTH: 5980 words
BODY:
OPERATOR: Good day, everyone, and welcome to the ZipRealty, Incorporated

Second Quarter 2008 Earnings Conference Call. At this time, all participants
have been placed in a listen-only mode and the floor will be open for your
questions following the presentation. It is now my pleasure to turn the call
over to your host, Raphael Gross. Please go ahead, sir.

FOCUS
RAPHAEL GROSS, IR, ZIPREALTY, INC.: Thanks and good afternoon, everyone.
Officer of ZipRealty, and David Rector, the Company's Chief Financial Officer.
the second quarter of 2008. A copy of that release can be viewed on the
Company's website at www. ziprealty. com.
various remarks we make about future expectations, plans, goals and prospects
for the Company, including, but not limited to, those involving our future
performance, business outlook and 2008 guidance involve forward-looking
statements.
Additional forward-looking statements include our comments on market forces

inside and outside California over the next 12 to 18 months, investing in our
business, rationalizing costs and having a natural footprint that will drive
greater operational efficiencies. All of these constitute forward-looking
statements for the purposes of the safe harbor provisions under the Private
Securities Litigation Reform Act of 1995.

FOCUS
Actual results may differ materially from the expectations, plans and
risks and uncertainties, including those described in the Company's form 10-K
for fiscal year 2007 and other filings with Securities and Exchange Commission,
copies of which can also be viewed on the Company's website. The risk factors
call.
Please also note that the supplement is consolidated financial statements

items, if any.
These non-GAAP adjustments are provided to enhance the users overall

to both management and investors by excluding certain items the Company believes
are not indicative of its core operating results and thus present a more
meaningful basis for comparison between periods.

FOCUS
over to Pat.
PAT LASHINSKY, PRESIDENT, CEO, ZIPREALTY, INC.: Thanks, Raf. On today's call,
we're going to change things up a bit. I'm going to make some very brief remarks
upfront and the turn call over to our CFO Dave Rector to discuss second quarter
results. I'll then reserve the bulk of my comments for the second half of the
call.
So, with that out of the way, our results for the second quarter were in line
with our expectations given the ongoing economic challenges we all hear about
everyday. But despite these headwinds, we feel good about the business and see
no reason to change our full-year guidance at this time. We see this as
significant.
Given that at the time of our original forecast, we assumed that credit
markets would have improved relative to where they will likely be in the second
half of 2008. Due to solid execution, we believe that increases in transaction
volumes, 17% in the second quarter alone, along with market share gains should
FOCUS
help preserve our outlook.
Don't get me wrong, we'll have to continue to execute at a high level, but
we're seeing progress in the business as evidenced in part by the fact that we
were the number one most trafficked residential real estate brokerage site in
the nation in June. Dave?
DAVID RECTOR, SVP, CFO, ZIP REALTY, INC.: Thanks, Pat. Net revenues for the
quarter were $30.4 million, a 2.7% decrease from the second quarter last year.
Net transaction revenues which exclude referral and other income were $29.9
million, a 2.1% decrease from last year.
This was entirely attributable to decreased home selling prices that our
closed transactions increased by over 17% for the quarter. Approximately 29% of
our transactions for the quarter were non-standard transactions, such as REO,
foreclosure and short sales, which typically feature lower selling prices. In
fact, the selling prices of these non-standard transactions averaged over 23%
less than selling prices of our normal transactions.
Our pro forma net loss for the quarter was approximately $800,000 or $0.04
per share. This compares to pro forma income of approximately $140,000 or $0.01
per share in last year's second quarter.
FOCUS
Turning to new and existing market results. Let me remind you, the new
markets are defined as those having been opened for less than one full calendar
year. Therefore, new markets for the second quarter this year, include the 10
open in 2007, also Long Island, New York, opened in March. So, we have 11 new
markets and 23 existing markets for the quarter.
Net transaction revenues for the quarter in existing markets decreased by

$3.1 million or 10.3%. This was driven primarily by two factors. 3.6% increase
in the number of transactions closed offset by a decrease in average home
selling prices of 16.6%.
Cost-to-revenue percentage for existing markets increased 110 basis points,

57.7%, attributable primarily to the mix of agent commissions paid and increased
agent expense reimbursements.
Sales support and marketing expenses decreased by nearly $475,000 or 6.5%

compared to last year, primarily attributable to the cost cutting measures taken
last fall. The net result. Our existing markets delivered market level income of
approximately $4.7 million compared to $5.9 million a year ago.
Turning to our new markets. Net transaction revenues in new markets for the
edarter were $2.6 million compared to $100,000 last year, and represent
FOCUS
nearly 9% of our total net transaction revenues. The new markets'
cost-to-revenues percentage for the quarter was approximately 51.5%.
Sales support and marketing expenses were $1.9 million, an increase of

approximately $1.2 million versus the year ago period, primarily the result of
supporting the seven additional markets open since the second quarter of last
year. Overall, the new markets lost approximately $650,000 during the quarter.
We're pleased to report that we continue to gain market share in many of our
markets consistent with the trend we've experienced over the last six quarters.
California. Our closed transactions for the quarter increased by
approximately 20.4%, significantly outperforming the overall market increase of
approximately 13% in our markets. California represented 35.3% of our total
transaction -- net transaction revenues for the quarter, compared to 38.9% last
year and 40.3% in 2006.
In our existing markets outside of California, closed transactions for the

quarter decreased by approximately 1.5%. Again, outperforming the overall market
contraction of approximately 19% in our markets.

FOCUS
Average net revenue per transaction decreased by 13.5% in our existing
markets to $6,634 and $7,665 in the prior year, due primarily to the significant
increase in the non-standard transactions and overall lower housing prices.
the current quarter. We added 489 net new agents over last year's second
quarter, bringing the total agent count to 2,559 as of June 30, 2008.
So, the total net additions, 148 agents were added in our existing markets,
349 in our new markets, bringing our total agent head count to 2,118 in existing
markets and 441 in new markets.
This total agent head count further breaks down to 733 agents in our
California markets and 1,826 in our markets outside of California. This
represents an increase of 274 net new agents on a sequential quarterly basis.
Average age of productivity for the quarter was approximately 0.66 transactions
per agent per month.
Moving on to expenses. Product development expenses for the second quarter

increased 17.2% to approximately $2.1 million. This represents 7% of net
revenues versus 5.8% last year. This was primarily due to supporting higher
website volume as well as continuing to improve and enhance our consumer
FOCUS
website and agent tools as well as supporting our new markets.
Regional and corporate sales supported marketing costs decreased modestly in

dollars and as a percentage of net revenues over last year.
General administrative expenses decreased by 34% year-over-year to $2.9

million for the quarter. As a percentage of net revenue, G&A costs were 9.7%
compared to 14.3% in the second quarter last year. While last year's G&A
included some one-time costs, the trend is going in the right direction and we
feel we have significant leverage in our model, particularly under more
normalized market conditions.
Turning to the balance sheet. We ended the period with $55.1 million of cash,
cash equivalents, and short-term investments without any long-term debt. As you
will recall, in early April, we repurchased all of the shares of our common
stock held by Pyramid Technology Ventures for approximately $17.4 million, which
primarily accounts for the variances from last quarter.
Let me wrap up by reiterating our guidance for 2008, which remains consistent
with what we communicated on our last call. For the year, we expect net revenues
of between $114 million and $118 million, representing growth of 10% to 14%
imately $104 million.revenues of approx
FOCUS
Overall, we expect a GAAP loss in 2008 between $8.9 million and $10.4
million, which equates to a loss of $0.42 and $0.50 per share based on our
approximately 20.9 million average shares outstanding. On a pro forma basis, we
expect our loss to range from $4.9 million to $6.4 million or $0.23 to $0.30 per
share compared to 2007 pro forma loss of $7.6 million or $0.34 per share.
As our full-year guidance suggests, we essentially plan to breakeven on a pro

forma basis in the second half of the year. We still see opening two to four new
markets during 2008, including Long Island, New York, which opened in March, and
Hartford, Connecticut, which opened in July. And I'll turn the call back over to
Pat.
PAT LASHINSKY: Thanks, Dave. We believe that some of the market forces that
will ultimately repair the residential real estate market are at work, but
there's certainly a daily ration of bad news for everyone to digest. That said,
there are some positives intermingled with the negatives. So, I'm happy to
discuss what we're seeing on our website and hearing from our clients.
As many of you have no doubt seen, the National Association of Realtors or

NAR disclosed that total inventories of existing homes were 4.49 million in
June, implying an 11.1 month supply. This is a negative number relatively
consistent with the 11.2 month supply in April. But these national numbers
FOCUS
don't always tell regional or local story. So, I'll share with you what
ZipRealty is seeing in our markets and what it might mean for the future.
In terms of California, the overall transaction volume trends during the

second quarter demonstrated a significant reversal. Specifically, while we
estimate that market volumes declined by about 25% during the first quarter of
2008, the second quarter posted a 13% increase in transaction volumes.
However, if you drill down geographically, there's a lack of consistency as

the increases were largely driven by the inland areas, such as Sacramento and
the Southern California inland empire. In these areas, we estimate that
foreclosures represent more than half the volume and median home prices are down
33% to 35% as banks unload inventory and take their losses.
Generally speaking, the coastal markets of California tell a very different

story as foreclosures represent a much smaller percentage of transaction volume.
In fact, market transaction volumes in the second quarter in these areas have
generally remained soft year-over-year, albeit not as dramatically as the first
quarter of 2008. While median home prices were also down, the declines were
, reflecting a resistance by the inland markets
sellers to reduce prices significantly.

FOCUS
So, what does this mean for California over the next 12 to 18 months? Well,
we believe that rising volumes due to foreclosures is a good thing and
represents a correction of past mistakes. These transactions show no sign of
abating right now. But, at some point, as these foreclosed homes are sold,
ZipRealty volumes may soften, which could also be a good thing, because we'll be
positioned for higher quality volumes and presumably higher prices. In
California, the wildcard will be what happens on the coast.
As I stated, volume in these areas are still lower than what we'd like as
buyers who read the negative headlines everyday think prices are coming down,
but sellers who may not yet be feeling the pinch of the economy are still
holding out on price. We believe, the two sides will come together in the next
18 months as personal situations will ultimately require action.
During this time, successors of realty would be consistent, steady volumes

and market share gains. And as the market repairs itself, we'd like to see the
mix of foreclosure transactions go down with increasing volumes on the coast. By
definition, we'd be positioned for higher value transactions.
Outside of California, some more story can be told. In markets where

foreclosures represent a large percentage of transactions, we saw a reversal in
volume trends triggered by price capitulation. For example, in Las Vegas,
FOCUS
where we estimate that foreclosures make up about half of the market volume,
median home prices declined by almost 20% with transaction volumes rising more
than 30% year-over-year.
However, in the majority of markets, like Dallas, Chicago, Minneapolis and

Atlanta, year-over-year declines in the market during the second quarter were
fairly similar to those experienced in the first quarter of 2008. Similarly,
median home prices, while down pretty much across the board, did not see the
dramatic declines.
So, again, foreclosures are working their way out of the system, which is
positive. But buyers and sellers just have a different perspective right now as
the headlines encourage buyers to wait for a better deal with sellers holding
out on price for the time being. We believe that if economic conditions persist,
we'll likely see a capitulation and a compromise on price, but we can't be sure
if and when that will happen.
So, while market forces remain at work, we're continuing to invest prudently
in the business and where we can rationalize costs. Let me discuss both areas of
focus.

FOCUS
First, as you know, we've invested in new markets and now have a national
footprint, which can drive efficiencies in customer acquisition, branding and
technology investment.
We've also invested in the features and tools on our website, which serves as
our main connection with agents and customization line. Recent additions to the
site, include the ability for our clients to search for bank-owned foreclosed
properties and a voting feature that polls the ZipRealty community on which
homes they feel are the best value.
We have also introduced a real estate price prediction game that asks players
to guess the sales price of current for-sale homes, which is a Web 2.0 Power of
the Crowds web application. We believe that these new features will further aid
our clients in their home search and will provide unique information on for-sale
homes only available on ziprealty.com.
And we think that these additions are making a difference. We continue to see
high levels of activity on our website through the first six months of 2008.
Registered visits to our website have been up 35% year-over-year. And in June,
according to Hitwise, we were the number one trafficked brokerage site in the
country and the third most trafficked site in all of real estate.

FOCUS
These initiatives continue to grow our direct-to-site traffic, which was up
more than 40% of registrations in Q2. And this, in part, has led to second
quarter transaction volume strength, up 17%. Finally, we've been able to drive
market share gain fairly consistently in many of our markets.
The increase in visibility has also helped us attract and retain some
talented people. In fact, as you saw in the second quarter, margins were
slightly down due to the fact that our most experienced and highest paid agents
are driving volumes. This comes at a time when many realtors are leaving the
industry.
According to NAR, the number of members nationwide is down 7% from a year

ago. And as we've always said, a contraction would be healthy for the industry
and good for ZipRealty.
On top of that, brokerage firms appear to be aggressively rationalizing

costs. According to the REAL Trends poll survey of 750 real estate leaders in 50
states, 40% of respondents said that they have consolidated or closed brokerage
offices. Again, the fact that we're investing while others are pulling back
could have positive long-term ramifications for us.

FOCUS
Moving over to costs, we rationalized our expense structure in late 2007 and
have benefited from those savings, seeing a favorable year-over-year decrease in
G&A. We're actually looking to become even more efficient, but we won't do so at
the expense of the agent and customer experience. And although we continue to
seek opportunities to become more efficient, we're investing in areas that we
believe will give us long-term competitive advantage.
So, in closing, I think we made strategic progress and increasingly built a

loyal agent and customer base. And given what we're seeing, we believe, we're
allocating resources to the right initiatives at the right time in the cycle.
Now, there are wildcards out there, both positive and negative. And
regardless of our executions, they will play a part in how long the cycle lasts.
On the negative side, we don't know the speed with which bank lending can
rebound. Right now, credit is tight and that certainly has slowed overall
volumes. On the positive side is the Housing and Economic Recovery Act that
President Bush recently signed into law. So, let me take moment to discuss it's
implications.
First, the Act creates a $7,500 tax credit for select first-time homebuyers
urchase between April 9th, 2008, and June 30, 2009. The

FOCUS
credit must be repaid over 15 years or upon sale of the home. And because of
this repayment condition, the credit is essentially an interest-free loan. This
is a great incentive for first-time homebuyers, who represent an important
segment of the market for us.
Second, at the end of 2008, there will be change to conforming loan limits.
This modification permanently increases the size of the loans that Fannie and
Freddie can buy, which is important to many of our markets where the average
home price is higher than the previous conforming limit.
Third, there will be a new FHA, Federal Housing Authority, limit. By

increasing loan limits nationwide, the FHA is providing greater liquidity to the
housing markets. Finally, the Act prohibits certain types of down payment
assistance and includes various provisions, including those dealing with Fannie
and Freddie, mortgage insurance and bonds.
In our opinion, each of these points are good for the market, but how much
they will help, if any, and over what time period remains uncertain. So, again,
despite the market, we are executing our plan. Our brand is really showing signs
of emerging promise. And we're excited about our market position. Operator?

FOCUS
OPERATOR: Thank you. (OPERATOR INSTRUCTIONS). We'll take our first question
from Jeetil Patel with Deutsche Bank Securities.
UNIDENTIFIED PARTICIPANT: Hey, thanks. This is actually Herman calling in for

Jeetil. Just a quick question on your current guidance. I guess, you guys
reiterated your guidance. I was wondering at what level of ASP declines you guys
are assuming in your numbers?
And, second, I guess, if you could talk about the tightening credit markets
-- you talked about how it had some impact on your volume. If you can kind of
quantify that for us that would be helpful? Thanks.
PAT LASHINSKY: So, hi, Herman. We basically -- we're looking at average home
prices for the year being down about 15% as we would go into our guidance. What
was the second part of the question?
UNIDENTIFIED PARTICIPANT: The second question was the tightening credit

markets. I was wondering if you can talk about how that had impacted your volume
of transactions in the second quarter?
PAT LASHINSKY: The tightening credit markets has been one of the real
difficulties that are agents have to deal with everyday and when they work
FOCUS
with clients. It's a real factor that's out there for -- largely on our homes
that are jumbo. Those loans are very, very difficult to get right now. If you're
outside the conforming and outside of a great credit client, it takes a
significantly more time. And we're having more clients that believe that they've
got approval.
They go in. They work with an agent. They find a property. They get a
contract written. And then, they find out that the loan that they had applied
for is no longer there and they're not able to get the credit anymore. And so,
the volumes are still being restricted based on the tightness in the credit
markets, the tightening of the conditions and the inability for clients to find
great lending sources right now.
UNIDENTIFIED PARTICIPANT: And just curious on -- historically, I guess, it

was loans for the purchasing side probably closes closer to four to six weeks.
Have you seen that maybe have extended to maybe about two months or so? Or is
that kind of relatively in line?
PAT LASHINSKY: It has extended. And the hard thing is to differentiate how
much it's extended because the banks are just busy with dealing with foreclosure
and REO properties and what they have. But it is taking longer for deals to get
nd we think that part of it is because there's just more caution out
FOCUS
there and they're dealing with more properties. But it is -- that time to close
has lengthened.
UNIDENTIFIED PARTICIPANT: Got it. And last question, I guess. On your share
of -- you talked about how shares of non-standard transactions are now
representing about 29% of your transactions, but ASPs are less. But clearly an
opportunity for you guys to help kind of cleanup some of the mess that's been
out there.
I was wondering if you could talk about how you guys are getting access to
that inventory? And what share do you think you guys have of that marketplace?
PAT LASHINSKY: I don't have any idea, honestly, on what share we have of the
marketplace. I don't know that we have a good enough data source to give you
that information. But what I will tell you is that we have what we feel are very
good comprehensive data sources that we've been providing to our agents for
about the last four to five months. And just recently, as of about three weeks
ago, we started providing -- making that same information available to clients
on our site. So, clients can go on and search for foreclosed properties, REO.
And we also allow our agents to see all of those. Based on all the public
information, documents that are filed. We get a data feed directly to us and
FOCUS
we're able to provide that to clients that we think it's appropriate for.
So, it's one of the tools that we're able to provide to clients. We think
that we have a very good option for both our agents and clients that allow us to
be probably better dealing with this than many other brokerages that are out
there. And that's part of the reason why we think we've seen the increases in
this business.
UNIDENTIFIED PARTICIPANT: Got it. Thanks a lot.
PAT LASHINSKY: Thanks.

OPERATOR: And we'll take our next question from Ben Schachter with UBS.
BEN SCHACHTER, ANALYST, UBS: A few high-level questions. Just regarding,

number one, discuss a little bit about the positioning of the brand and how that
may have changed over the last 12 months? And where you think it -- where you
think it should be once we come out of this mess?
And then, also, a similar question around changes to the economic model
itself. Have you changed the way you're paying out your brokers? Do you
anticipate making any changes to that? And then, finally, just generally
FOCUS
speaking, do you think you can achieve profitability without having a macro
turnaround? Thanks.
PAT LASHINSKY: Okay. Couple questions there. Let me start with the first one.
Positioning of the brand. I think that one of the things that has definitely
happened in this market is there has been -- there's even more of a demand for
full-service, high knowledge, very transparent brokers that can provide value to
clients.
And I think that that is really the position that ZipRealty has attained and
it has in the marketplace. It's perceived as being one of the best sources for
data. It's very interesting that despite the fact that we're only in 34 markets
-- 35 markets now, that we had the number one most trafficked real -- brokerage
site in the month of June, despite the fact that we're competing against many,
many brokerages that are national.
The reason for that is because clients believe that we give them very, very
good information and very good data. Then, the reason that we see a 17% increase
in the volume in the second quarter is because we're providing a very good level
of service and a good value. And so, the brand is really developing.

FOCUS
The other thing that I think that really represents and starts to show great
brand strength is the fact that 40% of the volume now is coming directly to our
site. So, that means that people are coming to us without us having to pay
anybody. They're not coming from someone else. They're typing in directly or
ending up on our site through a referral of a friend. Those are -- those are the
qualities of a brand that are -- take time to develop and that a very, very
strong and worked through in a market.
In this difficult market, as our brand continues to develop, as our agents

continue to be responsive, as they continue to be value added to buyers and
sellers, I think that the brand will continue to develop a prominence and a
presence as being one of the strongest out there for helping clients get value
and get all the information they need to be successful.
In terms of changing the model and what we've done in terms of paying agents.
We continue to evaluate and tweak the model on a regular basis -- on a monthly,
quarterly and yearly basis. We're always looking at ways to become more
efficient. Ways to increase the structure. Ways to add value. We are in the
process of doing a compensation test in a couple of districts for a different
way to pay agents to see if we can encourage productivity and allow agents to
make more and allow the Company to make more at the same time. And so, we're
continuing to work on that as we go forward.
FOCUS
But, in terms of the macro conditions of the business, I don't think that we
need to make real changes to the model right now. I think that we believe that
we are showing that this model works. And it works in a good market. And it
works in a tough market. And we're gaining. And we believe that our positions
are growing. We're growing market share in all of these markets that we're --
many of the markets we're competing in.
And we're continuing to show that our model is differentiated for both agents
and clients. One of the things that we're seeing is that we're getting more
experienced agents coming over and joining us than we've ever had before. And I
think part of the reason for that is that they've realized that the market is
very difficult. It's expensive. It's hard to stay in.
And in a situation like ours, where we provide them the technology, the
tools, we get rid of some of the risk of their upfront costs and we provide them
clients to work with to be very significant for them. Another advantage of our
model that allows us to grow through these difficult times.
So, I think that the model is working. I think that on a macro level, it's
got many of the right things in place. And we will continue to evolve it and
look at new ways of doing business as we go forward. But right now, we're not
looking for any major macro adjustments in the business.
FOCUS
In terms of profitability. Do we need the market to turnaround to be
profitable. I think that one of the advantages we have is that new markets will
drive us towards profitability as they ramp. A stable market would definitely be
a positive. But if we could continue to grow our new market business, we
increase our agent productivity, I think that we can get the profitability with
some minor adjustments. As long as the market doesn't continue a nose-down dive,
I think that we've got some good upside.
BEN SCHACHTER: Good luck. Thanks.
OPERATOR: (OPERATOR INSTRUCTIONS). We'll take our next question from Jeff
Graf with Springhouse Capital.
JEFF GRAF, ANALYST, SPRINGHOUSE CAPITAL: Hi. I was just wondering if you
could elaborate on your guidance a little bit more? It looks like -- I believe
you said you're going to be breakeven in the second half of the year, which
would be about a $7 million improvement over last year. So, I'm just wondering,
if you could drill down into what you're seeing that gives you confidence for
that improvement?

FOCUS
DAVID RECTOR: Well, essentially, with looking at breakeven for the last half
of the year, we don't give quarterly guidance. I can add a little bit of color
on kind of what are our assumptions.
First of all, as Pat talked about earlier, we have no idea how long it's
going to take to digest this inventory of these non-standard transactions and
foreclosures. So, we're expecting those trends to sort of continue throughout
the remainder of the year.
We do expect to increase our agent head count, which will help us on
transactions, primarily in our new markets as they continue to ramp up. They are
contributing a growing percentage to the number of transactions overall in our
revenue.
The other thing is, we have been seeing our productivity trending up slowly
over the year. And we're optimistic that what we saw in California in the second
quarter with transaction count up -- that if productivity continues to trend up
a little bit and with additional agents and with the new markets, that's where
we're looking for that incremental revenue.
And the other thing is sort of a comparison to last year. Last two quarters
of 2007 were heavily impacted by the mortgage meltdown. So, we anticipate a
FOCUS
much stronger second half of the year for '08 compared to what we had in '07.
JEFF GRAF: Okay. And then --
DAVID RECTOR: When we're talking about that that's obviously the
profitability on a pro forma basis.
JEFF GRAF: Of course. Could you talk a little bit more about SG&A or G&A in
the quarter. Down to $2.9 million, sequentially, from $3.7 million? Is there
more room for a decrease in G&A? And then, can you also talk about what led to
that reduction?
DAVID RECTOR: I think, there a couple of things. Now, one, you have to keep
in mind that last year, we had approximately $700,000 of one-time expenses on
the -- when our previous CEO left. So, the -- to kind of level the playing field
there, there is a different level there. But, I think, it -- a lot of this goes
back to the cost rationalization program that we put in last fall.
We continue to look at all of the cost in the Company and think that -- at
this point, we manage the Company to the current circumstances. We think we have
an adequate level of support in G&A and I think we're optimistic that given a
rather steady state there that we can maintain that cost level.
FOCUS
PAT LASHINSKY: Yes, Jeff, one thing is costs may go up a little bit, as we
continue to grow the business and it gets bigger. But as a percentage, we
definitely think that there is room for the -- for it come down as a total
percentage. But that -- just because it's coming down doesn't mean that total
absolute dollars will come down. Because as we continue to grow the business and
get more transactions done and have more agents, there is the opportunity where
we may need to have some support there to help that. But as a percentage, we do
think that there is good room there.
DAVID RECTOR: There will be considerable leverage on that as we grow.
JEFF GRAF: Okay. But this $2.9 million in the quarter, I mean, is that a
decent number to work with? Or was that abnormally low?
DAVID RECTOR: That is just a little bit low. There were certain -- we
actually had an incentive program that was in our first quarter 10-Q that looks
like it was not met at mid-year, so we had about a $300,000 credit in there. So,
I think, you want to look at that being a -- probably a run rate around 3.2.
JEFF GRAF: Okay. Great. Thanks for the answers.

FOCUS
OPERATOR: (OPERATOR INSTRUCTIONS). And that does conclude our
question-and-answer session. I will turn the call back over to you, Mr.
Lashinsky, for any final or additional remarks.
PAT LASHINSKY: Thank you very much. We will continue to focus on executing
and taking care of our buyers and sellers throughout the rest of the year. I'd
like to thank all of our agents and employees for their continual hard work in
these very difficult times as we continue to work hard to separate ourselves out
and continue to provide a superior service for our clients that are out there.
Thanks everyone, and we look forward to talking to you in the third quarter.
OPERATOR: That does conclude our conference call for today. Thank you,
everyone, for your participation. Have a wonderful day.

such changes.
involve risks and uncertainties. Actual results may differ materially from
FOCUS
those stated in any forward-looking statement based on a number of important
factors and risks, which are more specifically identified in the companies' most
recent SEC filings. Although the companies may indicate and believe that the
be realized.

DECISIONS.]
Copyright 2008 Voxant, Inc.
May 7, 2008 Wednesday
TRANSCRIPT: 050708a1833902.702
LENGTH: 6594 words
BODY:
* Don Tomoff ZipRealty Inc. - IR * Pat Lashinsky ZipRealty, Inc. -

President and CEO * Dave Rector ZipRealty, Inc. - CFO

FOCUS
* Jeetil Patel Deutsche Bank - Analyst * Ben Schachter UBS - Analyst * Jim
Wilson JMP Securities - Analyst * Jack Pitts Steadfast Financial - Analyst
Presentation
OPERATOR: Good day, everyone, and welcome to today's ZipRealty

Incorporated's First Quarter 2008 Earnings Conference Call. At this time, all
participants have been placed in a listen-only mode, and the floor will be open
for your questions following the presentation.
It is now my pleasure to turn the call over to Don Tomoff. Please go ahead,
sir.
DON TOMOFF, IR, ZIPREALTY INC.: Thanks, and good afternoon, everyone. With
me on the call today is Pat Lashinsky, President and Chief Executive Officer of
ZipRealty, and Dave Rector, the Company's Chief Financial Officer. Earlier
today, the Company issued a press release describing its results for the first
quarter of 2008. A copy of that release can be viewed on the Company's website
at ziprealty. com.

FOCUS
various remarks we make about future expectations, plans, goals and prospects
for the Company, including but not limited to, those involving our future
performance, business outlook and 2008 guidance, involve forward-looking
statements.
Additional forward-looking statements include remarks concerning results of

our new and existing markets, introducing technological improvements, gaining
market share, reducing costs and driving operational efficiencies. All of these
constitute forward-looking statements for purposes of the Safe Harbor provisions
under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from the expectations, plans and
risks and uncertainties, including those described in the Company's form 10-K
for fiscal 2007, and other filings with the Securities and Exchange Commission,
copies of which can also be viewed on the Company's website.
The risk factors identified in our SEC filings are incorporated by reference
into this earnings call. Please also note that the supplement is consolidated
ance with Generally Accepted Accounting Principles in the United States. ZipReal
ty uses a non-GAAP measure of
FOCUS
net-income loss it refers to as pro forma net-income-loss earnings. That
excludes certain items, including stock-based compensation, non-cash income
taxes and certain one-time items, if any.

the future. ZipRealty believes that these non-GAAP results provide useful
Company believes are not indicative of its core operating results, and thus
presents a more meaningful basis for comparison between periods.
Further, this non-GAAP method involves key data-management uses for planning
and forecasting its future operations. And presentation of this information
should not be considered in isolation or as a substitute for results prepared in
accordance with GAAP.
PAT LASHINSKY, PRESIDENT AND CEO, ZIPREALTY, INC.: Thank you, Don, and thank
you all for joining us on the call today. First, I'd like to provide a brief
overview of our first-quarter performance, after which, Dave Rector will discuss
financial specifics. I'll then wrap up the call with some closing thoughts and
FOCUS
provide perspective on our outlook for the remainder of 2008.
First, let me discuss the quarter, which, seasonally, is our slowest.

Generally speaking, it was as expected, although revenues were slightly lower
than we thought, with a pro forma loss in line with our expectations. This was
driven by more transactions, but at lower average prices due to an increased mix
of non-traditional deals -- by that, I mean foreclosures, REO transactions and
short sales, which represented a significant percentage of our transactions in
Q1.
Offsetting mix issues were benefits from our recent cost-rationalization.

More specifically and importantly, I'd say that we're adapting and executing
very well in the current environment, and right on track with the 2008 guidance
we laid out in March.
In terms of the overall market, I'd characterize it as changing. Although

residential real estate continues to have high inventories and tougher credit
standards, we are seeing signs that prices are dropping, which, at some point,
should lead to higher volumes.
But for now, our business is driven primarily by non-traditional deals I just
mentioned. Oftentimes, these transactions take longer to close, and they can
FOCUS
fall through. And this fact is evidenced by a modest increase in transactions,
despite a lower close ratio versus Q4. But that's the nature of our current
business, as we, hopefully, move closer to equilibrium in the marketplace.
Despite the market, however, there are a lot of positive developments at

ZipRealty as we head into our strongest period of the year. First of all, we
continue to see high levels of client home visits and record activity on our
website. In fact, according to Hitwise, a site that tracks online activity,
ZipRealty was the number-five most-trafficked real estate site in the country in
March, despite being in just 34 markets.
To give you some perspective, Yahoo was number three and Zillow was number
four on the list, and they have a far denser national penetration. We also
surpassed the $100 million mark in client rebates in late April. To me, this
means we're delivering on our service-driven value proposition every day.
And that effort has grown nationally as we've opened new markets across the
country and consumers are becoming more aware of us and how we change the
experience of buying and selling homes. We're proud to say that we've
%, whichshed this while maintaining a client-satisfaction rating of 96
is remarkable for any business.

FOCUS
So each component of the business we talk about -- the Web activity, the
visits and the rebates -- all combine to further the brand. And despite market
conditions, we've seen steady gains. In fact, Q1 market-share gains were
broad-based, with new markets maturing at the pace we generally expected.
So as we look at the remainder of 2008, we're cautiously optimistic. Our

brand is being recognized more and more, and the value we offer is lifting us in
the ranks. In fact, according to [RivMedia] and REAL Trends, and based on
closed-transaction size, ZipRealty has jumped from the 30th largest real estate
brokerage firm in the nation in 2006 to the 14th [thousand] in 2007, and from
29th in 2006 to the 15th in 2006, respectively. Our long-stated goal is to be in
the top five, which I truly believe will happen over time.
So with that, I'll turn the call over to Dave.
DAVE RECTOR, CFO, ZIPREALTY, INC.: Thanks, Pat. As we review the quarter,
please keep in mind that we expect the first two quarters of 2008 to show
negative comparisons to the similar periods last year, as the impact of the
third quarter 2007 residential mortgage crisis wasn't reflected in our results
in the first half of 2007. As 2008 progresses, however, our comparisons to last
year will become more favorable, and we expect positive year-over-year
performance in the third and fourth quarters.
FOCUS
So, with that in mind net revenues for the quarter were $20.6 million, an
11.8% decrease from the first quarter last year. Net transaction revenues, which
exclude referral and other income were $20.1 million, an 11.3% decrease from
last year. Our pro forma net loss for the quarter was approximately $5.6
million, or $0.24 per share. This compares to a pro forma loss of approximately
$2.3 million, or $0.10 per share, in last year's first quarter.
Turning to new and existing markets results, let me remind you that the new
markets are defined as those having been opened for less than one full calendar
year. And, therefore, new markets for the first quarter this year include the
ten opened in 2007, plus Long Island, New York, which we opened in March.
Six markets opened in -- during 2006 -- moved to the existing-market category

at the beginning of this year, so, for the quarter, we have 23 existing markets.
Net-transaction revenues for the quarter in our existing markets decreased by
$4.1 million, or 18.2%, driven by a 10.4% decrease in the number of transactions
closed, coupled with a decrease in average selling price of 12.7%.
The cost-to-revenue percentage for existing markets increased 450 basis

gher mix of agent commissions paid, as wellas increased agent expense reimbursem
ent. The cost-to-revenue percentage is
typically highest in the first quarter each year, primarily because payroll
FOCUS
taxes are the highest, and agent expenses, which are relatively fixed represent
a larger percentage of the seasonally low revenues. We expect the
cost-to-revenue percentage for the year to be in the 56% to 57% range.
Existing-market sales, support and marketing expenses decreased by nearly

$700,000, or 9.5%, compared with the prior-year quarter. The net result, our
existing markets delivered market-level income of approximately $700,000,
compared to $2.6 million a year ago.
Turning to new markets. Net transaction revenues in new markets for the
quarter were $1.6 million, and represented nearly 8% of our total net
transaction revenues. We had no significant operations in the first quarter last
year, as we had only opened the first two of our 2007 markets in March.
The new markets cost-to-revenues percentage for the quarter was approximately
50%. Sales, support and marketing expenses were $1.7 million, an increase of
almost $1.6 million versus the year-ago period. This was the result of
supporting the nine additional markets opened since the first quarter of last
year. Overall, the new markets lost approximately $940,000.
We're pleased to report that we continue to gain significant market share in

our market, consistent with the trend we've experienced over the last year. In
FOCUS
California, our closed transactions through the quarter decreased by
approximately 11.5%, out-performing the overall market contraction of about 27%.
California represented 35.2% of our total net-transaction revenues for the
quarter, compared to 40.2% last year, and 43% in 2006. In our existing markets
outside of California, closed transactions for the quarter decreased by
approximately l0%, again, out-performing the overall market contraction of
approximately 31% in our markets.
Average net revenue per transaction decreased by 8.6% in our existing markets
to $6,662, from $7,292 in the prior year, due primarily to the significant
increase in foreclosure, bank REO and short-sale transactions. Average net
revenue per transaction in our new markets averaged $4,661 for the current
quarter.
We added 410 net new agents over last year's first quarter, bringing the
total agent account to 2,285 as of March 31, 2008. Of the total net additions,
94 agents were added in our existing markets, and 316 in our new markets,
bringing our total agent headcount in existing markets to 1,951, with 334 in new
markets.

FOCUS
Our total agent headcount includes 652 agents in California, and 1,633 in
markets outside of California. Since the end of the fourth quarter, our agent
headcount has increased by 105. Average agent productivity for the quarter was
approximately 0.48 transactions per agent, per month.
Moving to expenses. Product development expenses for the first quarter

increased 27.6%, to approximately $2.1 million. As a percentage of net revenues,
this represents 10.4% of net revenues, versus 7.2% last year. This was primarily
due to increased infrastructure expenses, including a backup
disaster-recovery-data site, support for a continued website and agent tool
enhancements, as well as new-market support.
Regional and corporate-sales supported marketing costs increased

approximately $275,000 due to the new-market expansion. General and
administrative expenses decreased approximately $300,000, to $3.7 million for
the quarter. As a percentage of net revenue, G&A costs were 17.9%, compared to
17% in the first quarter last year.
If first-quarter revenues this year matched the first quarter of 2007, G&A as
a percentage of revenues would have been 15.7%, a decrease of approximately 130
productoints. In fact, all corporate-level expenses, including
development, regional and corporate sales support and marketing, in addition
FOCUS
to G&A, would have been 33.1% of revenues, a decrease of 440 basis points. We
feel this begins to demonstrate the potential leverage in our model,
particularly under more normalized market conditions.
One last point before I wrap up -- as we disclosed in our SEC filings, we

were named in a class-action lawsuit filed in California by a former employee
agent of the Company. In that suit, it was alleged that, among other things, the
Company's practices for compensating agents and reimbursing expenses violate
applicable laws regarding the payment of minimum wages and overtime.
We reached a settlement near the end of March, which calls for a payment for
approximately $625,000. And, as a result, we recorded a charge in that amount
during the first quarter. Wrapping up the P&L review, as Pat stated earlier, the
first quarter came in basically in line with our expectations.
Although we did not provide specific guidance on our last earnings call, we
stated that we expected the quarter would continue the trend line of the fourth
quarter, down year-over-year on the top line, with a pro forma loss comparable
to the fourth quarter. And that's basically how it played out.
Turning to the balance sheet. We ended the period with $72.4 million of cash,
cash equivalents and short-term investments, and without any long-term debt.
FOCUS
In early April, we repurchased all of the shares of our common stock held by
pyramid technology ventures for approximately $17.4 million, which will be
reflected on our second-quarter balance sheet.
Let me wrap up by updating our guidance for 2008, which remains consistent
with what we communicated on our last call, except for adjustments required to
reflect the impact of the 3.5 million shares [repurchased] from Pyramid. The
revised guidance reflects the reduction in interest income, and the related
decrease in weighted-average shares outstanding for the full year.
Therefore, for 2008, we expect net revenues of between $114 million and $118
million, representing growth of 10% to 14%, compared to 2007 net revenues of
approximately $104 million. Overall, we expect a GAAP loss in 2008 of between
$8.9 million and $10.4 million, which equates to a loss of $0.42 and $0.50 per
share, based on approximately 20.9 million average shares outstanding.
On a pro forma basis, we expect our loss to range from $4.9 million to $6.4
million, or $0.23 to $0.30 per share, compared to the 2007 pro forma loss of
$7.6 million, or $0.34 per share. As our full-year guidance suggests, we expect
d half of the year, asthe 2007 new markets mature against the backdrop of more f
avorable
year-over-year comparisons.
FOCUS
And at this point, we still see opening two to four new markets during 2008,
including Long Island, New York, which I previously mentioned, and Hartford,
Connecticut, for which we've announced a third-quarter opening.
Pat?
PAT LASHINSKY: Thanks, Dave. After a full year of expanding our brand
nationally, we're now focused primarily on optimizing results in the 16 markets
we opened in 2006 and 2007, along with the two to four markets we'll open in
2008. In my mind, optimizing results centers around productivity and gaining
share, and I believe we can make progress on both of these goals.
First, in terms of productivity, over the last two quarters, we've discussed
our agent-accountability initiative and the focus on retaining and rewarding
those agents who meaningfully contribute to improving this metric. If you
recall, this resulted in us losing agents at the end of 2007. But as we stated
on our last call, we retained all but four of our top-200-performing agents.
The game plan on productivity in 2008 remains the same -- stress quality over
quantity, and look for people who can excel in our culture. The good news is we
feel very good about our entire team as we head into our peak season.

FOCUS
In terms of market share, in the first quarter, it was broad-based, with
gains in almost all of our existing markets. And based on what we see today, we
feel comfortable with our 2008 goal that has us maintaining double-digit gains
versus our competitors at large. Technology will be a factor, and we have a few
new features that agents and customers have already responded to.
As a sign of the times, we have developed a foreclosure tool whereby agents

can search for and pass along information on homes that are going into, or are
already in, foreclosure. While these homes are not for everyone, this
comprehensive tool gives our agents one more advantage when helping their
clients find the right property.
When combined with the unique tool that allows clients to search for a home
where the prices have been reduced, and for short sales, we believe we continue
to stay at the forefront of complete access and transparency for our clients.
We've also added features to our search, including the ability to look for
homes based on monthly payment, rather than just price or location. For many
clients, one of the most important factors that determines a home purchase is
litiesnthly payment. Based on that fact, we've developed search capabi
that allow clients to filter the possibilities that way and arrive at a set of
choices that match their budgets.
FOCUS
Additionally, we continue to add functionality to our mobile search tool so
that our clients can easily and effectively search anywhere they are, on their
mobile devices. These features come on the heels of December's addition, which
offered interactive map features and reviews on local businesses.
All these customer and agent enhancements have one thing in common -- through
innovation, they simplify and enhance the experience, which, in our view, will
position our agents for higher productivity and greater market share, while
building a brand that exemplifies value in the marketplace.
Before questions, I will reiterate a couple of points we've made on prior

calls. First, we know our model is different, and it's working. This has
manifested itself across the board market share gains in a very tough
environment. Second, we believe that our focus on execution this year will
position us to drive further operating leverage against our corporate expenses
over the next 18 to 24 months.
Third, senior management, along with the rest of our team, is energized, and
our management and board have confidence in the future. Part of that confidence
is underscored by our commitment of capital towards the Pyramid repurchase. As
time passes, we feel confident that we'll look back and view that as a great use
of shareholder capital. Finally, I am very proud of all of our people, and
FOCUS
would like to thank them for their ongoing efforts as we continue to execute our
plan.
So at this point, we will address any questions you may have.
Operator?
OPERATOR: Thank you.
(OPERATOR INSTRUCTIONS)
We'll go first to Jeetil Patel, with Deutsche Bank.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: Hey, guys -- a couple of questions.
Can you talk about what percentage of the transaction mix came from just
REOs, foreclosures, short sales, et cetera? And second, on that point, what is
the driver of growth on the -- on that transaction side? Is it access to
inventory, and you guys getting access to where these homes are, or is it
actually more the buy side still, in that segment? And I have a follow-up.
FOCUS
PAT LASHINSKY: Great. Thanks, Jeetil. So, on the first question, which is on
the percentage of transactions that are from non-traditional, it really has
varied on a month-to-month basis in terms of what we're seeing. We're seeing
anywhere from, let's say, 30% -- the mid 30s to the low 40s as a percentage of
what those transactions are making up for us overall.
And we think that that's being driven by, one, our agents having more access
to that information, being more comfortable with that part of the process and
being able to see those homes. And, second, as those homes have come down in
prices more aggressively than a traditional seller has, its made affordability
for a number of buyers be much higher. And so buyers are more willing to
participate in that because of the affordability of those homes.
The fact that we're able to provide them access to it, we're able to
negotiate through, and it is a different process than a traditional -- you do on
a traditional home -- you have to interact with the banks and with their
departments more -- much more aggressively. And we think that that just adds
value to the value that our agents are adding to the clients.
alongwith client affordability and desire to get a very good-priced home.

FOCUS
JEETIL PATEL: And do you think this is more of a phenomenon in California, or
non-California -- just to try to get a better sense of where this is? And I
guess I'm just kind of curious, but what are you assuming, from a
pricing-degradation standpoint, as you look at 2008, especially excluding this
component of the business? I'm just trying to figure out what your industry
assumption may look like around what pricing does as we look ahead.
PAT LASHINSKY: So when we -- these transactions are taking place all over the
country. It is not just in California. We are seeing these, basically,
everywhere we look. And it's broad-spread across the entire country. There are
some places where it seems like there has been a little bit less. And those are
primarily in markets where there was not as much -- where the housing markets
never got as heated as they did in some others.
So an example of a place where there will be less of these type of homes is

someplace like Minneapolis. And in Minneapolis, which did not see the big spikes
and the heavy amount, and there was more affordability from the beginning, we're
not seeing as many REOs and as many kind of sales there -- foreclosure sales
there -- as we are in places where there were more spikes, such as California,
Florida. But it is happening everywhere.

FOCUS
As we look at our model, we're really predicting a 10% to 15% reduction in
prices throughout the year. And we think that that's going to be driven, one, by
the continued focus on the number of foreclosures and REOs out there, which is
driving down total number of price, the increased inventories that are taking --
that are still growing right now -- which is increasing the supply, and just,
overall, the market declines that are currently continuing to happen right now.
So we've planned for some pretty significant pricing decreases as we go
through the rest of the year.
JEETIL PATEL: All right, last follow-up -- but how would you characterize the
spring season and an '09 pricing assumption?
PAT LASHINSKY: The spring season, we think, has started off okay. It's doing
fine. We're seeing very good demand from consumers. We're seeing lots of
activity. The big question is whether there will continue to be liquidity in the
credit markets.
It seems like there's some liquidity coming back in the credit markets, which
is a good thing, and will be very helpful as we go into the spring season. And
we seem to be getting a lot of -- making pretty good traction at getting through
will be the homes that are going into foreclosure and REO, which

FOCUS
beneficial down the stream for where we're at.
In terms of prices for '09, we don't really know yet. We're not even sure
where '08 is going to end up. I would tell you that if we can assume that there
is some liquidity that comes back into the credit markets, and that we get
through the heavy amount of resets that are supposed to take place with the ARM
loans that were supposed to be taking place in kind of May, June, July of this
year -- and we get through those inventory spikes, we think that there's a good
chance that the price declines will, at best -- or at worst -- moderate and
probably hold their own going into '09.
OPERATOR: We'll go next to Ben Schachter with UBS.
BEN SCHACHTER, ANALYST, UBS: Hey, guys. I missed the first part of the call,
so I'm not sure if you went over this, but could you give the operating metrics
for guidance for the year in terms of agent count and productivity and those
kind of things?
PAT LASHINSKY: So which numbers are you looking for, Ben?
BEN SCHACHTER: Agent count at the end of the year -- what do you expect?

FOCUS
PAT LASHINSKY: Okay.
BEN SCHACHTER: Average revenue per transaction -- those types of things.
PAT LASHINSKY: So, as we look at it, we're basically -- we have not been
commenting on where we expect the total agent count to end up this year, except
for to say that it will be up, driven primarily by growth in our new markets, as
we build up and establish those teams overall.
But we did not give an ending agent count overall for the year. And that's
something we're just -- we're continuing to build the business as we go forward,
and we're trying to maintain some flexibility based on what we're seeing in the
markets and based on the activity levels and what we're seeing. So we're --
BEN SCHACHTER: Well, in terms of agent productivity, would you expect that to
be down throughout the year?
PAT LASHINSKY: We expect agent productivity, actually, to be up slightly.

Assuming that the credit markets don't deteriorate dramatically, and that we do
see them kind of stabilizing to some degree, we do expect our productivity will
be up slightly. We expect the industry will be down.

FOCUS
But we think that we're doing a pretty good job on that. And we're going to
continue to focus on that, and we do think that productivity, at the end, will
be up. So net agent count will be up some amount during and by the end of the
year. Productivity will be up by the end of the year.
And the last question you had was about pricing -- overall pricing. And I
think our expectation is that we'll continue to see some degradation in pricing
as we go through, between now and the end of the year -- probably not dramatic
amounts. But, as we said, pricing could be down as much as 10% between now and
the end of the year.
BEN SCHACHTER: Okay. And the last question I have -- can you just explain the
circumstances of how your client came to buy back the shares from Pyramid?
PAT LASHINSKY: The circumstances there were that we knew that Pyramid was
selling their shares off over a period of time. They were putting them out on
the market every 90 days. They were selling a tranche that they were allowed to
sell.
As we looked at that, we thought that there was a good opportunity, and it

was very, very good for our shareholders. And it was a great use of our capital
to go in and take those shares and take them back at the price at the time,
FOCUS
which was a discount to what we had been trading during that period.
And so, we felt like it was a very good use of the capital to get those
shares back and to bring them back into the fold.
BEN SCHACHTER: Okay. And then last question -- in terms of the competitive
environment, are there potential acquisitions out there that would make sense in
this environment?
PAT LASHINSKY: Well, we're always going to look at everything that's out
there from an M&A standpoint. Our goal right now is to focus on optimizing on
all of our markets and do what we're supposed to do. But we're always looking.
We're always listening. We're always seeing opportunities.
The one thing that I'll tell you that's difficult is if you look in a very
close-in environment, many of the big competitors are losing a lot of money and
they have very high fixed costs with their costs of their offices and their
environments that they have. And so I think that those environments are going to
be very difficult.
But we're going to look at every opportunity. We're also going to look at
unique things that, maybe, are a little different, that are tied to this
FOCUS
space, where there's more value as the market has gotten tough, and it's
squeezed some players.
BEN SCHACHTER: Okay, thanks. Good luck.

PAT LASHINSKY: Thanks, Ben.
OPERATOR: (OPERATOR INSTRUCTIONS)
And we'll go to Jim Wilson with JMP Securities.
JIM WILSON, ANALYST, JMP SECURITIES: Thanks. Good afternoon. I did miss the
first part of the call, but I was wondering if, as you target the market and the
opportunities, and obviously, you expand it by city, is there -- are you -- are
there any initiatives -- are you seeing greater success at different ends of the
market? Are you being able to assist the [buy-more] activity at the entry-level
part of the market, as an example?
And actually, also, how has the sort of representing-buyers-versus-

representing-sellers mix changed, or has it changed recently?

FOCUS
PAT LASHINSKY: Great. Thanks for the question, Jim. So in terms of the
targeting of the places -- the client profiles that we're doing -- first of all,
it continues to be very difficult in the upper end of the market. Getting loans
and getting credit in the high end of the market continues to be difficult.
Additionally, they tend to have homes that they need to sell to get the equity
out to buy on the other side. And that can take a long time right now, depending
on what market they're in.
And so the upper end of the market, we're finding, is pretty difficult right
now. And the lower, very-first-time-buyer is also a difficult market because
there's been significant tightening of the credit standards. And so, whereas
people were able to get loans for 0% down or 3% down a year ago, those loans
really don't exist right now.
And so, where it really is is we're finding that there is a very good kind of
middle niche there between people who are not necessarily first-time home
buyers, but people who have bought a condo, for example, or gotten some equity
out of somewhere else, and they're kind of moving into that second place.
The additional thing that really helps is the movement of the conventional
loan rates to higher amounts -- has meant that that -- in those markets, we've
been able to move those price points up where consumers are able to do better
FOCUS
to those new higher price points that are allowed to be part of the conventional
loan. So the mix of moving up continues to be pretty good in that middle side.
The buy-side -- for us, the buy-side mix remains very, very high. That's
probably one of our great strengths -- is that we know how to take care of
buyers, and we know how to help them. And we have great tools on our website.
Our agents are very comfortable and familiar. And in this market, where it's
very hard for buyers to figure out how to value a property, our agents are
expert at that and do have good advantage.
I think, right now, it's a big advantage to have a lot of buyers. And I think
that there are a lot of people that don't have buyers. And if you go out and you
find a property you like, most sellers are willing to negotiate. So that's a
real strength for us.
And we have a significant number of buyers -- a very, very high number of
buyers. That's a real area that we continue to leverage. And that gives us a
good ability to understand what's going on in the market, to have good awareness
and a good negotiating power when we go in to help our clients, because of the
fact that we have so many buyers.

FOCUS
JIM WILSON: Okay. And I guess another question -- on the agent productivity
-- so that's sales per agent -- is there -- ? Or, can you comment on any
particular geographic difference in productivity that either you're seeing or,
obviously, you mentioned you expect productivity to improve across the course of
the year -- that you might expect to see the greatest improvement in
productivity -- or even for that --.
Well, I'm sure you're not going to tell us where you're going to see the
least improvement. But anyway, why not focus on the greatest improvement?
PAT LASHINSKY: So we still -- we continue to see, outside of California, our

productivity being significantly higher than what our productivity is inside of
California. And we expect that will continue to ramp as we go forward throughout
the year.
The other thing that happens is, just overall, on a macroeconomic condition,
we see that when you get to higher home prices, productivity is lower overall,
as agents tend to be willing to do less deals because they're making more money.
You combine that with the fact that there are less deals being done in the
higher-priced markets -- in those markets, productivity has dropped
dramatically.

FOCUS
So we think this -- if we can really get to the center of the market and we
continue to be a mainstream brokerage that focuses on that, we can continue to
provide great tools for our agents, provide excellent training, we think that we
have some real room to drive productivity. And we do think that we'll see some
broad-brush levels of improvement and productivity this year.
JIM WILSON: Okay. Thanks.
We'll go next to Jack Pitts with Steadfast Financial.
JACK PITTS, ANALYST, STEADFAST FINANCIAL: Thanks. I was wondering -- do you

have the number of California agents from the first quarter of '07?
PAT LASHINSKY: The first quarter of '07 --
DAVE RECTOR: I'm thinking that we do.
PAT LASHINSKY: 650.

FOCUS
JACK PITTS: 650. Your agent count in California was actually flat.
PAT LASHINSKY: Okay, Jack, just to clarify, I gave you the beginning of Q1.
The end of Q1 or the beginning of Q2 would have been 627. So I just want to
clarify I'm giving you the right answer for that question.
JACK PITTS: Okay. So your California agent count was actually up

year-over-year?
DAVE RECTOR: About 25, yes.
JACK PITTS: Okay. And if you had 30% to 50% of your transactions -- were
non-traditional, do you think that matches the rest of the market in terms of
your competitors?
PAT LASHINSKY: I think in terms of the market, that's probably pretty

comparable to what's going on. I think, in terms of our competitors, that will
be a higher percentage. I don't think that -- I think there are a few number of
firms that are really doing a bigger percentage in these areas, and not everyone
is able to participate equally in these markets.

FOCUS
And so, I think if you were to look at our -- at the competitive set we're
probably doing a higher percentage there than competitors are. But I do think
that that's probably fairly representative of what's going on in the market at
this time.
JACK PITTS: And in your non-new markets, do you expect agent counts to be
flat, grow, come down?
PAT LASHINSKY: We expect it to grow slightly -- not a huge amount. But we do

expect it to grow this year.
JACK PITTS: Okay. And then, if you could, mention a little bit on marketing,
and maybe some efficiencies you're getting there, because it seems like that
might be an area to spend some time in terms of, perhaps, becoming more
efficient per side or per revenue.
PAT LASHINSKY: Yes, we are finding good efficiency in the marketing side.
Matter of fact, during the call, we talked about the fact that in March, we were
the fifth largest. And the data just came out and we just saw the Hitwise data
that says, for April, we were actually the fourth-largest-tracked real estate
website out there.

FOCUS
So we're continuing to make great progress. And we've done a pretty good job
in our efficiency of managing traffic coming in, the website. We just put in a
new version of -- updated our website, which has some built-in efficiencies that
we've been able to test and that we've been able to monitor and track, and that
will continue to drive our marketing efficiencies as we go up.
One thing that we're seeing in this market is that there's some people out
there that just aren't really following the rules because they're pretty --
they're in a situation where they're just trying to survive, and they're doing
some pretty unusual things. But that doesn't last very long.
And we just continue to become better and better and optimize more and more
on our online side. One of our things that we're focusing on is driving market
share and driving listings. And when we drive market share and when we drive
listings, one of the big advantages we get is we get significantly more market
power and more market presence, which helps our marketing spend overall.
You know, one of the things that we didn't talk about that really is driving
our business overall, from a marketing standpoint, is 39% of our traffic came
t quarter. That's a pretty significant
amount of people that are coming, that have got brand awareness, that have seen
us on a sign. They've met one of our agents.
FOCUS
They've talked to someone who had a great experience with one of our agents,
and their friend told them about it while they're getting coffee at Starbucks in
the morning, or whatever it is. So we're getting a good word of mouth. We're
getting a good marketing presence. And we'll continue to build that as we go
forward.
JIM WILSON: Okay. Thanks.
And having no further questions, I'd like to turn the conference back to our
speakers for any closing remarks.
PAT LASHINSKY: Thank you all for being here with us on the call. We
appreciate everything that our agents and supporters have done. And we look
forward to talking with you as we come out with our second-quarter results and
earnings call. Thank you very much.
OPERATOR: Thanks, everyone. That does conclude today's conference. You may
now disconnect.

FOCUS
such changes.
be realized.

FOCUS
DECISIONS.]
LOAD-DATE: May 12, 2008

March 13, 2008 Thursday
TRANSCRIPT: 031308ad.792
LENGTH: 6642 words
BODY:
OPERATOR: Thank you for standing by, ladies and gentlemen. You're online for
today's ZipRealty Fourth Quarter Earnings Conference. We are currently
gathering participants and expect to be underway in just a moment or so. We do
appreciate your patience and ask that you please remain on the line. Good day
and welcome to the ZipRealty Incorporated Fourth Quarter Year End 2007
Earnings Conference Call.
FOCUS
It is now my pleasure to turn the floor over to your host, Mr. [Don Tomoff].
DON TOMOFF, ZIPREALTY INC.: Thank you. Good afternoon, everyone. With me on
the call today is Pat Lashinsky, President and Chief Executive Officer of Zip
Realty, and David Rector, the Company's Chief Financial Officer. Earlier today
the Company issued a press release describing its results for the fourth quarter
and full year 2007. A copy of that release can be viewed on the Company's
website at ziprealty.com.
Before we begin, I'd like to note that during the course of this call we make
various remarks about future expectations, plans, goals and prospects for the
Company, including, but not limited to those involving our future performance,
business outlook and 2008 guidance. Additional forward looking statements
include remarks concerning results of our existing markets, introducing
technological improvements, gaining market share, reducing costs and driving
operational efficiencies.
All of these constitute forward looking statements for purposes of the safe
harbor provisions under the Private Securities Litigation Reform Act of 1995.
FOCUS
The actual results may differ material from expectations, plans and prospects
contemplated in these forward looking statements and are subject to risks and
uncertainties, including those described in the Company's form 10K for fiscal
year 2007 and other filings with the Securities and Exchange Commission, copies
of which can also be viewed on the Company's website. The risk factors
call.
Please note to supplement consolidated financial statements presented in

accordance with generally accepted accounting principals in the United States,
ZipRealty uses a non-GAAP measure of net income, it refers to as pro forma net
income loss earnings that exclude certain items including stock based
compensation, non cash income taxes and certain one time items, if any.

understanding of Zip Realty's current financial performance and its prospects
for the future. ZipRealty believes that these non-GAAP results provide useful
Company believes are not indicative of its core operating results and thus
sis for comparison between periods.

FOCUS
over to Pat.
PAT LASHINSKY, PRESIDENT AND CEO, ZIPREALTY INC.: Thank you, Don. And thank
you for joining us on the call today. First, I'd like to provide a brief
overview of our 2007 performance, after which I'll turn the call over to Dave
Rector to discuss specifics of our fourth quarter. I'll then wrap up the call
with some closing thoughts and provide some perspective on our outlook for 2008.
First, let me review the year. As you may recall, our goal for 2007 was to
accelerate the development of our national network as we felt that investing in
a down market while others were retreating would position us for longer term
success. Our investment was predicated on a belief that the market will
ultimately correct, like it has so many times and that our leadership and
technology, innovation and other services will sustain what we believe to be an
advantage over the traditional residential real estate model.
Due primarily to the roll out, we knew that 2007 would be an investment year
and we provided guidance back in February of 2007 reflecting that view. A pro

FOCUS
forma loss of between $6 million and $9 million. I'm pleased to say that not
only did we open ten new markets across the country last year, but we did so
within our bottom line forecast, delivering a pro forma loss of $7.6 million. We
also generated a 9% increase in revenue to $103.9 million, which we are very
proud of, particularly, since the market deteriorated dramatically from what we
had originally expected in early 2007. Thanks in large part to the credit crisis
which peaked in the back half of the year.
Looking at the fourth quarter, I was pleased with our performance as we

experienced better than expected revenue and early benefits from the cost
rationalization plan we communicated last quarter. I'm also pleased that in the
current environment we continue to gain market share across the board. Moving on
to our view of the market. Things remain tough. Residential real estate
continues to be characterized by growing inventories and changing credit
standards. And in general, we believe the American consumer remains uncertain.
In addition, the secondary market for mortgages remains soft, which has and
will negatively impact our business. However, as I've stated before, we still
know transactions areest in residential real estate. We
being pursued because scheduled visits are up 29% year over year.

FOCUS
Furthermore, our website had record visitation in 2007 and we see growth
acceleration thus far in 2008. We believe this is happening because customers
and potential customers are evaluating the market, looking for value and
opportunity. And as agents increasingly contact to work with these buyers and
sellers, they become more informed and get a better feel for the market, which
we believe gives us an advantage. Ultimately, we make this information flow easy
for both parties because our tools provide and interpret data and add
significant value when it comes to buying or selling a home.
So in hindsight, despite market conditions, 2007 was a satisfying year as we

greatly expanded our market and market share whole meeting the bottom line
financial commitments we laid our last February. And as I look to 2008, I'm
confident that we will continue to bring value to the marketplace. We believe we
have the people, technology and initiatives to get us there and when the market
turns our stakeholders will benefit from the leverage in our business model.
Dave?
DAVID RECTOR, CFO, ZIPREALTY INC.: Thanks, Pat. Overall, net revenues for the
fourth quarter decreased to $21.2 million. A decline of 8.3% from the fourth
quarter last year. Net transaction revenues, excluding the revenue referral and
other income were $20.7 million for the quarter, 7.6% decrease against the prior
year. Our pro forma net loss was $5 million for the quarter, $0.22 loss per
FOCUS
share and was in line with our expectations.
We lost approximately $1.6 million, or $0.07 per share, in the fourth quarter
last year. As Pat mentioned, revenues increased by 9% to $103.9 million for the
full year and resulted in a pro forma loss of $7.6 million. Total transactions
closed were up by 10% year over year compared to a significantly down overall
market.
Average net revenue per transaction decreased by less than 1% in 2007 to

$7,241 primarily as a result of the overall market softness during the year and
our new market expansion into markets with lower housing prices. Back to the
fourth quarter. We continue to gain significant market share in our existing
markets and were encouraged by our relative performance in California where our
closed transactions decreased by approximately 10%, significantly outpacing the
40% overall market contraction.
California represented 33.4% of our total net transaction revenue compared to

39.5% last year. In or existing markets outside of California, closed
transactions for the quarter decreased by approximately 15%, again, out
performing the overall market contraction of approximately 27% in our existing
markets.

FOCUS
Finally, our new market revenue more than doubled versus last year.
Contributing over 16% of total net transaction revenue for the quarter up 13%
from third quarter, 2007. Continuing to the fourth quarter income statement, let
me first address our existing market performance. Net transaction revenues in
our 17 existing markets decreased by $3.6 million, or 17.1%. This was driven
primarily by a 13.8% decrease in the number of transactions closed compared to
an overall market decline of 3.1%.
Average net revenue per transaction decreased 3.8%, primarily due to

declining home prices in California, along with increases in foreclosure and
bank owned REO related transactions, which typically involve further discounted
prices. The cost to revenue percentage for existing markets increased 5.3%
points for the quarter compared to the prior year due to our decreased revenue
and to the mix of agent commissions paid as our more experienced agents tended
to close a greater percentage of transactions in the tougher market.
The bottom line, our existing markets delivered unit level income of
approximately $1.6 million compared to $3.8 million a year ago. Turning to
fourth quarter results for the six new markets opened in 2006 and the ten we
ned in 2007. Net transaction revenues in the new markets for the quarter were$3.
4 million, a 126% increase over the prior year. We're encouraged by this
trend and expect new market revenue to continue to ramp in 2008.
FOCUS
the current quarter. A year over year decrease of 6.4%. Cost of revenues
increased to 55.1% from 51.6% last year due to the mix of commissions paid to
our agents. This was expected, as new markets mature, increasing numbers of
agents achieve higher commission splits and therefore increase our cost of
revenues. New market sales and marketing expenses increased approximately $1.5
million for the period as a result of the new market offices opened year over
year.
Overall, this resulted in new markets lost at the unit level of approximately
$1.2 million, versus a loss of approximately $430,000 in the fourth quarter last
year. We added 386 net new agents over last year, bringing the total agent count
to 2180 agents at December 31, 2007. Of the total net additions, 36 agents were
added in our existing markets and 350 in our new markets. We announced an agent
accountability initiative on our last call and largely as a result of this
initiative, we experienced a new decrease of 83 agents during the fourth
quarter.
Average agent productivity for the quarter was approximately 0.45

transactions per agent per month, compared with 0.6 transactions in the prior
year. This decline was primarily a function of the market conditions. Moving to
the rest of our expense structure. Produce development expenses for the fourth
FOCUS
quarter totaled $2 million, versus $1.6 million last year. This was due to
ongoing investment in our website, development of enhanced tools for our Zip
agents and support for our new market expansion.
Overall, market level sales and marketing expenses were approximately -- rose
approximately $1.2 million to $7.7 million in the fourth quarter of 2007, driven
primarily by the new market expansion. At the regional and corporate level,
sales and marketing expenses increased approximately $200,000. General and
administrative expenses decreased approximately $275,000 for the fourth quarter.
We continue to expect significant leverage on our G&A cost as we scale the
business benefit from our implemented cost reductions and drive increased
operating efficiencies.
Turning the to the balance sheet. We ended the year with $80.5 million of
cash, cash equivalents, short term investments and no long term debt. We started
2007 with a balance of $88.8 million and are pleased to have maintained a strong
balance sheet despite our operating loss and investment in new market expansion
and technology assets during the year.
Let me wrap up by providing our guidance for 2008. For the year, we expect
th of 10% to 14%een $114 and 118 million, representing grow
compared to our 2007 avenues of approximately $104 million. Overall, we expect
FOCUS
a GAAP loss in 2008 of between $8.2 and 9.7 million, which equates to a loss of
$0.35 to 0.41 per share, based on approximately 23.5 million average shares
outstanding. On a pro forma basis, excluding stock based compensation, we expect
our loss for the year to range from $4.2 million to $5.7 million, or $0.18 to
0.24 per share, compared to the 2007 pro forma loss of $7.6 million.
Although we do not give specific quarterly guidance, we expect that the first
quarter will continue the trim line of the fourth quarter. Down year over year
on the top line with a pro forma loss comparable to the fourth quarter. However,
as the 2007 new markets mature and with the year over year comparisons providing
a sharp contrast with the late 2007 credit crisis trough, we expect reverse this
trend through the full year. We plan to open two to four new markets during
2008, including Long Island which we announced in 2007 and will open this
spring. Pat?
PAT LASHINSKY: Thanks, Dave. 2007 was a significant year for ZipRealty in
that we expanded our reach nationally and continued to gain market share. And we
did so within our guidance parameters and around ground zero of the credit
crunch, which occurred in August.
Going forward, we will focus on optimizing results in the 16 markets we

opened in 2006 and 07, along with the two to four markets we'll open in 2008.
FOCUS
Our focus, therefore, will be improving agent productivity, driving operating
efficiencies and gaining share. Fundamentally, I believe that we can achieve
this goal through innovation and technology, which are at the heart of our
differentiated business model. Let me briefly update you on each of these
priorities.
Obviously, a key part of improving our results is improving agent
productivity. Last quarter we discussed our agent accountability initiative and
the focus on retaining and rewarding those agents who meaningfully contribute to
improving this metric. We expected to lose agents as a result of this effort and
as Dave mentioned, we did.
In fact, our agent count was down 3.6% from the third to the fourth quarter.
Yet, during 2007 we retained all but four of our top 200 performing agents. This
is remarkable in the current environment, where demand for top agents is very
intense. I believe it is a testament to our business model and our prospects as
agents are essentially voting with their fee for the Company that they believe
will position them best for success.
Looking forward, we will continue to stress quality over quantity and focus
our staffing efforts on finding sales professionals that we believe will excel
del. As I have said before, we will only accept and retain agents
FOCUS
that are committed to the ZipRealty vision and are willing to embrace the
process and tools at their disposal to deliver value to the customer. That's the
bottom line.
I also talked about operation efficiencies. The cost rationalization plan we

announced in October had an immediate effect starting in Q4. This will manifest
itself in part on the G&A line which we expect to be down in 2008, versus 2007
and we see that reduction as important in the current market.
Last, we continue to expect to gain market share. In 2007 it was broad based
with gains in all 17 of our existing markets. Which provides an interesting
contract with our competitors. Ultimately, our goal is to build on this momentum
and maintain double digit market share gains versus our competitor for 2008.
Achieving these goals, in part, will hinge on technological innovation and the
speed of innovation. Two things we believe we know how to do.
In December, we became the first real estate company to build an interactive

map feature utilizing the Yelp interface, taken from a site that allows locals
to write reviews on local businesses. What this means is that our agents and web
users can easily view a homes proximity to restaurants, stores and parks that
are currently reviewed on Yelp.com. Obviously, getting a feel for the area is a
major factor in deciding to buy a home and empowering agents to point those
FOCUS
features out is a key differentiator, an important part of delivering the
ZipRealty experience.
Another example, unique to ZipRealty was the electronic notification we sent

to anyone that bought or sold a house with us last year. We offered to send a
transaction summary to our 2007 close clients in an effort to quickly
disseminate information that can be time consuming to track down during tax
season. Our clients responded enthusiastically to this initiative. We'll be
announcing additional customer and agent enhancements throughout 2008, but they
all have a common theme, innovation to simplify and enhance the agent and
customer experience, which, in our view, will drive market share and build our
brand.
Before we take questions, I wanted to give you all some insight into what we
perceived as success in the current market. What I will tell you is that senior
management along with the rest of our team, feels very strongly about what we're
doing and we are attacking the challenges we face every day. Unlike many in our
industry, we're not going to use the slumping market as an excuse for our
performance. In fact, we believe our results will anticipate improvement in 2008
versus 2007 as our guidance suggests.

FOCUS
That's not to say we're unrealistic, because we know there are forces that
are at work that are out of our control and that's simply a fact. However, even
in this environment, we know that infusing technology, innovation and a new
structure into what otherwise is a fragmented, disjointed industry works and we
see no reason why we can't make progress. Our consistent market share gains
quarter in, quarter out underscore what I'm saying and we'll build on that
momentum with productivity initiatives that are progressing and new technical
features that have and will be rolled our in 2008.
So our goal is to deliver on all the little things that create the wow factor
with agents and customers with each transaction. We have work to do, but I see
evidence that we're getting there. We're certainly cognizant that if we do
things right and consistently it will boost our performance it will translate
into long term shareholder value, which is our primary goal. Finally, I am very
proud of al of our people and would like to thank them for their efforts during
2007. I look forward to 2008 as another year of substantial progress. So at this
point, we will address any questions you may have. Operator?
rst to Ben Schachter with UBS.

FOCUS
BEN SCHACHTER, ANALYST, UBS: Hey, guys. Pat, good to hear the aggressive tone
in your voice. Like to see that. Go through a few things, one could you talk
about the cash burn for the year and what were the key drivers there, what might
that look like for next year? Two, if you could walk through some of the
operating metrics that you give on a quarterly basis, how would you think about
that in terms of modeling for the year, maybe talking about average net revenue,
agent count, number of transactions, those types of things.
And then finally, the idea that that's come up in the past also is the costs
around remaining a public company. Would it be -- is there an opportunity to
potentially take the Company public -- private. Anything you can comment on
that? Thanks.
DAVID RECTOR: I think, first thing, let's go through the cash flow. For 2007
we burned about $8.3 million for the year. Roughly, $3.5 million of that is
attributable to our new markets, both in their operating costs and the CapEx
that we spent for equipment going into the ten new market offices. We had
another -- about $3 million, about $3.4 million of capital expenditure, some of
that in the normal -- for our server capacity here. And we opened up a
secondary, a back up data site in Denver. So that was the CapEx.

FOCUS
So for the most part, the new markets took up really 41% of that burn of that
$8.5 million. Turning to 2008, we expect to end the year with a cash balance in
the $72 million -- $71 million to $72.5 million range and that would be based on
the pro forma loss range of $4.2 million to $5.7 million.
We're looking at Cap Ex of around $3 million and our depreciation is roughly

the same to offset, but one other thing that we have to cover that wont be out
of normal operations would be we have the payment on the litigation settlement
that we talked about on the third quarter call. So we have a -- that's already
been expensed, that is behind us as far as the P&L in 2007. But some time here
in the spring of 2008 we'll be paying approximately $3.6 million on that
litigation settlement. So that gets you down to where we think we'll be at the
end of the year on the cash basis.
BEN SCHACHTER: Okay.
PAT LASHINSKY: In terms of your question on the additional details for 2008.
At this point we're not going to be giving any guidance beyond what Dave already
laid out on this call. We think it's premature within this year and within the
rapidly changing environment that occurring for us to be able to do that.

FOCUS
So we're hoping to give an update in May on that when we've gotten through a
little bit more of this seasonality and we can have a better feel for what
exactly is taking place in the market. There are just too many things that are
still up in the air at his time for us to be able to give what we think is fair
guidance overall on that piece.
BEN SCHACHTER: Can I just ask something. Do you think you can get to that
number at the same or decreased headcount? Or should we assume increased agent
count?
PAT LASHINSKY: Yes, we are going to be increasing headcount. We are going to

be increasing headcount. We will be having some definitely gains, particularly
in our new markets, we'll be very aggressively hiring in those markets and we
also are expecting to have some headcount gains in our existing markets as well.
So in both areas we do expect headcounts to grow during this year.
In terms of the third question about the cost of being public, it is a cost
and it's a significant cost to be public. And there are definitely trade offs on
it. However at this time, we are really focused on operating and running the
Company in the current environment in the situation we're in and trying to do
e that we provide for stakethe total level of valu
holders and that's been our focus and we haven't really focused on anything
FOCUS
else in regards to that.
BEN SCHACHTER: Okay. Thanks. Good luck.
PAT LASHINSKY: Thanks, Ben.
OPERATOR: Thank you. We'll take our next question with Jeetil Patel with
Deutsche Bank Securities.
JEETIL PATEL, ANALYST, DEUTSCHE BANK SECURITIES: Great, thanks. A couple of

questions, can you first of all, comment on, at this point, in underlying your
-- I mean, just the overall revenue number for the year. What do you think the
market does from a change in pricing standpoint as you look at just overall home
prices and that's more from a macro industry standpoint, what's your assumption
you're looking at to -- as you look at your overall market opportunity.
And then secondly, can you just talk about -- I guess we're getting now --
only now getting into the spring selling season. Are you seeing a lot of
inventory? Are you seeing buyer commitment or buyers looking to kick the tires
or at least go visit homes, increase relative to that 29% or is it a little bit
lower than that as we look at coming into the big seasonal push here.

FOCUS
PAT LASHINSKY: Sure, let me address the first question, which is on the
current market conditions that underlie our assumptions. We think that prices
are going to continue to be under pressure, particularly in the first half of
this year before we go up against the comparison in the second half. Our
underlying assumptions for our numbers include about a 10% decrease in the
average home price macro in the markets that we're in.
So we're considering that there is going to be an -- you have to remember

that there is a significant increase in foreclosures and bank owned REO homes
that are coming on the market that continue to drive down prices. And as long as
that heavy inventory is there, there will be more pressure on the prices.
So we've built that into our assumptions for the year. I will tell you that
as we get later in the year we assume -- we think that those comparisons will
start coming down and home prices will be more likely to stabilize than they are
during the first half of the year for sure.
In terms of the second question, in terms of the spring season and activity.
We are seeing that activity is pretty high overall across. We are showing 29%
more showings and scheduled visits with our clients. Our clients appear to be
very active at participating in the market. They -- there is more viewing -- I
wouldn't necessarily call it tire kicking because I think of tire kicking as
FOCUS
being someone who is just there looking at it with no real intent.
We're seeing that people are very interested in the market right now and
they're just trying to figure out if this is the right time and if they can find
the right house at a good value. But there is significant interest that we're
seeing across the board and across all of our key metrics that show that there
is a very, very -- that we're seeing very strong activity from the clients that
we have.
JEETIL PATEL: And that gets the 10% decline that you -- that's a yearly
number so I guess the first half would be probably down closer to lets say --
down 20 and the back half is getting down to a flat type of a comparison.
PAT LASHINSKY: Probably not that drastic.
JEETIL PATEL: Okay.
PAT LASHINSKY: Probably it will down a little heavier in the first half as
you're suggesting and not as much, but I don't think that we project that it's
going to be as drastic as you're suggesting there.
FOCUS
JEETIL PATEL: And you are actually seeing an acceleration or consistent
scheduled visit number out there right now in terms of growth year on year?
PAT LASHINSKY: We're seeing an acceleration.
JEETIL PATEL: Thank you.
PAT LASHINSKY: Thanks, Jeetil.
We'll go next to Jim Wilson with JMP Securities.
JIM WILSON, ANALYST, JMP SECURITIES: Thanks, afternoon guys. I -- I guess,

couple questions here really about your relative performance position. So in
California, obviously California is down a lot more than the rest of your
markets, but you are down less in California, relatively speaking than
comparatively to the other markets. So what -- what do you think is the trick or
what is the market see more in your value proposition do you think in California
than they might be seeing, at least at this point, in other markets?

FOCUS
PAT LASHINSKY: Well, I think there are a couple things that go into that.
Well, first of all I think that California tends to be a little more technically
savvy than some other parts and we have some great technical innovations that we
think work very well. Sometimes just take a little longer to be adopted than
other parts.
We also had a tough -- in 2006 toward the end, we were having a tough time in
California and we made a number of significant changes in that market between
management and some processes we were doing and we think that we are really
starting to see the effects of those changes.
Outside of California they got into the problem a little bit later and we're
working our way through them right now and we're taking the learning that we
applied to California and we're applying that throughout to the rest of the
country. So it's trailing a little bit behind it, but we think that we really
have figured out a good way of making sure that our agents are able to take care
of clients. That we have the right tools available and that we're able to help
them get the information they need in a declining market to be able to make
successful good choices and options on that.
if you untrackedkay. Did you end up saying -- I don't know

this, that you helped get transactions done any faster than conventional
FOCUS
players in the market. Closing time shorter than maybe an NER average or that
kind of thing?
PAT LASHINSKY: You know, it's very, very hard to tell that number because
it's hard to tell when someone else starts working with someone or when they get
it in. I will tell you that I think that we do a great job in closing a high
percentage of the people that come to us. I think that, in general, we believe
that we do help people fins what they're looking for much faster because we
allow them to see everything and have access to full information, which is an
advantage to helping them make a smarter choice.
But we just doing know how long it takes other people because no body else
discloses it and it's hard to know exactly what they're doing. Our clients give
us -- continue to give us very high ratings, continue to score us at a 96%
satisfaction rate, which to me is a sign that our clients believe that we're
taking care of them as well, if not better than they could be taken of anywhere
else. And in this market and in the housing market, speed is one of the key
factors about how happy a client is. So I think that based on the 96%
satisfaction, clients are very happy with the speed at which we're able to help
them transact.

FOCUS
JIM WILSON: Okay. And then I guess, one other question is just, you noted,
which was very interesting, that you're doing -- you got 29% more showings so
far this year. As I look at data, it looks to me like particularly in your
markets in California is actually -- find it real interesting that inventory is
very disappointed. There's just not much out there and it's actually in general
declining, so that's particularly impressive that you're showings are up that
much. So how would you characterize that? Just again, further success at gaining
a lot of market share?
PAT LASHINSKY: Well, we're seeing a different thing. We're actually seeing
that inventories are going up, overall. Which would sign -- which would be a
signal that there are less buyers out there because that's why the inventory
levels are going up. So we thing that that's even more impressive for the amount
of activity that we're seeing.
We have not seen that inventory levels are dropping and in fact, we expect
inventories to increase even more in the next two to three months as the loan
adjustments take place and there are more homes that are put into the
foreclosure market and into the REO. We expect total inventory that's available.
Not just homes on the MLS because our inventory that we're selling off of
isn't just the MLS, that's one piece, and it's a big piece and it's important.

FOCUS
But we're also selling foreclosure homes and REO homes and we expect that that
total pie is going to continue to get bigger and for us, the key is to make sure
that our buyers are able to see all of them, have great opportunities and that
we're giving them lots of options and we think that we're doing a good job of
that. And to answer your final question, yes we do think that we are doing a
good job of continuing to gain share are we suggested in the call and we plan on
-- we expect to continue to do that throughout the year.
JIM WILSON: Okay. Great. All right, thanks.
Operator. Thank you.
And we'll go next to Jack Pitts with Steadfast Financial.

JACK PITTS, ANALYST, STEADFAST FINANCIAL: Hi, guys. Just wondering what the
agent growth was within California and maybe the actual number of California
agents.

FOCUS
PAT LASHINSKY: At the -- at December Jack the California agents, 658 agents,
outside of California, 1522 agents.
DAVID RECTOR: How many was the 600 agents up?
PAT LASHINSKY: 658 agents, California.
JACK PITTS: And how does that compare to December of '06 headcount?
PAT LASHINSKY: That is -- we had 650 agents at December of '06. So we're up

six, relatively flat in California.
DAVID RECTOR: And it think the one thing to remember as you look at those
fourth quarter numbers is the agent accountability initiative that we put in
place where agents that were just maybe not a fit for this model or weren't able
to successfully produce. We put significantly more pressure on that segment
during the fourth quarter of this year than we'd done in the past. And we were
more proactive about deciding to part friends with some people that had been
here that just were not as successful as either we or they would like them to
be.

FOCUS
And it was an initiative that we think has done good things for the morale of
the Company overall. It's done great this for the agents who are here and we
think it will allow us to continue to be more successful with our agents and our
productivity as we continue to move forward.
And we're going to continue -- we are going to continue to focus on

leveraging on having the bet agents and that's one of our key goals. And we're
going to focus our resources on our best agents so that the tools that we have
and the leads that we have, we want to focus them on people who can do something
really good with them. And we want to help our agents get better and so we're
using that. But we do expect to grow our headcount during this year.
JACK PITTS: Thanks. And one additional, is the -- if you could talk about
marketing, because a lot of people are afraid that with Google's paid clicks
being down, it might actually make a more favorable marketing market for you
guys, or Google's management seems to argue maybe the opposite is true. So
they're not really seeing much economic effects. But since you guys are right in
the heart of the declining real estate market, it would be interesting to know
know if you're doing anyoffline advertising but if you could talk about that too
as well it would be
great.

FOCUS
PAT LASHINSKY: Sure. So within the total online marketing, we are seeing that
overall the traffic appears to be down some and not as high levels as it's been
in the past. However there's also less agents that have the resources to go
after it because it's been a tougher year and it's harder for them to continue
to make those resources. So there's a balancing of -- to some degree going on
with those. For us, the marketing has been -- we continue to focus on optimizing
the dollars so that for every client we get in, we get a higher percentage of
them through, each part of the funnel, and we get a higher percentage of them to
convert.
So we are able to go through and leverage against what's going on in the

entire advertising market to continue to make that work well for us. We think
that it's going to continue to be an age where companies that know how to deal
with online marketing and be efficient and effective with the best sources will
have an advantage and we think we have that advantage. And we're going to
continue to leverage that and we're going to continue to spend resources on it.
It's not area where you can come in one day and be an expert in it. You have
to learn through trial and error and tests and lots of information and lots of
data. So it is a very interesting time to watch out there. More and more clients
are going online to start their search. That's for sure. We're not seeing
anything contrary to that because people want to have information because it's

FOCUS
a very difficult market to understand.
There's -- it's very choppy and there's lots of information and so people are
saying I can go online and I can get a good feel for what's happening. So we're
seeing more people going online. It's just about how good you can do to take
care of those clients once they get there.
JACK PITTS: Thanks a lot. And do you have any measurement other than any hard
data on what the agent -- I guess reverse or negative growth is on agents?
Because it seems like if the agents are going down and yours are staying flatter
or steady, then I would guess that the greater the rate of negative growth on
that would actually be better for you because less agent competition than an
inventory situation. And the number of sides wouldn't be as much of a problem
for you guys or seem to be a little more efficient. So is there any better way
to measure than the NAR data?
PAT LASHINSKY: Not that we know of, though yes, your point is right. We don't
mind seeing the number of agents going down than our data. Most of the state
associations put information, you just have to go to them individually. I know
that car does, I know that the New Jersey association of realtor does, I know
actually go and compile on aors do. So you can
state basis through that -- the local association.
FOCUS
But -- and you're seeing almost exactly what you'd expect, the states that
have been the hardest hit are having the biggest declines in the number of
agents right now. And states that had the highest run up are the ones where
you're seeing more decline going on and we think that's great. One of the
problems that happened last year is there is a significant declining number of
homes being sold and the number of agents stayed relatively constant.
Economically it doesn't make sense.
So we think it's a good thing that the number of agents is coming down and
we'll continue to get our share and do well. But we don't know of any better
source of that than those local associations.
JACK PITTS: All right. Thanks guys.

PAT LASHINSKY: Thanks a lot, Jack.
OPERATOR: Thank you and with no further questions I'd like to turn the
program back over to Mr. Lashinsky for any additional or closing comments.
PAT LASHINSKY: Thank you all for joining us on the call. We were very happy
to have gotten through 2007 and done the results that we did. We look forward to
talking with you all again in May and we look forward to have a respectable
FOCUS
2008. Thank you very much.
lines at this time.

such changes.
be realized.

FOCUS
DECISIONS.]
LOAD-DATE: March 28, 2008

TRANSCRIPT: 110707ab.799
LENGTH: 6729 words
BODY:
UNIDENTIFIED COMPANY REPRESENTATIVE: Good afternoon, everyone. With me on the

call today is Pat Lashinsky, President and Chief Executive Officer of
ZipRealty, and David Rector, the Company's Chief Financial Officer. Earlier
today, the Company issued a press release describing its results for the third
quarter of 2007. A copy of that release can be viewed on the Company's website
at ziprealty. com.
FOCUS
various remarks we make about future expectations, plans, and prospects for the
Company, including those involving our business outlook and 2007 and 2008
guidance, constitute forward-looking statements for the purposes of the Safe
risks and uncertainties, including those described in the Company's Form 10-K
for fiscal year 2006 and other filings with the Securities and Exchange
Commission, copies of which can also be viewed on the Company's website. The
risk factors identified in our SEC filings are incorporated by reference into
this earnings call.
Please also note that to supplement the consolidated financial statements

presented in accordance with generally-accepted accounting principles in the
United States, ZipRealty uses a non-GAAP measure of net income loss it refers to
as pro forma net income loss earnings. That excludes certain items, including
stock-based compensation, non-cash income taxes, and certain one-time items, if
any.

FOCUS
to both management and investors by excluding certain items it believes are not
over to Pat.
PAT LASHINSKY, PRESIDENT, CEO, ZIPREALTY INC.: Thank you, Don. I'd like to
start today's call by providing some perspective on our third quarter
performance along with commentary on the current state of the residential real
estate market. I'll lay out what we're doing in response to market conditions.
And then I'll turn the call over to Dave Rector to discuss specifics of our
financial performance. I'll then wrap things up before opening the call up to
Q&A.

FOCUS
In terms of the third quarter, we had a solid performance given the
challenging environment. Net revenues increased a respectable 7% to $28 million,
and growth was driven by momentum in our new markets offset by a slight decline
in average net revenue per transaction. Our expenses were generally in line with
expectations for the period.
Given the environment, we were pleased to significantly outperform the market

once again. But despite our third quarter performance, the outlook remains
challenging. And the headlines are certainly negative. In fact, the market
continues to be characterized by growing inventories and change in credit
standards.
August and September represented the most challenging months of the year in
our view as we saw the secondary market for mortgages slow down significantly.
This caused our close ratio to materially drop after seven months of momentum.
The good news is that we've seen some liquidity come back into the system for
credit-worthy buyers. And our close ratio beginning in October has improved. Yet
the fact that we've seen some recent momentum doesn't mean that we're seeing the
light at the end of the tunnel in terms of the overall market. Inventory levels
are still very high. And buyers and sellers still seem confused and somewhat
paralyzed by headlines and actual market risk.
FOCUS
However, we still see tremendous interest in residential real estate.
Furthermore, we know that buyers and sellers are out there interested in
pursuing a transaction. We know this because scheduled visits for the third
quarter are up 25% year over year. And our new registration saw double-digit
growth during the same period.
Also, our website has never had more visitors as customers and potential
customers use our tools to evaluate the market. And because we're confident that
the market conditions will stabilize over time, we remain committed to our
investment thesis, which is pretty simple. If people still have tremendous
interest in the market and are actively looking to buy or sell their homes, it's
just a matter of time before they do so. And although we certainly can't call
the market turn, with everyday that passes, we believe ZipRealty's improving
it's position.
So our goal for 2007 was to accelerate the growth of our national network and
bring ZipRealty to those markets where we thought we'd have an advantage. We've
almost completed that goal. But given the worsening market conditions, and as
our previously announced cost reduction suggested, we have rationalized our
ke the majority of theresources that we'd otherwise allocate to new market expan
sion and use them to
fortify the markets we've already launched.
FOCUS
Specifically, we will focus on people, technology, and initiatives designed
to enhance the customer and agent experience. After Dave reviews the financial
results, I will cover a few of these initiatives and explain why they will help
us drive traffic, leads, and eventually conversion. I'd now like to turn the
call over to Dave Rector.
DAVID RECTOR, SVP, CFO, ZIPREALTY INC.: Thanks, Pat. Overall net revenues for
the quarter increased to $28 million, a 7% increase from the year-ago quarter.
Net transaction revenues, which exclude referral and other income, increased by
$1.8 million for the quarter to $27.2 million, a 7.1% increase from the prior
year.
Our pro forma net loss was approximately $400,000 for the quarter, or $0.02
per basic share, versus pro forma income of approximately $1.4 million, or $0.06
per diluted share, in last year's third quarter.
I will now review the major components of our income statement and highlight
the key factors contributing to the difference in performance from last year.
First, our existing markets performance for the quarter. Existing markets net
transaction revenues decreased by $900,000, or 3.8%, driven primarily by a
decrease in the number of transactions closed of 4.1%. The cost of revenues
percentage for existing markets increased by about 1.75% due primarily to the
FOCUS
mix of agent commissions paid during the quarter, as well as specific
adjustments made to our agent compensation plans.
These plan adjustments were designed to better motivate and retain our agents
in a very difficult market. Our existing market field sales support office
expenses increased by approximately $200,000, principally consisting in
increased customer leads for our agents. As a result, our existing markets
delivered unit level income of approximately $4.4 million compared to nearly
$5.5 million a year ago.
Turning to our new market results for the quarter, as a reminder, new markets
are defined as having been open for less than one full calendar year. And as of
September 30, 2007, this includes the six markets we opened in 2006 and the nine
markets opened through the end of the third quarter 2007.
Net transaction revenues in new markets for the quarter were $3.6 million, an
increase of $2.7 million over the prior year. Cost of revenues increased to 54%
from 51% last year due to the mix of commissions paid to our agents. This is
expected in our new markets as an increasing number of agents achieve higher
commission splits, causing the cost of revenues to increase as our new markets
mature.

FOCUS
Yield sales support office expenses increased by almost $1.6 million for the
period as a result of opening ten new market offices year over year, including
the cost of salaries, occupancy, and customer leads. Overall, this resulted in
new markets loss at the unit level of approximately $800,000 versus a loss of
approximately $500,000 in the same quarter last year.
Despite the serious weaknesses in the residential real estate market, we're
pleased to report that we continue to gain significant market share in our
existing markets during the third quarter. We are encouraged by our continued
strong performance in California, where our closed transactions for the quarter
decreased by approximately 5.2%, significantly outpacing the 38% overall market
contraction in our markets. California represented 34.9% of our total net
transaction revenues for the quarter compared to 40% last year.
In existing markets outside of California, closed transactions for the

quarter decreased by approximately 3.8%, again outperforming the overall market
contraction of approximately 19% in our markets.
Finally, our new markets contributed over 13% of total net transaction
revenue for the quarter with particularly encouraging revenue performances in
Orlando, Minneapolis, and Austin. Average net revenue per transaction increased
by 0.4% in our existing markets to $7,471 from $7,444 in the prior year.
FOCUS
Average net revenue per transaction in our new markets averaged $5,387 for the
current quarter, an increase of 6.3% from $5,066 last year.
We added 516 net new agents over the last year, bringing the total agent
count to 2,263 as of September 30, 2007. Of the total net additions, 162 agents
were added in our existing markets and 354 in our new markets. Average agent
productivity for the quarter was approximately 0.59 transactions per agent per
month.
Moving to the rest of our expense structure, product development expenses for
the third quarter totaled 6.5% of net revenues versus 5.3% last year. This is
primarily due to ongoing investment in our website along with the development of
enhanced tools for our ZipAgents and support our new markets expansion. Pat will
describe some of these new features later.
Regional and corporate sales before the marketing cost increased modestly by
approximately $100,000 primarily due to our new market expansion cost. General
and administrative expenses were essentially flat, increasing by approximately
$100,000, but declining as a percentage of revenue to 12% compared to 12.3% in
the prior year quarter. We continue to believe that we can drive significant
leverage on G&A cost as we scale the business, start to benefit from our
implemented cost reductions, and drive further operating efficiencies.
FOCUS
As we disclosed in our second quarter 10-Q, we were named in a class action
lawsuit filing by four former employee agents of the Company. The complaint
relates primarily to our policies for expense allowances and expense
reimbursements for non-California agents and includes claims similar to those
alleged in the Benjamin class action lawsuit we settled in 2005 pertaining to
our California agents.
In August, the court placed this case on a fast-track schedule. And as

discovery proceeded, we learned our potential exposure was greater than we
initially anticipated. For that reason, we recently engaged in mediation with
the plaintiffs' attorneys and have reached a proposed settlement of this claim
in exchange for a payment of $3.55 million. We are working with the plaintiffs'
attorneys to complete the definitive settlement agreement, which will be
submitted and is subject to court approval.
We expect to file the documentation shortly and receive court approval during
the first quarter of 2008. As a result, we've taken a one-time charge in the
amount of the proposed settlement of $3.55 million during the third quarter and
expect to actually pay the settlement sometime during 2008.
at were the primary focus ofthese lawsuits. Because this matter remains in activ
e litigation and the
FOCUS
proposed settlement is subject to final approval, we cannot comment on the
details of this case beyond our prepared remarks.
Turning to the balance sheet, we ended the quarter with $85.4 million of
cash, cash equivalents, and short-term investments without any long-term debt.
As expected, we will finish the year investing approximately $10 million in
connection with the execution of our market expansion plan along with the
continued enhancement of our technology platform, including the establishment of
a second data center, which will open late this year or early 2008.
Let me wrap up by providing our guidance for 2007 and some insight into 2008.
For the full year ended December 31, 2007, we estimate that revenues will range
from $97.5 million to $102.5 million, consistent with the revenue guidance we
updated on October 11th.
We expect an agent count at the end of the year between 2,100 and 2,300
agents. As Pat will discuss, we are undertaking an agent accountability
initiative during the fourth quarter, which may cause a temporary decrease in
our agent headcount by the end of the year. We do, however, expect to expand our
agent force over time and end 2008 with significantly more agents than 2007.

FOCUS
Gross margins are expected to approximate 44% for the year. And in terms of
other operating expenses, we anticipate that sales and marketing will be
approximately 37% to 39% of revenues with product development in the
neighborhood of 7%. We expect that G&A should be approximately 14% to 16% of
revenues.
This leads to a 2007 GAAP loss between $14 million and $17 million, including
the effects of the loss of the settlement I just outlined. This equates to $0.61
to $0.74 per share, based on approximately 23 million average shares
outstanding. On a pro forma basis, excluding stock-based compensation and the
one-time litigation settlement, we expect our loss for the year to range from $8
million to $10 million, or $0.35 to $0.44 per share.
Before I turn the presentation back over to Pat, I want to give some insight
into what we see for 2008, although we'd be in better position to share
specifics on our fourth quarter call. In a nutshell, we see revenue growth in
the 12% to 18% range in spite of continuing strong headwinds in the market,
resulting in a pro forma loss about one-half of what we expect to experience in
2007.
This outlook is different from our goal of pro forma profitability next year
of which we have spoken earlier this year. Unfortunately, the credit crunch
FOCUS
has changed the market for the worse, which has caused us to reevaluate our
position.
Couple of final comments on 2008 -- the annual cost savings of approximately

$4 million in personnel costs and other savings we announced in mid-October
break down as follows -- we expect the majority of savings to come from the
elimination of over 40 positions with roughly half of those positions in our
corporate office and remaining half in our field market office.
We expect additional savings to result in changes we've made in our

operations and back office support. The majority of the anticipated cost savings
will be recognized in general and administrative expenses, with a portion also
reducing sales and marketing expenses. We also expect additional efficiencies
from the agent accountability initiative.
We expect to incur additional expenses during 2008 as we continue to invest

in the 17 markets that we've opened in 2006 and 2007. We may also open two to
four new markets next year depending on the conditions. Pat?
PAT LASHINSKY: Thanks, Dave. 2007 was an investment year. And by

mid-December, we'll have successfully executed our expansion plan. The new
markets are not only expanding our reach across the nation but diversifying
FOCUS
our business away from California. Obviously, this diversification will reduce
our exposure to any one market over time.
We are now operating in Naples, Tucson, Denver, Jacksonville, Salt Lake City,
Richmond, and Virginia Beach, and have most recently opened in Charlotte and
Raleigh, NC. We are pleased with how these markets are performing. And they're
progressing according to plan.
In December, we'll be entering Long Island and Westchester County in New

York. We've been actively recruiting agents for these cities. And we're excited
to get those markets launched. We believe there is tremendous opportunity in the
New York market. That totals 11 markets that have either launched or will launch
in the very near future, right in line with our plans.
The priorities for the business going forward are fourfold. First, we will
look to maximize our returns on investment in all markets. While we are pleased
with how our new markets are performing, we believe there is great opportunity
to ramp these markets beyond their current performance. Accordingly, we are
allocating resources towards productivity and technology enhancers, so we expect
to improve market share, revenue growth, and profitability.

FOCUS
Second, part of that effort is improving agent productivity. We've recently
kicked off what we refer to internally as our agent accountability initiative.
By enforcing consistent standards of performance, it allows us to work with our
agents to help each individual either succeed within our model or make a mutual
determination that we are not a good fit for each other.
Our focus is on making sure that we retain and reward those agents who
meaningfully contribute to our productivity focus. We continually strive to
provide improved training and coaching to every agent who approaches the role
and has a strong desire to succeed. And despite our best efforts in this regard,
there may be a temporary decrease in our total agents.
However, we will continue to drive agent growth and plan to focus our
staffing efforts on finding the type of sales professional that will excel
within our model. I've talked in the past about our commitment to the hiring and
training process. This exemplifies that point. We will only accept and keep
agents that are committed to the ZipRealty vision and are willing to embrace the
process and tools at their disposal to deliver volume to the customer.
costird, we'll also focus on driving operating efficiencies. The

rationalization plan we announced in October and the agent productivity
initiative are two separate but significant steps we've undertaken this far.
FOCUS
However, we are continuing to identify additional opportunities to drive
efficiencies in the business. This is a process and not a one-time event. We
will continue to update you in this regard and communicate the opportunities to
improve on upcoming conference calls.
Four, pursue expansion, but make that a secondary strategy. While we're
encouraged about the results we're seeing in new markets, we understand that the
priority is existing markets. And the decision to potentially open two to four
in 2008 as compared to 11 in 2007 is primarily the result of maximizing our
current asset base in the most efficient way possible in driving higher
contribution margins in our post-2005 markets.
As I stated in my first conference call as CEO, I believe that innovation is

key to success and that our creativity, technology, and people will continue to
differentiate the ZipRealty brand to customers. As an example, we recently
introduced two new online tools that provide buyers and sellers with better
insight into their local markets, the offer evaluator and a new improved seller
dashboard. The offer evaluator provides buyers an opportunity to see the
likelihood of an offer being accepted in a particular neighborhood.
For example, on a $500,000 home, a client may think that they want to offer
$425,000 to get a real deal. The evaluator will show them that less than 1% of
FOCUS
offers at that discount get accepted. On the other hand, if they offer $485,000,
95% of offers in this neighborhood accept it.
This tool helps buyers figure out how to put in a good realistic offer that
is likely to either be accepted or negotiated. Additionally, this tool gives our
agents another way to help build trust with our clients over time and helps
clients evaluate unrealistic offers, which can be frustrating for everyone
involved.
The seller dashboard feature provides sellers with a range of detailed

information about their ZipRealty listing. Without our technology, this
information would only have been available if an agent made the effort to send
it. The impetus for the dashboard was the fact that many sellers feel that once
they hire a traditional agency they don't receive enough follow up. And we felt
that empowering sellers with this data would create a great customer experience
24 hours a day.
Ultimately, this is one more tool that uniquely highlights our innovation in
the marketplace. We believe that we have the best site in the industry. And
these changes will help us maintain our preeminent position.

FOCUS
To conclude, the market is certainly difficult right now. And we're managing
the business to current conditions. Despite that fact, however, we are gaining
market share. And we believe we have the right business model in an industry
that's poised for change. And thanks to our position, we do believe we'll
experience even larger gains when the housing market rationalizes.
Finally, we have a great team focused on the task at hand. And we're
energized about the multibillion dollar market opportunity. I'm very proud of
all of our people and would like to thank them for their efforts, especially as
we work through our recent changes. So at this point, we will address any
questions you may have. Operator?
OPERATOR: Thank you, sir. (OPERATOR INSTRUCTIONS). And we'll take our first
question from Jeetil Patel with Deutsche Bank Securities.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: Thanks. Hi, guys. I have a couple of
questions. First of all, your business at least in your guidance for Q4 is a
decline of about 35% to 45% quarter on quarter, which is understandable given
some of the seasonality out there typically in Q4. But can you talk about, I
guess, how you think the market is comparing against the 35% to 45% sequential
you're suggesting? I guess, how's the market looking relative to
that number?
FOCUS
Second, if you look at your new markets, you grew call it 40% or so in Q3. Do
you think you still continue to see the new market growth continue as you look
at Q4 and beyond? Or do you think it's definitely the challenges that are out
there on the credit side affect the newer market ramp as well? And then I have a
quick follow up.
PAT LASHINSKY: Thanks, Jeetil. The first question about the 35% to 40%
decline sequentially in the fourth quarter, there's probably two issues that are
going in. First of all, as you stated, it's seasonality where business does drop
in general during that quarter. And we think it's going to be a little bit more
pronounced this year than it's been in the past just because there is still a
credit issue out there and a credit crisis, where there are not as many clients
who are able to get through and get the loans as there were a year ago during
this time.
A year ago at this time, we didn't have the alt-A and subprime issue. And
jumbos were definitely in a better situation as well. So the combination of just
fewer people able to get through as well as the fact that markets in general
have just been very, very, very soft. And if you combine those two things with
seasonality, that's why we think that that's kind of a realistic number of what
the fourth quarter will be.

FOCUS
In terms of the new market ramp, the new markets we think are going to
continue to do well. It is a little bit slower than it was previously for our
new markets just as a result of the macroeconomic conditions that we're going
against in those markets. However, we do not expect that to slow down. And we
expect there to be considerable gains and a significant upside for us in the new
markets we've launched as we get into next year.
JEETIL PATEL: So it's safe to assume that the market growth is probably worse
than the call it down 40% sequentially. Maybe the market's down over more than
50% Q3 to Q4. And then I guess, on the new market side, you're still saying that
you're going to grow year on year on the new market revenue.
And then I guess I have a couple of quick follow ups, which is, I guess, what
percentage of your buyers do you think if there's an anecdotal view do you think
are not able to get a loan given the credit woes that we've been seeing here in
the last couple of months?
PAT LASHINSKY: So to answer your first question, yes, we do think that the
market is going to be down more than what we're seeing. We feel very good that
we're continuing to outperform the market and will continue to do that. And
asting that we're going to continue to grow our new marketsas well. So we will c
ontinue to outperform the markets. And we are going to
FOCUS
continue to grow our new businesses. So that's right. We think that the market
will -- it's in for a really tough fourth quarter.
In terms of the percentage of clients that are unable to get loans, as we

have stated previously, we weren't really affected very much by the subprime
effect. It was less than 0.5% with subprime. But when you start getting into the
Alt-A effect and the Alt-A went away and then you combine that with a jumbo
loan, that's significant.
Now more people can get back into jumbo loans right now than they were
previously able to. However, the conditions and the criteria are much stricter
than they were before, different product. I don't have an actual percentage. But
I would tell you based on conversations that we've had with our agents that
we're probably hearing upwards of 20% of the clients are struggling to either
get a loan or a loan that they can afford or one where the terms aren't changing
as they're going through the loan process.
One of the frustrating things for clients has been that they're going out and
getting loan pre-approvals. And then when they go to lock in, they find out that
those conditions have changed. Instead of being at I want to put down 3% and get
a 6.5% or 6.75% loan, they're being told, okay, well, that loan program doesn't
exist anymore. Now you've got to come up with 5% or 10% and add that 7.5% or
FOCUS
8%.
And what happens is there's just an affordability issue where they can no
longer either get the down payment together, or the payment, monthly payment,
gets to be too high for them. And they're able to qualify for it, but the terms
have changed so dramatically that it's not really a realistic loan for them.
JEETIL PATEL: And so yet another shoe to drop in terms of, I guess, if your
cost to capital as a consumer has gone up by 20%, doesn't the price of the home
have to come down 20% to justify the affordability?
PAT LASHINSKY: I don't know that it's a one-to-one ratio. But there is
definitely going to be some pressure on pricing for a lot of reasons. One is, as
you said, the total amount of available capital that they have as well as just
in inventory levels out there. There's a lot more competition out there and a
lot more homes that you're going up against. So we've already seen it in some
markets. And some markets, you've already seen pricing continue and have started
to take that into account. Other markets are just learning that and getting
there right now.
But there will probably be -- the fourth quarter is going to probably be a

difficult market in terms of pricing for sellers.
FOCUS
OPERATOR: And we'll take our next question from [Claus von Stutterheim] with
Deutsche Bank.
CLAUS VON STUTTERHEIM, ANALYST, DEUTSCHE BANK: Hi. I'm relatively new to the
story. Can you talk a bit about the agents, their compensation range and the
number of transactions per agent as compared to the industry? And let's see. I
had another question. You said that you're sort of upgrading some of your
agents. How hard or easy is it to find good agents in this environment?
PAT LASHINSKY: Well, thanks, Claus. I'll answer a couple of questions here.
The first one is about the agent compensation system. Our system is
designed to
reward our agents who perform the best with the highest amount of payment. So
agents outside of California come in. They make 40% split on the first three
deals they make in a month or the first $15,000. And once they go above that,
they go to 60%.
California, they make 35% for the first 10 deals they do. And once they go
across ten deals, they then go to 40%. And they are in the same thing. The
FOCUS
first three deals they do in a month, they make the 40% or the first $15,000 in
RAR. Anything that they generate over that is earned at 60%.
Additionally, they earn their way into expense reimbursement. And they can
earn their way into other Presidents' level clubs and other deals where there
are additional payments and compensation that they earn over that period of
time, including stipends and additional support that they can get on that piece.
In terms of productivity--
DAVID RECTOR: Productivity was at 0.59 transactions per agent per month for
this quarter, which is down from a year ago, which I think is reflective of
what's going on in the market. It's much more difficult. The agent's chasing far
fewer deals.
PAT LASHINSKY: We still think that our productivity, however, is

significantly higher than the industry. It's hard to get good data on that. We
did hear that the average agent in California this year would be doing about
three total deals. So we're doing significantly better than that overall. We
think our productivity is higher because our agents spend their time working
with clients. They have additional tools.

FOCUS
And the other thing is that the 0.59 that Dave is talking about is actually a
blended average that doesn't include just our agents who've been here over a
period of time. And as we get more experienced agents who've been here and
who've done more deals, that productivity goes up significantly over that group
as well. What was the third part of your question, Claus? I missed it.
CLAUS VON STUTTERHEIM: Well, back to the part that you answered, what does
the top salesman at ZipRealty make just so I have some idea? And how does that
compare to the industry? And the other question was is it hard to find good
agents? Has the change in climate made it easier or more difficult?
PAT LASHINSKY: So honestly, for privacy reasons, we can't give out what our
agents are making. It's very competitive and very good. And our top agents make
a very, very good living. I would tell you that a top agent at another firm
that's at the very top will make more money than the very top agent at ZipRealty
in general.
However, if you go down below that top 2% and go into the next group, our
agents will be basically making more. And what's more important isn't just the
amount that they make, but it's the amount that they take home. And the
t because we pay all the expenses for our agents and we pick upall the cost, our
agents gross significantly higher than they would
FOCUS
traditionally somewhere else.
So it's not just a straight apples-to-apples top line comparison. It's the
amount of money that they take home. Our agents would do significantly better.
In terms of recruiting, it's been a very interesting time. We expect that the
number of agents in the industry is going to drop as the number of deals go down
and as more people find it's not an easy way, just an easy way to make easy
cash. Agents have to work very hard. This is a tough job. It requires you to be
available on nights and weekends and be responsive to all different types of
clients.
So it's a hard job. And a lot of people I think during the heyday thought,
wow, what an easy way to come in and make a lot of money really, really quickly.
And it's not that easy. And it's really hard. And even more than that, it's
really hard to find clients nowadays because there are so many places and so
many ways that they're able to go out and try and figure out. It's hard to for a
traditional agent to find it.
So while recruiting is a little more different in the line that more people
are going to get out of the industry, we think that our model is going to do
very, very well. And in fact, we think that we've done a very good job in
FOCUS
recruiting up until now. We continue to add agents in the right places in the
way we want.
And even more important, agents that had previously done well with us and
left and decided to go and try another side and to try see what's on the other
side of the tracks are coming back to us in numbers they never have before
because they found that it's very difficult to replicate what we've been able to
do here and to do that by themselves.
And so not only are we getting good, good traction with the agents we're
recruiting, but we're getting good traction with agents who have previously been
with us who thought there was an easier way. And as they've gone out and tried
it, they've found that it's not easier. And they've become kind of our walking
billboards to tell everybody, you know what? I've done both sides. And I'd much
rather take this rate and have no expenses and make something than be out here
spending all this money and not knowing if I'm ever going to make anything.
So while recruiting is a little more difficult as the numbers go down, we
think we have the right model to really take on the current market environment.
CLAUS VON STUTTERHEIM: Great. Thanks.

FOCUS
OPERATOR: (OPERATOR INSTRUCTIONS). And we'll go to Kent Holden of Gagnon.
KENT HOLDEN, ANALYST, GAGNON SECURITIES: Good evening, gentlemen. I missed

the discussion on the legal settlement.
PAT LASHINSKY: I'm sorry. On what?
KENT HOLDEN: On the legal settlement.
PAT LASHINSKY: On the legal settlement?
DAVID RECTOR: Let me kind of read that again. Obviously, we're still in that
litigation. So we're not really expanding on this. But let me just repeat my
comments.
As we disclosed in our second quarter 10-Q in May, we were named in a class

action lawsuit filing by four former employee agents of the Company. The
complaint relates primarily to our policies for expense allowances and expense
reimbursements for non-California agents and includes claims similar to those
alleged in the Benjamin class action lawsuit we settled in 2005 relating to our
California agents.

FOCUS
In August, the court placed this case on a fast-track schedule. And as
discovery proceeded, we learned our potential exposure was greater than we
initially anticipated. For that reason, we recently engaged in mediation with
the plaintiffs' attorneys and reached a proposed settlement of this claim in
exchange for a payment of $3,550,000. We are working with the plaintiffs'
attorneys to complete the definitive settlement documentation, which will be
submitted and is subject to court approval.
We expect to file the documentation shortly and receive court approval during
the first quarter of 2008. As a result, we've taken a one-time charge in the
third quarter in the amount of the proposed settlement of the $3.55 million. We
expect to actually pay the settlement sometime next year.
KENT HOLDEN: But this is then not related to the prior class action?
DAVID RECTOR: It is similar. The prior class action related to agents in the
State of California. And this relates to our non-California agents.
KENT HOLDEN: I thought the settlement agreement on the first class action
precluded any additional claims. But perhaps I was mistaken by that.

FOCUS
DAVID RECTOR: No, that was California only.
KENT HOLDEN: Do we then open ourselves up for a third when we are on a
conference call and we make a direct quote? We pay all the expenses. We pick up
all the costs.
DAVID RECTOR: I think what we can say today is we discontinued in 2005 the
practices that were the primary focus of this lawsuit.
KENT HOLDEN: Okay. And so now it appears that the forecast for 2008 is going
to be a loss. And you said it's going to be half the size of '07. Which '07
numbers are you anticipating, the pro forma numbers or the gross numbers?
DAVID RECTOR: We're referring to the pro forma numbers. What we've indicated
is the revenue we expect to grow between 12% to 18% for 2008, which is based
largely on the ramping up of our new markets. We are not anticipating any
improvement in the market dynamics.
KENT HOLDEN: So the pro forma loss I think that you were talking about was
$0.35 to $0.43 for the year of '07.

FOCUS
DAVID RECTOR: Yes, $8 million to $10 million. That's exactly right.
KENT HOLDEN: And so then '08, you're looking at someplace in the $0.17 to
$0.215 --
DAVID RECTOR: Correct.
KENT HOLDEN: -- loss range.
DAVID RECTOR: Yes, $4 million to $5 million.
OPERATOR: And we'll take our next question from Jim Wilson of JMP Securities.
JIM WILSON: I really just had one more question. As you look forward I think
in your guidance, are you assuming any changes in the transaction level per
agent? Or do you have initiatives that you think will--maybe you aren't assuming
it. But did you have any programs, anything specific you might want to talk
about that you think might truly help the transaction level per agent, even

FOCUS
independent of the market conditions?
PAT LASHINSKY: Right now, we're not really commenting on the metrics for '08.
We're working through those right now and figuring out the exact system that it
is. But our focus right now is that our initiatives are designed around
increasing productivity of our agents and making them more productive than
everyone else in the industry.
Our initiatives, our goals for next year, and our efforts are all focused
around driving agent productivity and increasing it and making strides on it.
That being said, we're not sure exactly where it's going to come out until we
get all the way through our evaluation on what we think the market's going to be
like next year. And we'll have significantly more detail for you on that on the
fourth quarter call.
JIM WILSON: Okay. That's fine. That's about all I had.
OPERATOR: (OPERATOR INSTRUCTIONS). And we have no further questions, sir.

FOCUS
PAT LASHINSKY: Well, thank you, all, for being on the call and for listening.
And we hope that -- we look forward to talking to you all on the fourth quarter
and continuing to do the best we can to provide the best experience for buyers,
sellers, and for our agents that are out there. Thank you.
OPERATOR: Ladies and gentlemen, that does conclude today's conference call.
We thank you for your participation. You may now disconnect.

such changes.
inaccurate or incorrect and, therefore, there can be no assurance that the resul
ts contemplated in the forward-looking statements will
FOCUS
be realized.

DECISIONS.]
LOAD-DATE: December 17, 2007


TRANSCRIPT: 080707ar.704
LENGTH: 6020 words
BODY:
OPERATOR: Good day, everyone, and welcome to the ZipRealty, Inc. second
quarter 2007 earnings conference call. Today's call is being recorded. At this
time, all participants are in a listen-only mode. And the floor will be open for
your questions following the presentation.

FOCUS
It is now my pleasure to turn the floor over to your host, [Mr. Don Tomov].
Mr. Tomov, please go ahead, sir.
DON TOMOV, IR, ZIPREALTY, INC.: Thank you. Good afternoon, everyone. With
me on the call today is Pat Lashinsky, President and Chief Executive Officer,
and David Rector, the Company's Chief Financial Officer. Earlier today, the
Company issued a press release describing its results for the second quarter of
2007. A copy of that release can be viewed on the Company's website at
ziprealty. com.
various remarks we make about future expectations, plans and prospects for the
Company constitute forward-looking statements for the purposes of the Safe
Actual results may differ materially from the expectations, plans and prospects
uncertainties, including those described in the Company's Form 10-K for the full
fiscal year 2006 and other filings with the Securities and Exchange Commission,
copies of which can also be viewed on the Company's website.

FOCUS
United States, ZipRealty uses a non-GAAP measure of net income loss it refers to
as pro forma net income loss earnings. That excludes certain items, including
stock-based compensation, non-cash income taxes and certain one-time items, if
any.

Further, this non-GAAP method is the primary basis management uses for
planning and forecasting its future operations. The presentation of this
additional information should not be considered in isolation or as a substitute
for results prepared in accordance with GAAP.
PAT LASHINSKY, PRESIDENT AND CEO, ZIPREALTY, INC.: Thank you, Don. I'd like
to start today's call by providing some perspective on our second quarter
performance along with commentary on the current state of the residential real
FOCUS
estate market. I will then turn the call over to Dave Rector to discuss
financial specifics for the quarter, after which I'll wrap things up with a
review of our strategy.
First, I'm pleased to be addressing you all in my new capacity as CEO. And
I'm absolutely focused on pursuing the growth strategy we've previously
articulated. We have a great team in place. And I'm highly confident that our
investment in the current down market will create sustainable, long-term value
for our shareholders.
In terms of the second quarter, we generated solid performance in an

otherwise challenging environment and posted significant market share gains. Net
revenues increased 16.2% to $31.3 million. And growth was driven by momentum in
our new markets and an increase in average net revenue per transaction in our
existing markets.
Our expenses were in line with expectations for the period. And all of our
core metrics more or less tracked with our expectations, leading to a slight pro
forma profit for the quarter. We're very proud to have been profitable on a pro
forma basis given that the market is so challenging.

FOCUS
So here's our view on the bigger picture. As you all know, the headlines
remain very negative, consistent with prior quarters. And we believe that's a
function of growing inventories, sub-prime fears and tightening lending
standards. It's likely also a function of real underlying data that suggests the
market may continue on its current track into 2008.
For example, NAR recently reported that existing home sales are expected to
drop 5.7% for 2007 along with a projected 1.4% drop in the median home price.
Headlines and statistics aside, however, buyers and sellers are simply tentative
and confused about their local market, which may or may not mirror the national
headlines or trends. And I think it's going to require some time for the buyer's
demand curve and the seller's supply curve to come back into alignment. To get
there, we'll have to see compromise from both sides. And we are surprised we
haven't seen that capitulation already.
All that said, what we're sure of is that there's still a significant amount
of interest in real estate, and people remain focused on what's happening in
their local market. In fact, we continue to see plenty of people looking to buy
and sell, and our scheduled visits for the second quarter were up
ver-year. Also, our website has never had more visitors, as buyers and
sellers use our tool to evaluate the market and make their decisions.

FOCUS
Taking all of this into consideration, our investment thesis is pretty
simple. If people still have tremendous interest in the market and are actively
looking to buy or sell their homes, it's just a matter of time before the market
rationalizes. And although we certainly can't call when the market will turn,
history is on our side.
For that reason, I passionately believe we're navigating through a great

window of opportunity for the Company. Our goal, as we've stated several times
this year, is to grow our national network and bring ZipRealty to those markets
where we think we'll have an advantage. And as we invest in local markets and
fill the corporate infrastructure that can support field operation, we believe
that we will generate pro forma profitability in 2008. And that's based on
current market conditions. If things reaccelerate, all the better.
I'd now like to turn the call over to Dave Rector.
DAVID RECTOR, CFO, ZIPREALTY, INC.: Thanks, Pat. Overall, net revenues
increased to $31.3 million, a 16.2% increase from the year-ago quarter.
Excluding referral and other income, net transaction revenues for the quarter
increased by $4.3 million to $30.5 million, a 16.5% increase from the prior
year. Existing markets contributed $1.6 million, or 6% of this increase, driven
by higher-than-expected average home prices on transactions closed in those
FOCUS
markets, including a 46% increase in $1 million-plus transactions.
Profit margins contributions at the unit level declined 130 basis points,
21.5% versus a year ago, due primarily to the mix of agent commissions paid
during the quarter as well as specific adjustments made to our agent
compensation plan. These plan enhancements were designed to better motivate and
retain our agents.
Net transaction revenues for the quarter in our new markets were [$2.9
million], an increase of $2.7 million over the prior year. New markets are
defined as having been opened for less than one full calendar year. As I've
stated in previous calls, we transferred new markets to existing markets on
January 1st after one full year of operations.
New markets for the quarter includes the six markets opened in 2006 and the
four markets we opened before June 30 this year -- Naples, Tucson, Denver and
Jacksonville. These new markets experienced a loss at the unit level of
approximately $700,000 versus $500,000 a year ago.
Factors driving the higher net transaction revenues for the quarter compared
to the prior year include the continued strong performance in California, which
represented 38.9% of our total net transaction revenues versus 40.3% last
FOCUS
year.
In California, our closed transactions increased approximately 2.5%,

significantly outpacing the 32% overall market contraction in our California
market, resulting in significant market share gains.
In existing markets outside of California, our closed transactions decreased

by around 1.7%, outperforming the market contraction of approximately 19.5% in
our market, again resulting in significant market share gains.
Finally, our new markets contributed nearly 9.5% of total net transaction
revenue for the quarter with particularly encouraging revenue performances in
some of our new markets, namely Orlando, Minneapolis, and Austin.
Average net revenue per transaction grew by about 7% in our existing markets,
$7,908 up from $7,395 in the prior year.
the quarter, up from $5,490 last year. We added 401 net new agents over the last
year, bringing the total to 2,070 as of June 30, 2007. Of the total net
additions, 123 agents were added for our existing markets and 278 in our new
markets.
FOCUS
Average agent productivity for the quarter was approximately 0.69
transactions per agent per month.
Next, I'll address our expense structure.
Cost of revenues were $17.3 million, or 55.3% of net revenues for the second
quarter, an increase of 110 basis points. The increase was primarily due to the
mix of commissions paid to our agents as well as the compensation plan
adjustments mentioned earlier.
Product development expenses for the second quarter totaled 5.8% of net
revenues versus 5% last year, an increase of 80 basis points. This increase was
primarily due to continued investment in our website development and to support
our new market expansion.
Unit level sales and marketing expense for the quarter was $8 million or
25.5% of net revenues, up from $6.2 million or 22.9% in the prior year.
Roughly $1.4 million of this increase was due to the seven new market
openings since the end of the 2006 second quarter. The remaining $400,000 was
attributable to increased cost of operating our existing markets.

FOCUS
Regional and corporate sales supported marketing cost increased by
approximately $400,000 primarily due to our new market expansion team.
Excluding approximately $700,000 of severance cost related to departure of

our former CEO, general administrative expenses for the period were $3.8
million, or 12.1% of net revenues, compared with $3 million, or 11.3%, in the
prior year.
Excluding these severance costs, our G&A declined from the first quarter
level by approximately $200,000. We continue to believe that we can drive
significant leverage on G&A cost as we scale the business.
In terms of the bottom line, we earned a pro forma net income of $140,000 for
the second quarter or $0.01 per diluted share versus $0.07 a share a year ago.
In terms of our balance sheet, we ended the quarter with $86.7 million of
cash, cash equivalents, and short-term investments and without any long-term
debt.
We continue to anticipate investing approximately $10 million in cash in 2007

as we execute our market expansion plan, along with enhancing our technology,
including investing in a second data center.
FOCUS
As a reminder, we expect to spend $500,000 to $1 million in each of these new
markets and target profitability within 18 months.
Let me wrap up by reviewing our guidance for the back half of the year. For
the full year, we estimate that revenues will range from $105 million to $110
million. This is based on average agent productivity of roughly 0.6 to 0.7
transactions per agent per month and average net revenue per transaction in the
range of $6,500 to $7,000.
We expect an agent count at the end of the year between 2,200 and 2,400
agents.
Gross margins should be in the 44% to 45% range for the year, and in terms of
other operating expenses, we anticipate that sales and marketing will be
approximately 37% to 39% of revenues with product development in the 7% range.
We expect that G&A should be approximately 13% to 15% as a percentage of
revenues.
This leads to a 2007 GAAP net loss between $10 million and $13 million, or
$0.45 to $0.60 per share, based on approximately 23 million average shares
outstanding.

FOCUS
On a pro forma basis, we expect our loss to be at a range from $6 million to
$9 million, or $0.25 to $0.40 per share.
Before I turn the presentation back over to Pat, please note that while we
are not providing quarterly guidance this year, we do want to emphasize that
2007 has been choppy and unpredictable. To that point, we expect this
unpredictability to continue for the remainder of the year. Pat?
PAT LASHINSKY: Thanks, Dave. 2007 continues to be a year of expansion. And we

are pleased to announce that we are entering the New York market, which many of
you have asked about. Specifically, we'll be going into Long Island and
Westchester County. And we believe the entire area shows tremendous promise.
In terms of other 2007 markets, we are now operating in Naples, Tucson,

Denver, Jacksonville, and have most recently opened Salt Lake City, Richmond,
and Virginia Beach. These markets are performing well and progressing according
to plan.
And in the near future, we'll be entering two other previously announced new
markets, Charlotte, and Raleigh-Durham, NC. We've been actively recruiting
agents for these cities. And we're excited to get those markets launched.

FOCUS
That total of 11 markets that have either launched or are actively moving
towards a launch date right on track with our previously stated goal of 10 to 12
new markets for 2007.
Importantly, we are not expanding at the cost of current markets. We remain

focused on driving market share gains in our existing markets via combination of
improve recruiting, retention, and productivity.
Before Q&A, let me talk briefly about some initiatives we've recently
launched and one initiative that we previously announced that it's starting to
contribute to our business. These all center around innovation, not just for
innovation sake, but to better the experience for agents and customers.
And as we introduce these tools, we believe they will ultimately add to

greater agent productivity and better bottom line performance.
So in that spirit, first, we've added sales trend technology to our site that
allows visitors to monitor pricing and sales trends in their area.
For example, we have historical sold-to-list price data available for every
property in someone's neighborhood. And this feature is beneficial to both our
buyers and our agents.
FOCUS
To that point, to separate the reality on the ground from the headlines in
the press, we show our clients with the trailing 12-month ratio of sold price to
list price. This educates them on pricing trends in their neighborhood.
This is a great tool for our agents. And that allows them to better educate
their clients through the use of real data, not just instincts. This creates a
sense of trust and oftentimes facilitates a transaction.
Second, we've introduced a new tool just for sellers. Specifically, we allow
sellers to gain more insight and control over the selling program for their
home.
Unique to the industry, the seller can now choose how they market their home,
have transparency into the commission, and set a preferred price as they study
the comps in their neighborhood.
Our agents take them through the process and the empowerment. And the
transparency builds trust. And we think it's another great way to shift from a
buy-centric model to more sellers over time.
As part of that effort, we'll be making more of a formalized effort to go

after listings for the remainder of the year. And as we do so, we plan to
FOCUS
leverage our technology to make those listings higher profile for our buyers and
agents.
We will also be looking for additional partnerships to elevate exposure. We

have not focused on listings previously. And this will be the start in our
effort to grow this side of our business.
Finally, the new homes effort that we've been building out in recent quarters
is beginning to pay off.
If you recall, this effort, which we began in early 2006, is made up of
building direct relationships and market agreements with new home builders who
are looking to move their properties. And the need to do this has been amplified
in the current market.
As a result of these efforts, new home sales have increased to 28% of our
business in the second quarter -- have increased 28% in the second quarter. This
effort has played an important role in our ability to counter a difficult market
environment.
So in closing, not only do we have a commitment to improve the agent and

customer experience through technology, but we're bringing that same
FOCUS
commitment to the hiring and training process.
After all, we realize we'll only be as good as the people we hire. And
they'll only be good if they've mastered the tools at their disposal to deliver
value to the customer. And I truly believe we're making progress despite the
headwind. Our second quarter pro forma profitability in the current market
underscores that to a degree.
We'd like to take a moment to thank all of our corporate employees and agents
for their hard work that have helped the company achieve the second quarter
results. We believe having the best people in the industry makes all the
difference.
At this point, we will address any questions you may have. Operator, I'll
open the line.
OPERATOR: Thank you, sir. (OPERATOR INSTRUCTIONS) And for our first question,
we go to Jeetil Patel with Deutsche Bank Securities.
JEETIL PATEL, ANALYST, DEUTSCHE BANK SECURITIES: Hey, guys, a couple of

questions for you.

FOCUS
First of all, can you talk about whether the stricter lending standards that
seem to be going in place, is that having any impact on buyers at this point and
maybe in the quarter of Q2 or in the second half thus far in terms of their
ability to secure loans or their interest in looking at homes at this point?
And then also can you talk about how the trends have looked in July and Q3 to
date? And I have a quick follow up.
PAT LASHINSKY: Hi, Jeetil. Thanks for the question. So the stricter lending
standards are just starting to take effect right now. As we've stated in our
previous calls, we were not very subject to the issues with sub-prime because it
was such a small percentage of our market.
As the tightening has occurred in Alt-A and some other non-conforming, we

expect that there will be some tightening for consumers. And it will have more
of an effect on them as we go forward.
We feel like we do have an advantage in that we're able to see who those
lenders are and who our clients are working with very early in the process.
And we're able to be very proactive to make sure that we keep them in loans
and with mortgage providers who are going to be able to service them. We have
FOCUS
not seen a slowdown due to lending criteria or lending tightening so far. And we
haven't been in--we haven't seen any effect of that at this point.
In terms of what we saw in July, we continued to operate and do very well. We

think that we're continuing to execute and do our business.
We continue to see record activity on our website. And we continue to see

lots of consumer interest in the business. It just continues to be -- we're just
doing what we think is the right thing and executing on our business. It seems
like it's fairly consistent for us.
JEETIL PATEL: You talked about increasing coverage or the amount of markets
you're in and inventory. Have you thought about -- I guess there's a growing
number of foreclosures out there on the marketplace.
Have you thought about incorporating those onto the site as another pool of
inventory to tap into by region? Or is that difficult to actually find what's
coming up in that marketplace?
PAT LASHINSKY: There's a lot of places out there to get the inventory for
foreclosure or pre-foreclosure data. And what we're working on right now is we
don't think that it's a great vehicle for most consumers.
FOCUS
They don't understand the difficulties. They don't understand all the issues
that go into buying a foreclosure property. And it's very complicated. And a lot
of consumers think it's just a way to get a cheap deal, which sometimes it is.
But a lot of times, it's very difficult.
So what we're working on is getting some active feeds that allow our agents
to have access to free information and to know about pre-foreclosures as well as
foreclosures, that if they have a client who says they're interested and really
understands what's going on with it, they'll be able to proactively work with
them on a real time basis to get them that information. But we're not planning
at this time to put any foreclosure information on our site.
JEETIL PATEL: Last question, but it seems like your business, you're seeing
pretty good growth in the high end market for properties out there.
Do you think that's more of a function of mix in your business or more of a

strategic shift you've made within your agent base of focusing on mid to higher
end homes in some of the markets that you service?
PAT LASHINSKY: That's a great question. And we really believe it's a

combination of both. This market has been very good for us in allowing us to
seasoned agents who are experienced, who come in, who are able to
FOCUS
handle these high end clients.
A number of agents are struggling in the current environment to be able to

achieve the results they want or to be able to succeed. And they're finding that
our model and our approach to allowing them to focus on clients is working very,
very well with them.
Combine that with the fact that we think that we are developing additional
brand equity. Our brand is getting stronger. More people have interacted with
us. More people have heard of us. And the combination seems to work very well
where it's attracting a level of clients that a couple years ago was much more
difficult for us to attract.
OPERATOR: Any further questions, Mr. Patel?
JEETIL PATEL: No, that's it. Thanks.
OPERATOR: (OPERATOR INSTRUCTIONS) We go next to Wendy Snow with Lamoreaux

Capital Management.

FOCUS
WENDY SNOW, ANALYST, LAMOREAUX CAPITAL MANAGEMENT: Actually, I think it was
Phil that wanted to ask his question.
PHIL LAMOREAUX, ANALYST, LAMOREAUX CAPITAL MANAGEMENT: Okay. Okay. We both

buzzed here, Pat, to be sure we could get on. First of all, congratulations on
the happy surprise with the strength in your revenue and agent productivity. You
added a lot of agents.
But it looks to me like in the last 90 days your productivity is starting to

head upwards. And it's good to hear enthusiasm on the call in your voice and
your commitments to the future. And, Pat, you said something about that you
passionately believe that in '08 the Company will return to profitability. Did I
hear that?
PAT LASHINSKY: Pro forma profitability.
PHIL LAMOREAUX: Pro forma profitability.
PAT LASHINSKY: That's right.
PHIL LAMOREAUX: Okay. And is that still a GAAP loss of about $10 million? Or
are we focusing--was that on '07?
FOCUS
PAT LASHINSKY: That was on '07.
PHIL LAMOREAUX: Okay. So no numbers, but just you're going to be pro forma
profitable.
PAT LASHINSKY: That's correct.
PHIL LAMOREAUX: Okay. Good. We'll watch for that.
PAT LASHINSKY: Thanks, Phil.
PHIL LAMOREAUX: Good work. Thank you.
PAT LASHINSKY: Thanks, Phil.
OPERATOR: And for our next question, we go to Jack Pitts with Steadfast
Capital.
JACK PITTS, ANALYST, STEADFAST CAPITAL: Hi. I apologize. I always miss these
numbers during the call. But would you go over again just in the State of
California what your growth was year over year in the quarter and then compare
that to what it was for -- or what you think -- what you estimate it was for
FOCUS
the overall California market based on the NAR stats?
And then also, could you tell us what your agent growth in the submarket of
California was? I think it was like 12.5% last quarter.
DAVID RECTOR: Okay. The increase was 2.5% on our California transactions over
a year ago. And we believe that the market in the markets that we're in, in
California contracted by 32% for the same period.
JACK PITTS: Okay. And then do you have any idea what your agent growth -- I
think it was 24%. But I would suspect it's less than that in California.
DAVID RECTOR: See if I have that California with me.
JACK PITTS: And then maybe while he's looking that up, I noticed that your
revenues per transaction actually went up, which is a bit surprising given that
overall house prices are kind of on a slight decline.
Is a lot of that due to kind of the growth in $1 million-plus homes? And it

sounds like you've been kind of predicting that that would actually go down. And
it seems to be going up.

FOCUS
So I was wondering if you could kind of comment on maybe what that looks like
in the future, if maybe unbeknownst to you that your target audience happens to
be higher end houses, which would be great for the growth of the company.
PAT LASHINSKY: We think there's a couple things that are driving that
increase.
First of all, we've seen good strength and resiliency in the California
market, which has a significant impact in that number, which as that market --
as we continue to outperform the market, we think that that helps that net
revenue.
Second of all is as we add new markets and as we diversify outside of

California and across the country, we expect that that number will continue to
decline because there just aren't as many homes that are over $500,000 that are
being sold in Virginia Beach or Naples as there are in the California market.
And so over time, as those markets become more developed and more advanced,
we will see that net revenue per transaction continue to drop.
That being said, we think that we've found and shown that we can do an
excellent job with high end customers.
FOCUS
We think that as word gets out and more of them tell their friends about it
and more people want to come in and participate in the value proposition of
being able to get a big rebate, getting superior service, being able to
participate in the transaction.
We think that all of that will lead to more word of mouth in this market. And
it's a market that's difficult to break into but once you break into it is one
that's great to be able to stay in. And it does provide upside for us in some of
the markets we're in.
But over the time, we do expect that number to come back down as we diversify
across more markets across the country.
DAVID RECTOR: Hey, Jack, we did miss the stats. The $1 million-plus
transactions were up 46% over that period. So that certainly helps on that
number.
JACK PITTS: Yes.
DAVID RECTOR: And the California agents were up about 10% from where they
were a year ago.

FOCUS
JACK PITTS: Okay. So your outperformance and your market share growth in
California is actually somewhat accelerating by my count.
DAVID RECTOR: That's right.
JACK PITTS: Congratulations on that. And I guess in terms of another excited

aspect hopefully for the future would be on the listings. And do you have any
numbers as to if that's even having a slight up tick versus past years or past
quarters in terms of number of sides on the selling end?
PAT LASHINSKY: So going into the -- at the end of the first half this year, a
number of people that we had that were actually listers and were selling were
actually down a little bit in relations to other years, primarily driven by the
market condition and the fact that there are so many people that are out there
selling their home. And everybody was looking for buyers.
And as the market switched from being a seller market to a buyer market, our
buyers got more power. And we were able to convert a higher percentage of that.
That being said, we've made the decision to go after listings now because,
one, we're hearing other brokers are pulling out of the listing business. Two,
it's expensive for other people to do. And they don't know how to add

FOCUS
efficiency.
And three, we think that between all of the tools that we have we can put
against sellers and all the buyers we have, we can add a significant efficiency
against that.
We just launched our seller tool a week ago. And so it's very, very new for
us to be able to give you even any initial indications.
I'll tell you that we're getting excellent feedback from our clients. We're
getting excellent feedback from our agents that this tool seems so much better
and more efficient and allows them to have a better discussion. We think that
this combination is going to work very well.
And the same kind of transparency that we added to buyers seven years ago,
and we're the first ones to put it on the internet, we're adding that same
transparency to sellers right now.
It's not going to be something that turns around overnight. But it will start
to have an impact. By next year, we hope to have some very strong momentum going
against sellers.

FOCUS
JACK PITTS: Okay. And one last question is touching on something another
questioner asked about the potential problems with getting financed in the
future. Is there a way for you to actually measure that?
And if you can kind of expand, it sounded like you said that you get kind of
an earlier indication as to what type of financing your buyers are looking to
use. How is that? I mean, I'm not --
PAT LASHINSKY: We actually track who are mortgage providers of all of our
buyers are from the minute they start in the process through the entire thing,
through their entire process and transaction.
So what that means is that we can tell if someone says that they've gotten --
their loan is going to be done with American Home Mortgages and we know that
they have declared bankruptcy.
We don't wait until they're a week before closing and try and get them into a
new deal and try and help them solve that problem because we didn't know about
it.
We know today. As of today, we've started contacting them. We're trying to

put them aligned with some other brokers, with some other mortgage providers.
FOCUS
And we're also able to go through and tell exactly what those needs are of
those customers. We also have a strong marketing arrangement with E-Loan, which
allows us to send clients over to them.
And E-Loan does a great job of helping us take care of those as one of the
options that we provide for clients that are out there.
So we have a number of ways of looking at it. We have ways of making sure

that we're on top of it so that our clients who find that home and are ready to
move into it aren't not able to get to a home because of financing.
We're going to provide them as many choices and opportunities as we can as

early as possible so that they don't get into one of these issues where five
days before closing they find out that there's no check there because the
provider isn't going to be able to follow through on their commitment.
JACK PITTS: Okay. Congratulations, everybody.
DAVID RECTOR: Thank you.

FOCUS
OPERATOR: (OPERATOR INSTRUCTIONS) We go next to Ben Schachter with UBS.
DAN SILVER, ANALYST, UBS: Hey, guys. This is Dan Silver in for Ben at UBS. A
couple quick questions--first a housekeeping question. Could you guys give us
depreciation for the quarter? I'm also curious if you could provide any detail
on cash burn or expected cash burn for the year.
And lastly, guidance calls for an increase in average revenue per

transaction. So I'm just hoping you can reconcile your top line guidance with
that metric.
And then kind of as an aside, if you could couple that with the visibility
that you have into third quarter in terms of how the metric is trending. Thanks
a lot.
DAVID RECTOR: I don't have the depreciation number with me. Let me see if I
can track that down. As far as the cash burn, we still expect to be in the $10
million range for the year. Now we're not at that pace through the first six
months.
But you have to keep in mind that with all the new markets that we're
expanding into that most of that expense is in the last half of the year. And
FOCUS
then couple that with on our CapEx, we're looking at developing a second data
site.
And all of that expense will be in the second -- or all that cash burn will
be in the second half of the year.
PAT LASHINSKY: Dan, what were the last two questions you had?
DAN SILVER: I was just hoping that you guys could reconcile the increase and
expected average on revenue per transaction with top line guidance because it
certainly seems like given the increase in the metric, why is guidance not going
up top line?
PAT LASHINSKY: Well, one of the things that we're doing is we're being
conservative. And we're going to make sure that we do the things that we say
we're going to do.
The market has been very, very choppy. It's been very hard to predict. And
it's very hard to have a clear understanding exactly what's going to happen in
the next quarter and in the fourth quarter, particularly in light of what's
going on with the creditizing.

FOCUS
We feel like our numbers, our net transaction has moved to a point where
we're at. But at this point, we're just not comfortable at knowing well enough
at exactly what -- how our business is going to fair through the end of the
third quarter and into the fourth quarter.
So we want to be conservative and to give everyone a number that we feel

very, very good about and that we're very comfortable with.
Could there be upside in that? We'll know much more as we come out of the
third quarter. And we'll be able to give you significantly better guidance
coming out of that quarter than we can at this point.
As for guidance in terms of how we think the third quarter's doing, we are
not giving quarterly guidance at this time.
We stopped that at the beginning of this year. What we're doing is just
saying that as we look at the year, we feel like we are definitely on target.
We're making progress.
We're hitting all of the key milestones that we need to hit to at least do
exactly what we said that we're going to do as a company and that we will hit
the guidance that we've given the street at this time on an annual basis.
FOCUS
DAN SILVER: Thank you very much.
DAVID RECTOR: Thank you.
OPERATOR: And with that, ladies and gentlemen, we have no further questions
on our roster. Therefore, Mr. Lashinsky, I'll turn the conference over to you
for any closing remarks.
PAT LASHINSKY: Thank you, everyone for spending time with us today. We're
very excited to be able to deliver these results for you. And we look forward to
having another great call in the third quarter. Thank you very much.
OPERATOR: And, ladies and gentlemen, that does conclude the ZipRealty
Incorporated Second Quarter 2007 Earnings Conference Call. We do appreciate your
participation. And you may disconnect at this time.

such changes.
FOCUS
be realized.

DECISIONS.]

FOCUS

May 9, 2007 Wednesday
TRANSCRIPT: 050907ai.776
LENGTH: 5777 words
BODY:
OPERATOR: Thank you for standing by, and welcome to the ZipRealty, Inc.
first quarter and yearend 2007 earnings conference call.

FOCUS
For opening remarks and introductions, I would now like to turn the
conference over to [Don Tomas]. Please go ahead.
DON TOMAS, ZIPREALTY, INC.: Thanks, and good afternoon, everyone. With me
on the call today is Richard Sommer, Chief Executive Officer, and Pat Lashinsky,
President.
Also on the call today is Dave Rector, Chief Financial Officer.
Please note that earlier today, the company issued a press release describing
its results for the first quarter of 2007.
A copy of that release can be viewed at the company's website at

ziprealty.com.
company constitute forward-looking statements for the purposes of the Safe
Actual results may differ materially from expectations, plans, and prospects
FOCUS
uncertainties, including those described in the company's Form 10-K for the full
fiscal year 2006 and other filings with the Securities and Exchange Commission,
copies of which can also be viewed on the company's website.

United States, or GAAP, ZipRealty uses a non-GAAP measure of net income or loss
it refers to as pro forma earnings, which exclude certain items, including
stock-based compensation charges and non-cash income taxes.
These non-GAAP adjustments are provided to enhance the users' overall

the future.
Further, ZipRealty believes these non-GAAP results provide useful information

indicative of the core operating results and thus presents a more consistent
basis for comparison between quarters.
With that out of the way, I'll turn the call over to Richard.

FOCUS
RICHARD SOMMER, CEO, ZIPREALTY, INC.: Thank you, Don. I'd like to start
today's call by discussing the real estate market, not only for the first three
months of the year but what we're seeing thus far in the second quarter.
I will also explain how first quarter results and expectations for the full
year fit into that picture.
I will then turn the call over to Dave Rector to discuss specifics for the
quarter, and Pat Lashinsky will end the call with some color about our markets
and strategy. So with that out of the way, I'd like to discuss the market thus
far in 2007.
Consistent with prior quarters, I would characterize the macro-environment as

unpredictable and shocking. To illustrate that point, we saw improving trends in
the first quarter, although markets have weakened since March 31.
This trend seems to mirror the national scene according to the National
Association of Realtors and we believe that tightening lending standards and
ripening inventories are playing a role.
Nonetheless, we are very pleased with our market share gain for the first
quarter and we see no reason at the moment to change our full-year guidance,
FOCUS
as Dave will explain in a moment.
Quarterly results aside, however, underlying reasons for expansion remain

intact. Supported by our thesis that investing in residential real estate in its
down cycle will produce solid long-term returns.
This thesis is complimented in the short-term by the fact that we're seeing
no shortage of people looking for homes with scheduled visits up 45%, year over
year.
The additional web traffic is at an all-time high, implying the strength of

our web-based tools and its continued high level of interest in the marketplace.
In turning to the supply/demand equation, we're seeing a continued shift in
the drivers that affect this supply side, as well as an increased degree of
realism with regard to sellers' expectations.
In the terms of the former, we saw the rate of inventory increases slow in
our markets for the first three months ended March 31st with average inventories
increasing by only 43%, year over year, in existing markets.

FOCUS
This contrasts to the trend line in 2006 where we saw year-over-year
increases in inventory exceed 100% in each of the four quarters.
We credit the decrease in part to maturely slowing new construction, which

has allowed excess inventory in any markets to burn off.
During the first quarter, we also saw a psychological shift with sellers
where, for the first time in quite a while, expectations seemed to have come
down, moving closer to where buyer expectations are. So how did this affect
ZipRealty for the period?
Our first quarter showed strong relative market share gains across the board.
Those gains translated to revenues for the period that set a record for any
first quarter in the company's history.
More specifically, closed transactions in comparative existing markets

increased by 5.5%, significantly outperforming the market traction of
approximately 16% for the same period.
If we include new market closes, closed transactions increased by about 18%,

year over year.

FOCUS
We believe these results are selling a product, or pushing through the
current down cycle. But more importantly, our gains for the period reflected our
focus on the client and our value on the marketplace.
With that said, I preface my remarks today by stating that the market is
challenging and we stand by that statement. I would now like to turn the call
over to Dave Rector. Dave?
DAVE RECTOR, CFO, ZIPREALTY, INC.: Thanks, Richard. Before discussing our
first quarter results, I want to summarize some changes we've made to our
external reporting format.
We believe these changes allow for a more comprehensive understanding of our

business model without giving away competitive information or specific market
trends.
The principle changes include reclassifying sales support expenses, which

have historically been grouped in general and administrative expenses in the
sales and marketing. This was previously categorized as marketing and customer
acquisition.

FOCUS
This reclassification results in combining all of our sales and marketing
activities which directly support our revenue generation.
Secondly, we're breaking out our net transaction revenues, cost to revenues,
sales and marketing between comparable existing markets and new markets.
This provides visibility to the respective revenue contribution, variable

expense structure between our stabilized existing markets and emerging new
markets.
We'll be providing, shortly, on the investor relations section of our website

additional supplemental schedules, detailing the performance of our comparable
existing and new markets.
With that out of the way, let's discuss the first quarter results. Overall,
net revenues increased by 21.7% from the year-ago quarter to $23.4 million.
Excluding approximately $700,000 of referral and other income, net

transaction revenue at the district level increased 21.6% to $22.7 million for
the quarter.

FOCUS
Over half of the increase, approximately $2.3 million, or 12.6%, came from
comparable existing markets, a similar concept of same-store sales.
This was driven primarily by market share gains in existing markets in the
higher-than-expected average home prices or our transactions closed in the those
markets.
In our existing markets, profit margin contribution at the unit level

expanded by about 160 basis points over the year-ago period to 14.4% in the
first quarter compared to 12.8% last year.
However, given the seasonality of our business, we believe that the full-year
contribution margin represents a much better major of our operating performance
and we encourage you to track the number throughout 2007.
In fact, in 2006, we generated a profit margin of over 20% at the unit level
in our existing market, and that was primarily due to strength in the middle
portion of the year.
Net transaction revenues were $1.7 million for the quarter for our new
markets. New markets are defined as having been open for less than one full
calendar year.
FOCUS
For purposes of our comparative analysis, we transferred new markets to
existing markets on January 1 after one full year of operations.
Accordingly, our 2005 new markets, Las Vegas, Houston, and Miami, are now
included in the comparative existing market.
As you'll see, our new markets experienced a loss at the unit level of
approximately $600,000 versus $200,000 a year ago.
As stated previously, we expect this loss to increase in subsequent quarters

as we execute our development strategy outlined earlier in the year.
If you'll recall, we expect to invest $500,000 to $1 million in a typical new

market, targeting profitability at the unit level, within 12 to 18 months.
Underlying the higher net transaction revenues for the first quarter compared
to the prior period, our strong performance in California, which represented
40.2% of our total net transaction revenue versus 43.1% a year ago.
In California, our closed transactions increased by about 10% for the

quarter, significantly outpacing the 20% market contraction in the state.

FOCUS
We also had favorable revenue performances in some of our new markets, mainly
Orlando, Minneapolis, and Austin.
New markets in total represented approximately 7.4% of total transaction

revenue for the quarter.
In terms of market share, for existing markets outside of California, our

closed transactions increased by around 4%, again outperforming the market
contraction of approximately 15%, the same period.
Average net revenue per transaction grew by 6.7% in our comparative existing
markets to $7,546, up from $7,069 in the prior year first quarter.
New markets averaged $5,128 for the current quarter.
We added 394 agents net over the last year, bringing the total to 1,875 as of
March 31, 2007.
Of the total net additions, 145 agents were added in our comparable existing
markets and 249 in our new markets.
FOCUS
Productivity for the first quarter, on average, was 0.57 transactions per
agent per month.
Next, I'd like to review our cost structure. Cost of revenues were $13.1
million, or 55.9% of net revenues, for the first quarter, flat on a percentage
basis to the year-ago period.
Product development expenses for the first quarter totaled 7.2% of net
revenues versus 7.3% of net revenues for the comparable prior-year period.
Sales and marketing expenses for the first quarter, a total of $8.8 million,
or 37.8% of net revenues, up from 36.9% in the comparable prior-year period.
This was primarily due to our opening new markets in the corresponding
salaries, benefits, and overhead associated with establishing offices in those
markets.
Also contributing to the increase were customer acquisition costs, which are
typically higher in the first quarter as we invested with spring and summer
sales season that are critical, longer term, in building our national footprint.

FOCUS
General and administrative expense for the first quarter amounted to $4
million, or 17% of net revenues, as compared to 17.2% in the prior year first
quarter. Our goal is to drive significant leverage as we scale the business.
In total, product development, sales and marketing, and general and

administrative expenses were 61.7% of net revenues in the first quarter, about
40 basis points higher than last year's first quarter.
On a pro forma earnings basis, which excludes the effects of non-cash income
taxes and stock compensation expense, we lost $2.3 million for the first
quarter, or $0.10 per basic share, versus a loss per share of $0.09 a year ago.
Please notice we outlined in our year-end call, we recorded a full valuation
allowance against our deferred tax assets and expected taxable loss for the
year.
As a consequence, no tax benefit is provided for the quarter ended March 31,
2007.
In terms of our balance sheet, we ended the quarter with $85.5 million of
cash, cash equivalents, and short-term investments, and we have no long-term
debt.

FOCUS
We continue to anticipate investing approximately $10 million to $13 million
in cash in 2007 as we execute on a market expansion plan, along with enhanced
technology, recruitment, and training.
Let me finish by reiterating the guidance we shared on our March 14th

conference call. For the full year, we estimate the revenues will range from
$105 million to $110 million.
We anticipate average agent productivity of roughly 0.6 to 0.7 transactions
per agent per month and average net transaction revenue in the range of $6,000
to $6,500.
We also expect an agent count at the end of the year between 2,200 to 2,500.
Gross margins should be in the 44% to 45% range for the year.
And in terms of other operating expenses, we anticipate the sales and

marketing expense will be approximately 37% to 39% of revenues, the product
development expense in the 7% of revenues range.
We expect G&A expenses to be approximately 13% as a percentage of revenues.

FOCUS
Because of our accelerated expansion strategy, we anticipate 2007 GAAP loss
between $10 million and $13 million, or $0.45 to $0.60 per share, based on 23
million average shares outstanding.
On a pro forma basis, we expect our loss for the year to range from $6
million to $9 million, or $0.25 to $0.40 per share.
One final note. While we're not planning on providing quarterly guidance, we
do want to emphasize that the second quarter started off much slower than the
first, so please take that into account.
As a result of our new market expansion, most of the yearly revenue growth
will occur in the last half of the year. And I'll turn the call over to Pat.
PAT LASHINSKY, PRESIDENT, ZIPREALTY, INC.: Thanks, Dave. Before I talk

briefly about our new markets, I thought I would reiterate the thinking behind
our 2007 expansion strategies.
If I had to sum it up, we're trying to accelerate our market base in a

prudent, yet aggressive, manner but in such a way that we'll never sacrifice our
form of differentiation in the marketplace, customer service.

FOCUS
What I mean by that is the following -- in order to execute our development
in 2007, we will have to recruit, screen, hire, train, and prepare anywhere from
600 to 800 agents.
We will also have to modestly add infrastructure in the various investments

we talked about in our last two calls.
And despite the fact that hiring people fairly rapidly is something we've
done for quite awhile, it's absolutely critical that each person is properly
trained and doctrinated into our culture, extending to the field with an
absolute command as the tools to their disposal.
Not doing so will compromise customer experience and damage our brand at a
time that we have a real opportunity to gain share nationally.
Just as importantly, the wrong person or lack of training and preparation

will detract from productivity and increase turnover, and that's a clear waste
of time, money, and other corporate resources.
Additionally, we don't want to divert management's attention from continuing
to grow and develop our existing markets, which is a significant point of
emphasis in 2007.
FOCUS
The key, as always, is to grow smart, and we believe we've struck a great
balance this year and we're well on our way to that goal.
In fact, with four full months a year under our belt, we remain highly
confident that we've chosen the right cities to invest our capital.
So let me give you a quick update on each market and my discussions with some
comments about platform development.
Naples and Tucson were launched in Q1 and are off to a strong start. Denver
launched two weeks ago and we've already had early success in recruiting
experienced agents who are attracted to our buyer eccentric lead-based models.
They face a challenging market environment. Jacksonville is on track to

launch in the second quarter, with Richmond and Salt Lake City following soon
thereafter.
We are pleased to announce plans to enter Virginia Beach later this summer,
followed by expansion into North Carolina this fall. More specifically, the
Charlotte and Raleigh/Durham markets.

FOCUS
This further refines our 2007 new market estimate from 8 to 12 to 10 to 12.
As I stated earlier in the year, these cities represent another step towards
our national market strategy that by the end of the year should give us the
preliminary footprint we need to maximize the value of our network.
In other words, a broader footprint should better leverage the organization,

driving efficiencies and sustainable earnings growth.
Before I turn the call back over to Richard, I'd like to discuss
productivity, both the industry's and ours.
First, we believe that overall industry productivity has declined

significantly over the past year as record numbers of real estate agents have
been chasing declining transaction volume.
As a result, membership in the National Association of Realtors is expected

to drop by 4.3% in 2007 after nine consecutive years of growth and decline by
another 10% in 2008.
Ultimately, this unprecedented decline in membership implies fewer

higher-quality agents and improved productivity industry-wide as the market
FOCUS
corrects.
In terms of our own productivity, none of us were happy with the 0.57
transactions for the period, despite the fact that it was higher than the
industry's average.
But as we sit here and look at our performance, it's this category that's our
biggest opportunity.
Improving it starts with doing the little things right every day with every
client, which is our singular focus.
And supporting that effort is enhanced training, better technology, and the
business model itself, which unites everyone in a common culture under a common
platform.
This is our differentiating factor in the marketplace, one that we believe

will improve productivity over time and scale our model for long-term
profitability.
With that, I'd like to turn the call back over to Richard.

FOCUS
RICHARD SOMMER: Thanks, Pat. Before going to Q&A, I'd like to remind everyone
that we are pleased with our progress thus far in 2007.
And despite a solid quarterly result, we see no reason to change our

guidance, as Dave has mentioned. So at this point, we'll address any questions
you may have. Operator?
OPERATOR: Thank you. (OPERATOR INSTRUCTIONS). We'll pause for just a moment
to assemble our queue. We'll go first to Jeetil Patel with Deutsche Bank.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: Thank you, guys. A couple of questions.
Can you talk about, I guess, any sort of impact on the escrow?
Is the amount of transactions being closed, from open to closed based on just
the loan restrictions and the marketplace being placed as we progress through
the first quarter and here into Q2?
And second, you had talked about a weak start to Q2. Is that somewhat
broad-based across most of the territories?
Or is it in particular regions so we can get a better handle how you're

performing some of your older markets, the newer markets, and some
FOCUS
non-California markets.
PAT LASHINSKY: Great. Hi, Jeetil. Thanks. As we look at the transactions that
were closed in the first quarter, you know, one of the things that we stated on
the last call is that we were not overly impacted by the sub-prime market
overall.
It's a very, very small percentage of our business and we did a very, very
good job of closing the deals that got opened in the first quarter. It's a
strength that we think that we've really been able to leverage and do a very
good job at.
We are being very proactive with our agents to make sure that they are very
aware up front on all of their consumer needs and that we're getting in front of
the lending issue.
So rather than let the lending issue drive us, we're going to make sure that
we're in charge of it and doing what we can.
Where the lending issue comes into place is that it makes it so that some
buyers who previously were able to get loans are not currently able to get loans
or may have to get a more expensive loan than previously what they were able
FOCUS
to get, but that is something that we wouldn't see the net result of probably
for a few more months.
That tightening of the credit is really just taking place in the near term.
In terms of the market and was it broad-based or was it local, it really was
a broad-based kind of issue that we saw everywhere.
Both California and non-California saw slowdowns starting in kind of mid

March and going through April that were basically everywhere and something that
we're continuing to watch very closely.
JEETIL PATEL: I guess is it a deceleration off of just the trends that you've
seen in the first quarter? Or is it more of a change relative to the
year-on-year comparison?
PAT LASHINSKY: It's a deceleration for sure from what we saw in the first
quarter. And it's, you know, on a year-over-year basis, it appears that there
has been some deceleration there.
JEETIL PATEL: Thanks.

FOCUS
OPERATOR: (OPERATOR INSTRUCTIONS). We'll go next to Michael Millman with
Soleil Securities.
MICHAEL MILLMAN, ANALYST, SOLEIL SECURITIES: Thank you. Maybe following up on

that last question, the closings that you had in the first quarter, can you give
us some idea of when they were contracted for, the percentage that were contract
in the first quarter, and what was contracted in the third quarter, fourth
quarter, etc. and talk about what contracts you're seeing currently?
PAT LASHINSKY: Hi, Michael. Most of our closings take place in about a 30- to
45-day window. That is a vast majority of everything.
So if you look at closings that took place in January, the majority of those
would have come from December, maybe late November, with some small portion
coming in January.
So for most of those closings, we usually look at a 30 to 45-day window as

being the aggregate that eats it up.
There some cases of new homes. For example, it could be three, four, five
months out, but that doesn't happen as much, particularly in the first quarter,
as it does at the end of the year.
FOCUS
MICHAEL MILLMAN: And did you see, as the quarter went on, any extension of
that time period?
PAT LASHINSKY: No, we haven't. We haven't seen an extension of the closing

timeframe. As a matter of fact, in some areas, we're actually seeing that we're
able to get a little bit faster because there's less pressure being put on
throughout the entire system as the volume slows down.
There's less pressure on appraisers, there's less pressure on mortgage,

there's less pressure on inspectors, and so there's more availability to get
deals done quicker because people have more availability, which allows us to get
the key things done that we need to help a client close a home.
MICHAEL MILLMAN: And what's the completion level? In other words, what
percentage of contracts go to closing?
PAT LASHINSKY: That's something that we have made a decision not to disclose
that.
MICHAEL MILLMAN: Can you talk about trends?

FOCUS
PAT LASHINSKY: You know, it's, I will tell you that, you know, we don't, for
us as a company, we've done a good job of increasing that over the last couple
of quarters and we've made improvements there.
We've focused our management attention in making sure that clients who do get
a contract signed are getting to the finish line and they're able to close a
home.
And we focus that by making sure that our closing service managers, our
staffs, our agents have all the information they need to be able to work with
those clients. And we have seen a steady improvement in those numbers as a
result of those efforts.
MICHAEL MILLMAN: And that improvement continues into the second quarter?
PAT LASHINSKY: It has so far.
MICHAEL MILLMAN: And, I guess, a question -- this is a real softball for you,
and that's why you've outperformed the market and existing markets, in your
opinion.

FOCUS
Is it because you're offering rebates? Is it because your salesmen full-time
and maybe a number of other factors that you can share with us as to --
PAT LASHINSKY: I think a lot of reasons, but I think the bottom line is the
business model that was started many years ago and invested is ahead of the rest
of the industry and has really embraced technology and centralizing technology,
integrated CRM and lead management.
I think the centralized marketing aspect of the business has changed

significant.
So we're seeing, you know, right now, we're seeing a lot of struggling out
there in the rest of the market. Everyone's trying to figure out how to make
money that they can market transaction.
We see a lot of retrenchment cost cutting. We're trying to take advantage of

that by continuing to push and expand the market.
OPERATOR: (OPERATOR INSTRUCTIONS). We'll go next to [Daniel Beltzman] with

[Birch Run Capital].

FOCUS
DANIEL BELTZMAN, ANALYST, BIRCH RUN CAPITAL: Hi, guys. I just want to thank
you publicly for the greater disclosure. I look forward to seeing it.
RICHARD SOMMER: Thanks, Dan.
OPERATOR: And we'll go next to Jack Pitts with Steadfast Financial.
JACK PITTS, ANALYST, STEADFAST FINANCIAL: Hi. Actually, I missed, I couldn't

write down fast enough, the metrics on the U.S. volume growth and the California
market growth versus your own growth in both California and then outside of
California. Do you have those numbers again for the margin?
DAVE RECTOR: Let me just look back here and get you the -- California was
40.2% of our total transaction revenues versus 43.1% a year ago.
Our closed transactions, transaction volume sales in California increased at

about 10%, and we believe that the market is about a 20% contraction for the
quarter.
JACK PITTS: Okay. So you outgrew them by 30% then. What do you think is the
driving factor behind California improving so much? Is that kind of backend
efficiency?
FOCUS
Or is it, you know, better agents? Better training? What do you think is the
main driver there in the last couple quarters?
PAT LASHINSKY: Well, one of the things that happened is California really was
one of the first markets that we saw to really get hit by the slowing and the
downturns. So as it was the first to get hit, it's also the first one that we've
seen start to strengthen back.
Additionally, we made a significant number of changes in management in

California on our team which seems to be working for us. We think that the
changes we've made have added a good layer of management and a good level of
skill, which is being pronounced by the results we're seeing.
And, you know, we've also got a great strong macro-environment in California.
Employment is good. A lot of other areas continue to be strong in the state.
It's not being as affected by the loans as it is in some other places.
So we think there are a lot of macro areas that work, as well.
And, you know, we have focused the management team on making sure that
California got fixed and that it was back to the level and succeeding at the way
we wanted, and we think that that has worked.
FOCUS
You know, now our focus is going to be making sure that other key markets
outside that are performing as well or performing just as well as California is
doing right now.
JACK PITTS: What was your agent growth, year over year, in just California? I
know it was, looks like 27% for your whole company, but do you know what it is
for just California?
DAVE RECTOR: 12.1%.
JACK PITTS: 12.1%?
DAVE RECTOR: Yes, 12.1%.
JACK PITTS: I guess, I mean, there is significant out-performance in

California just in one quarter. It just seems like such a dramatic change. It's
hardly -- it's almost unbelievable.
PAT LASHINSKY: Well, yes. The bottom line is I got here, what? Eight months
ago. We made a series of management changes over the fourth quarter and
beginning of first quarter, and a lot of those management changes are taking
effect.
FOCUS
And this is a people business in terms of leadership so you need to make sure
you have the right leaders in each area.
And as a company in sort of historical terms, we probably weren't as

aggressive when we did that before. So we're being more aggressive about turning
out non-performers, whether their agents are non-performers or whether their
managers.
JACK PITTS: So it's mainly execution. There's not some strange thing that
just happened this quarter that could make that --
PAT LASHINSKY: I will tell you that as we look at the quarter, we're not
necessarily projecting this going forward and thinking that this is going to
maintain this difference. But for the first quarter, we really do believe that
we performed at a very high level and a lot of things went right.
We're going to continue to operate the best we can, but you know, this gap is
a very large gap, as you noted, and it's probably larger than we expect to have
going forward.
JACK PITTS: And the sequential growth last year from March to the June
quarter was about 40%, I think. Do you know kind of what seasonality should
FOCUS
look like approximately this year?
Or has the market gone so sour in April and May such that it's not going to
look anything like that?
PAT LASHINSKY: One of the things is that we've decided that we're not going
to give any quarterly guidance, and we think that that is probably a little too
close to us giving quarterly guidance.
You know, we believe that the annual numbers that we've given and that our
guidance for the year is right on and it's the place that we're going to stand
by. So at this point, we're really not ready to discuss kind of where we think
the second quarter is going to come in.
DAVE RECTOR: With that said, we'll be filing our Form 10-Q tomorrow, and one
of the metrics that we always include in our footnotes is the seasonality of the
business and we do indicate that for '06 and '05 what percentage of the total
year that the first quarter ended up representing.
It's a little bit of a guideline. Obviously, no guarantee but --

FOCUS
JACK PITTS: Since California is your oldest market and you've gone from
out-performance of 2% to 4% to 30% in the last three quarters, I mean, can you
at least say that in '07 you expect those numbers to remain positive,
out-performance and maybe double-digit out-performance versus the overall
California market?
PAT LASHINSKY: I think that we can tell you that we believe that we will
continue to outperform and out-operate in California, but I can't give you any
indication, we don't have any indication, on what that number will be.
Obviously, we're going to do everything we can to optimize that, but we just

don't know at this point what that difference is going to be.
I do think it's important to know the overall market has changed

dramatically. It's an industry that's relatively private, but just having come
from a summit of the 100 largest brokers in the industry, our model stands in
star contracts for the rest of the industry Zip has not paid a lot of attention
to because the old models always worked.
And so, part of the benefit may be that we have a competitive advantage and
we're going to continue to exploit that. And part of it's that our competitors
go of people,g and pulling back and closing office and letting
FOCUS
and so they're not growing.
And the other hard part is that we don't have any market data on the market
as a whole in California to be able to compare against. So it doesn't, you know,
that gap is driven by not only what we do but how the market as a whole is.
And so we get a little bit more market data overall. We just don't have an
idea of how that second quarter is going to compare.
JACK PITTS: Okay. Well, congratulations. And unless I'm missing something, it
looks like the execution's going rather excellently.
RICHARD SOMMER: Thank you.
OPERATOR: (OPERATOR INSTRUCTIONS). We'll go to [Cynthia Ruben] with JMP

Securities.
CYNTHIA RUBEN, ANALYST, JMP SECURITIES: Good afternoon. I was just hoping you
could drill down a little bit and give us a little color on what you saw in your
various markets within California?

FOCUS
PAT LASHINSKY: We have made a decision for some strategic and competitive
reasons not to breakdown into individual markets.
It's something that we feel like we've really raised the level of
transparency in this new release, and we've given it a lot more information than
we've ever given before, but we really made a conscious decision on where to
draw the line in terms of California market.
It's just something that we think is important for us to be able to know. So

unfortunately at this time, we're not in a situation to be able to break down
into more detailed individual markets.
CYNTHIA RUBEN: Can you talk about, say, northern as compared to southern
California?
PAT LASHINSKY: At this point, we're really not ready to go into anything more
than California versus outside of California.
CYNTHIA RUBEN: Okay. Thank you.
RICHARD SOMMER: You're welcome.

FOCUS
OPERATOR: And there are no further questions at this time. I'd like to turn
the conference back over to our speakers for any additional or closing remarks.
RICHARD SOMMER: Thanks for everybody's questions and thanks for attending our
meeting today. And we appreciate everybody's questions and we'll look forward to
talking further.
PAT LASHINSKY: Thanks, everyone.
OPERATOR: Thank you. That concludes today's conference. You may now
disconnect.

such changes.
and risks, which are more specifically identified in the companies' most

FOCUS
be realized.

DECISIONS.]

March 14, 2007 Wednesday
TRANSCRIPT: 031407ar.701
LENGTH: 6343 words
BODY:
OPERATOR: Good day, everyone, and welcome to the ZipRealty Inc. fourth
quarter 2006 pre-announcement earnings conference call. At this time, all
for your questions following the presentation. It is now my pleasure to turn the
floor over to your host, Raph Gross. Please go ahead. I'm sorry. Raph Gross, you
may please proceed.
FOCUS
UNIDENTIFIED COMPANY REPRESENTATIVE: Thanks. Okay, I think we're going to
read this from here. Karen, do you want to read this?
KAREN SETO, VP, GENERAL COUNSEL, ZIPREALTY INC.: In Raph's absence, thanks
and good afternoon, everyone. I'm Karen Seto, Vice President, General Counsel of
ZipRealty, and with me on the call today is Richard Sommer, Chief Executive
Officer, and Pat Lashinsky, President. Also on the call today is David Rector,
our Interim Chief Financial Officer.
Please note that earlier today, the company issued a press release describing
its results for the fourth quarter and full year 2006. A copy of that release
can be viewed on the company's website at www.ziprealty.com. Before we begin,
I'd like to note that during the course of this call, various remarks we make
about future expectations, plans, and prospects for the company constitute
forward-looking statements for the purposes of the Safe Harbor provisions under
the Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from expectations, plans, and prospects contemplated in these
forward-looking statements and are subject to risks and uncertainties, including
those described in the company's Form 10-Q for the third quarter 2006 and other
filings with the Securities and Exchange Commission, copies of which can also be
viewed on the company's website.

FOCUS
Please also note that in supplemented consolidated financial statements
it refers to as pro forma earnings, which excludes certain items, including
stock-based compensation charges, non-cash income taxes, and the one-time items,
such as the litigation expense incurred in 2005. These non-GAAP adjustments are
provided to enhance the user's overall understanding of ZipRealty's current
financial performance and its prospects for the future.
Further, ZipRealty believes these non-GAAP results provide useful information

indicative of its core operating results and thus presents a more consistent
basis for comparison between quarters. With that out of the way, I'll turn the
call over to Richard.
RICHARD SOMMER, CEO, ZIPREALTY INC.: Thank you, Karen. In late February, we
released preliminary fourth quarter results and laid out an accelerated
expansion plan that involved eight to 12 new markets, versus the six we had
communicated in the past. Although we may recap some of the reasoning behind our
all, we'll keep our remarks brief, given that we've addressed themarket just und
er 30 days ago.

FOCUS
So let's talk about actual fourth quarter results. We're very pleased with
our results, which exceeded original expectations and we're in line with
preliminary estimates we laid out in February. Highlights for the period were
market share gains, both in and outside of California, and solid contributions
from recently released open -- recently opened markets. Despite the fact that
our business is one that can be affected by forces outside of our control, we're
comfortable with our strategy and our market position, and look forward to the
remainder of 2007.
I'll now ask Dave Rector to briefly review our fourth quarter results. After
Dave speaks, Pat Loshinski will reiterate a few specifics on our plan. Finally,
I'll wrap up things and open up our call for questions. Dave?
DAVE RECTOR, INTERIM CFO, ZIPREALTY INC.: Thanks, Richard. I'll quickly
highlight some of the key points from our February call, and then address the
fourth quarter specifically. For existing markets outside of California, our
closed transactions decreased by 4%, significantly outperforming the market
contraction of approximately 17% to the same period. In California, after
several quarters of tracking with the market, we finally gained ground,
contracting about 20.5%, roughly 400 basis points better than the market. For
the fourth quarter, California represented slightly less than 40% of our
transaction revenue, compared with 47% of last year's fourth quarter, and 61%
FOCUS
in the fourth quarter of 2004. Conversely, new markets represented approximately
14.4% of total transaction revenue for the quarter.
Turning to productivity for the quarter, on average, we closed 0.6

transactions per agent per month. We added 47 net agents for the quarter and
ended the year with 1,794 agents. This represents an increase in total agent
headcount of 31% from a year ago. Average net revenue per transaction for the
fourth quarter was up modestly over the third quarter at approximately $7,400
versus $7,332.
I'll now cover some of the P&L specifics for the fourth quarter. Net revenues
for the quarter were $23.1 million, an increase of 7% over the fourth quarter of
2005. This outpaced expectations driven in part by very strong performance in
some of the new markets we entered during the year, notably Orlando,
Minneapolis, and Austin. Our gross margin as a percentage of revenues was 45.4%
for the fourth quarter, down about 60 basis points from the prior year. This
decrease in the fourth quarter 2005 was caused primarily by a shift in the mix
of commission splits earned by our Zip agents. For the full year, our gross
margin was 45.3%, which is flat with the prior year.
uct development,ng expenses, primarily consisting of prod

customer acquisition, and G&A expenses, were 61% as a percentage of revenues
FOCUS
in the fourth quarter, an increase of about 17 percentage points from the fourth
quarter of 2005. This increase was due primarily to costs relating to entering
new markets during 2006, expanding our website product development team,
professional costs, including SOX 404 compliance, and stock-based compensation.
For the full year of 2006, other operating expenses were 53% of revenues, an
increase of 13 percentage points over 2005, excluding a one-time litigation
expense incurred last year.
On the bottom line, we reported a GAAP net loss for the quarter of $20.2
million. As we explained in February, this loss includes a non-cash income tax
charge of approximately $17.7 million, attributable to reestablishing the
valuation allowance on our deferred tax assets relating to our net operating
loss carried forwards. This translates to a GAAP loss of $0.96 per basic share
versus earnings per diluted share of $0.73 in the fourth quarter of last year.
The 2005 fourth quarter results reflected a non-cash gain of $16.8 million,
attributable to the release of a significant portion of the previously
established valuation allowance attributable to the deferred tax assets.
On a pro forma earnings basis, which excludes the effects of non-cash income
taxes and stock compensation expense, we lost $1.6 million for the fourth
quarter, or $0.07 per basic share, versus pro forma income per diluted share of
$0.04 a year ago. And for the full year, our pro forma loss per basic share
FOCUS
was $0.01 versus pro forma income per diluted share of $0.32 in 2005. We have
included a reconciliation of GAAP to pro forma results in our earnings release.
In terms of the balance sheet, we remain in great shape. We ended the year with
$88.8 million of cash, cash equivalents, and short-term investments, and no
long-term debt.
Looking to our outlook for 2007, for the full year we estimate that revenues
will range from $105 million to $110 million. We anticipate average agent
productivity of roughly 0.6 to 0.7 transactions per agent per month, and average
net revenue per transaction in the range of $6,000 to $6,500. We also see an
ending agent headcount of between 2,200 and 2,500 agents. We expect the gross
margins in the 44% to 45% range for 2007. In terms of other operating expenses,
we anticipate the marketing and customer acquisition expenses will be 14% to 15%
of revenues, while product development expenses will be approximately 7% of
revenues.
On the bottom line, because of our expansion strategy of 8 to 12 new markets

and the related cost impact, and the continuing uncertainty of the macro
environment in general, we anticipate a 2007 GAAP loss of between $10 million
millionmillion, or $0.45 to $0.60 per share. This is based on 23
average shares outstanding. On a pro forma basis, we expect a loss for the year
between $6 million and $9 million, or $0.25 to $0.40 a share.
FOCUS
A couple of last points on guidance. Although we aren't giving quarterly
guidance, I did want to comment on what we might see in terms of the breakdown
throughout the year. First, in terms of seasonality, we still expect the second
and third quarters to be the strongest, with the weakest being the first and
fourth quarters. For perspective, our first quarter net revenues in the last
three years range from 17.5% to 20.1% of our net revenues for the whole year.
Second, we expect to invest heavily in the first quarter, as we attempt to drive
leads to our agents ahead of the traditionally strong spring selling season. And
finally, we expect gross margins to be light in the first quarter, roughly 42%
to 43%, as payroll expenses are a higher percentage of the total agent cost
during the first months of the year. I'll now turn the call over to Pat.
PAT LASHINSKY, PRESIDENT, ZIPREALTY INC.: Thanks, Dave. As we stated less

than a month ago, our plan in 2007 is to open 8 to 12 new markets. And after a
lengthy analysis of cities across the country, we're highly confident in where
we've chosen to invest our capital. We have looked at economic conditions and
demographics, real estate prices, Internet usage statistics, competition from
local and national brokerage firms, and the existence of local MLSs. We've also
looked at proprietary research to aid in the decision making process. What we've
come up with is a national market strategy that, by the end of 2007, gives us
the preliminary footprint we need to begin maximizing the value of our network.
In other words, our national status should better leverage the organization
FOCUS
and drive efficiency and profits, leading ultimately to sustainable earnings
growth.
So let me remind you of the specific markets we mentioned in February. We

talked about Naples, Florida and Tucson, Arizona as two markets that we plan to
open in the first quarter. In addition to those markets, we've begun our efforts
to expand into Denver, Colorado and Jacksonville, Florida in the spring. We're
pleased to announced today that we're adding Richmond, Virginia and Salt Lake
City, Utah to the list, and we plan to open those markets in mid-summer. I won't
go into specifics of other cities at this point, but like today, we will provide
you with regular market updates on our earnings calls this year.
At the root of any successful market strategy are the people and technology.
And as part of our plan, we expect to invest in three areas -- data utilization,
agent efficiency, and the engine that really drives our business for both
customers and agents, the ZipRealty website. First, in terms of data. We'll look
to better utilize the information that we currently have and the information
that we're acquiring. This includes data that can help us recruit more
efficiently versus the shotgun approach we tended to use in the past. It would
lyzing data to predict the likelihood and timing that a client
might transact or need our services.

FOCUS
Second, we plan on improving agent efficiency, a key determiner of
productivity. We've begun a mobile technology implementation which allows agents
to constantly have proprietary tools available in their phones or PDAs. Agent
efficiency also comes from a better training environment, and our goal is to
ensure that all agents hit their respective markets with a set of differentiated
tools, but more importantly, the ability to translate them into value and
service for our clients on day one.
Finally, we will continue to invest in our website with useful and leading
edge innovations. One recent example of this is ranking homes based on the
amount of interest that clients have shown in that property relative to other
homes in the area. Like every feature we incorporate into our site, it's
consistent with our goals and empowering our customers with useful and specific
information.
Finally, it's important to remember that our technology expenditures center

around delivering the best possible experience to both consumers and agents.
That's our differentiating factor in the marketplace, one that we believe will
scale our model and allow us to drive profitability after this period of
investment. With that, I'd like to turn the call back over to Richard.

FOCUS
RICHARD SOMMER: Thanks, Pat. Before going to Q&A, I'd like to remind everyone
that the market opportunity is significant, and I firmly believe we can continue
to gain market share. To that point, I see no reason why we can't continue to
expand by solving one of the most common problems in real estate today, which is
poor customer service. Historically, this has been driven by disjointed
experiences with fragmented brokers or independent contractors on disparate
platforms. Even today, the current system perpetuates inconsistency, and in most
markets there really isn't an alternative.
ZipRealty, on the other hand, is changing the status quo one market at a
time, and I think our results will prove that out. And the reason I can say this
is because our value proposition starts with unified culture and a common
platform where agents are employees, and the focus is on the existing customer
rather than the next deal. As that platform evolves, interests become aligned,
and the customer at hand is the sole focus. And as we replicate that seemingly
simple concept across the country, we'll have the opportunity to attract
millions of customers that have traditionally had poor experiences and thousands
ng people in the homes of their choice.o well -- placi
2007 is another step in this direction in opportunity to make substantial

progress. And despite some short-term uncertainty with regard to the overall

FOCUS
environment, we're confident in our ability to build a strong culture and
technology innovation, one that provides a unique platform that facilitates a
great residential real estate experience for both customers and agents. And as
we accomplish this goal of clear differentiation in the marketplace, we believe
we'll position our company for sustainable earnings growth in the future. To
conclude, I'm very excited to be a part of such a great organization at this
point, and we will now address questions you may have. Operator?
OPERATOR: Thank you. [OPERATOR INSTRUCTIONS]. Our first question is from

Jeetil Patel with Deutsche Bank.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: Hey, guys. A couple of questions here.
I guess going through the fourth quarter, your California business,
transaction-wise, was down, I believe 20%, revenues down 10%. Do you think that
the overall pricing variance, which seemed like it was generally up, was that
factor more of a price firming environment or just the mix of low end in the
overall mix in California diminishing in the business, first? And second, as you
look at that $6,000 to $6,500 revenue per transaction for this year, can you
just talk about how much are you assuming is mix-driven as you expand into new
markets versus pricing decreases in the overall industry? And then, I have a
quick follow up.

FOCUS
PAT LASHINSKY: So we'll address the California question first, and then we'll
address the second question. In terms of California, we did see a mix adjustment
in the fourth quarter in terms of California for us. Prices appear to be holding
relatively flat as a whole, but we are able to see that we were able to do a
better job in some areas where the home prices tend to be a little bit higher.
So that has been something that we are continuing to focus on and making sure
that we are optimizing it and doing the best job we possibly can do against
that. But it's not something where we think it's a big change in the pricing
market relative to everything else we're seeing in California.
In terms of the net transaction revenue per transaction and the difference
between the two years, perhaps it's really a couple of factors that are
influencing that. First of all, you know, we continue to shift our mix outside
of California, and when you look at the new markets that we're doing, we're
adding significant markets where the average home price is just significantly
lower than what it is in California. And we're also planning for a slight
decrease across the board in home prices, which when you combine those two
ion revenue that [inaudible - background
noise] call.
JEETIL PATEL: Okay. Two follow ups, just I guess, I know it's early, it's
March, and the spring push probably hasn't really gotten going. But, I guess,
FOCUS
can you just give us a sense of whether you're seeing high-quality inventory
pick up in your markets judging by just by the inventory availability and what
the buyer response looks like early on here? And then, second, I guess as you
look at the new 8 to 12 markets, are you timing those in terms of expansion with
where they are in terms of potentially transitioning in the real estate cycle
between areas like Denver versus Naples, etc.?
PAT LASHINSKY: So you've got two questions there. We'll take the what we're
seeing in the spring first, and then we'll deal with the new market, second. So
in terms of this spring, the spring is traditionally the strong selling season.
Right now, we think it's honestly too early to call in terms of what we're going
to see in terms of the market. We can tell you that demand continues to be very
high, and demand from the buyer side continues to be very strong. We continue to
see great activity and lots of requests for that. The homes are up, and the
inventory is up overall, but the gains that we would expect to see kind of at
this time of year are not as high as they've been in the past.
We think part of that is driven just by the fact that inventory levels are so
much higher this year on a year-over-year basis versus last year that some of
that probably came in a little bit earlier this year than it typically has done
in the past, as people are waiting to kind of see what's going on in the market.
But those that had to sell got into the market a little bit earlier. The good
FOCUS
thing is that we think that we're moving back to more of a historical normal
range. This is kind of what it's been if you look back across thirty years and
you take out the last three or four years of exuberance. This is a much more
normal market in terms of what we're seeing, in terms of inventory levels, and
number of days on market.
In terms of the new markets, we've taken into account some factors of where
they're at in the cycle, in terms of trying to make sure that we're going into a
time when it's not at a down part. That being said, our key idea is to make sure
that we're maximizing the opportunity in each one of those markets, and we're
doing it in a way that allows us to continue to sustain and grow that area. It
really is a long-term decision for us in terms of how we look at these markets.
When we go in right now is really an investment towards the future. It's an
investment for 2008, investment for 2009, 2010. And so the short-term answer is
that while we're aware of the different conditions that affect each market,
that's not really driving our decision. It's a factor but not the key factor.
Our key factor is really going to be where do we get the biggest bang and the
biggest return from.
JEETIL PATEL: Done. Okay, thank you very much.

FOCUS
OPERATOR: Moving on, the next question comes from Jim Wilson with JMP
Securities.
JIM WILSON, ANALYST, JMP SECURITIES: Thanks. Maybe two similar questions. In
the recent sales trends, can you tell any fallout from, the obvious question,
the subprime lending environment? Any fallout you can tell occurring, maybe at
the low end of the business you might see?
RICHARD SOMMER: This is Richard Sommer. That's obviously a question we're

thinking and looking and paying close attention to. I think the important parts
are that the subprime business is not a large part of our business when compared
with homebuilders and other companies you might compare us with. So it's a
relatively small percentage. And in terms of our platform on to the subprime, we
have a platform that really allows us to have greater visibility, so if we do
see any adjustments, we can intervene early. But to answer your question, I
think, we're not seeing any significant change at this point in time, but we're
going to watch it closely, and watch -- continue to sort of see how the market
develops.
FOCUS
PAT LASHINSKY: We're also watching very carefully to make sure that
particular areas that may be more dependent on subprime versus others to see how
that's affected. So there's some geographic parts of the country that there's
more concentration in terms of subprime loans and the use of those. And it's too
soon to tell what the effect on that is going to be, but we're watching those
particular geographic areas very, very closely.
JIM WILSON: Okay. And then, as you look at moving into new markets, actually
even in existing margins, any change in the competitive environment? Anybody you
see in the new markets you're entering or anybody that's started to materialize?
I don't see much, but any that started materializing in existing markets like
California?
PAT LASHINSKY: You know, we haven't seen any new models or anything really
different that's gotten a lot of share or that is in a large segment in any of
the markets that we're going into. There's lots of money coming into this space
and there's lots of opportunities. But at this point, we haven't seen any other
brokerages that have really been able to gain a strong foothold and really be
able to make any [inaudible] in any of the markets that we're in at this point.
JIM WILSON: Okay. All right. Very good, thanks.

FOCUS
OPERATOR: Moving on, the next question will come from Michael Millman with
Soleil Securities.
MICHAEL MILLMAN, ANALYST, SOLEIL SECURITIES: Thank you, that's Soleil

Securities. I'd like to follow up on a couple of things that have been discussed
[relatedly]. One is, in terms of fourth quarter, revenues of flat transactions
were up, meaning that the revenue per transaction was down, yet your take, you
saw commissions increase. So I was wondering if there was some change in the
commission structure regarding the market in terms of buyers. And you talk about
whether you're seeing buyers stay on the sidelines longer, move quicker, be more
willing to move up their price, or is it the other way around? And then,
regarding the subprime, can you talk about, in fact, how much of subprime is
actually used for purchased mortgages, and whether you're starting to see any
tightening up of underwriting standards for non-subprime or prime mortgages?
RICHARD SOMMER: Well, Dave, why don't you answer the first part of the
question. I'll answer the second.
DAVE RECTOR: I think on the first part of the question, I think we actually
did see a little more flow through on the actual commissions, which I think
we didn't see maybe as muchlf of the year
discounting, or on the higher-priced homes where it's more competitive, that
FOCUS
over a broader base, and this may be some of our diversification, getting into
lower price markets. But that doesn't seem to be the price-cutting. So we
actually saw a little more of a pass-through on the effective commission rate on
those transactions.
RICHARD SOMMER: In terms of subprime and credit tightening, the bottom line
of the market now is, you want to be the purchase business, and that's what
we're in, the purchase business. We're about purchasing homes, and that's the
solid part of this business to be in, in terms of real estate and the finance
sector. So a lot of sectors that effect mortgage have greater impact on
mortgage, a much greater impact on mortgage, than they do with us.
In terms of the -- I think the question specifically asked about credit

tightening and how that might impact the business, the bottom line is what we're
really seeing is more traditional underwriting standards being adopted by the
mortgage banks. So they're tightening up their standards. Particularly, I think
what's important that might -- that we're watching very closely is, it's going
to be harder to get 0% down financing.
And so the reason that's really important is it means efficiency is more

important than ever in the market, and our model is compelling, because by
giving a rebate back to our consumers, we're really giving them the money to
FOCUS
help them afford to buy a home, and it makes our value proposition much more
compelling than maybe it even was two years ago. So the market changes, in that
sense, we think sort of fits right in our bulls eye for us to take advantage of,
for consumers to --
MICHAEL MILLMAN: Are you actually seeing that, or you're hearing that, "Boy,
we need that 50 basis points, because we can't get zero, we can't get 40 years,
or 50 years?", or whatever the deals were?
RICHARD SOMMER: No, we're get -- we're just watching it closely. But I think
the bottom line is we're not seeing any significant impact to the business. It's
just important that it's out there, we're watching it, we're looking at all the
industries and reports to see, to watch, in terms of how it affects the
business. It's obviously changing relatively quickly, and we're going to
continue to watch it closely.
PAT LASHINSKY: What we are seeing is that there are -- lenders are definitely
tightening down on their zero down loans, and they're non-state, they're
stated-only loans. And stated income has a real effect on that, so the
combination between those is that there is some tightening in those areas. But
the effect of that is still yet to be seen. But we're not projecting that that's
ing to have a large impact. But it is going to make consumers have to be
FOCUS
more aware of how their cash flow is.
MICHAEL MILLMAN: And would that suggest, if there's still buys in terms of
transaction, no change, but in terms of pricing? Would that suggest a change,
that they would buy less a house?
PAT LASHINSKY: Well, for most people the price of the house that they buy is
actually tied towards the monthly payment and towards the interest rates that
are being paid. And so it tends not to be as much a function of the other
pieces. So as long as the interest rate environment stays strong, we expect that
the pricing element will continue to be there. Richard, do you want to add?
RICHARD SOMMER: Yes. You have to see it in a full landscape. So you've got
interest rates at historically still good levels, you've got the economy
creating more homeowners every month, you've got immigration patterns bringing
more people into the country. And then, on the other side, you have credit
standards sort of becoming more like it they have historically been over the
last ten years as opposed to the last three years. And we have to sort of watch
and see what impact that has.
MICHAEL MILLMAN: Okay. And the other question about how buyers reacting, or
buyers taking longer to make a decision, buyers moving, willing to increase
FOCUS
their offers, or do they feel empowered and waiting for the sellers? Just some
color on the buyer-seller dynamic that you're seeing and the shifts that you may
be seeing in that dynamic.
RICHARD SOMMER: Well, I think a lot of that shift has been occurring over the
last year and a half. So if you look at the last year and a half, we went from
an abnormal situation where we had several seller markets year after year. We
shifted to a buyer market. Inventory levels were abnormally low a year and a
half ago, and now we're seeing inventory levels return to more normal levels.
And as a result, we have more of a traditional buyer's market, which is more the
norm.
MICHAEL MILLMAN: But it's not gone. It's traditional not become an extreme
buyer's market.
PAT LASHINSKY: No. Probably the biggest thing that we've seen so far is
actually that buyers and sellers are looking at the market still a little
different. Sellers, despite the fact that inventory levels are up significantly
over last year, they're holding their prices very firm. They're not reducing
prices. And buyers are coming in a little bit more aggressively, saying "I have
more options and more choices. I can be willing to negotiate." The fact that
m is moving the market to a point of
FOCUS
equilibrium. It is definitely not moving to an extreme on either side that we're
seeing.
MICHAEL MILLMAN: With this moving of equilibrium, if they're both holding,

are there any transactions? I mean, obviously there are transactions, but is
there kind of a standoff?
PAT LASHINSKY: It's more a negotiation than a standoff. What it is, is both
players are trying to figure out what's the accurate, fair market price for
this, and what are they willing to do. And buyers are putting in offers and
they're getting sellers to try and move, and sellers are sometimes holding off,
and they may not accept the first one, and they may say, "Hey, I'm going to wait
for a second offer, and have to go back to that buyer in two or three or four
weeks." But what we're finding is that there's a lot more discussion and
dialogue going on before. Neither party can say, "Hey, this is it. Let's take it
or leave it." Both parties are having to move off where they want to move, and
they're having to spend more time negotiating together.
RICHARD SOMMER: Yes, and I think the bottom line is, in terms of total
transactions, you're still seeing a strong number of transactions of both
buy-sell. It's just not at its historic high.

FOCUS
MICHAEL MILLMAN: And you mentioned that we've returned to more traditional
inventories. When we look at the numbers, it looks like they're record unsold
inventories, so I'm not sure in what context you're making that comment.
RICHARD SOMMER: Days on market, in terms of total months of inventory on the
market. That's in the context of what I'm making my comment.
MICHAEL MILLMAN: Okay, thank you.
RICHARD SOMMER: You're welcome.
OPERATOR: Moving on, the next question will come from Kent Holden with
Gagnon.
KENT HOLDEN, ANALYST, GAGNON: Good afternoon. A clarification, I guess. Did

you say that stated income mortgages do have an impact on you?
PAT LASHINSKY: We're saying that the market is saying that stated income is
going to be more constrained, and there's going to be more pressure on that
going forward. That's something that --

FOCUS
KENT HOLDEN: Do you have any idea what percentage of your business are stated
income loans?
PAT LASHINSKY: We, overall, tend to have a lower effect in terms of number of
those. And our credit scores and our clients' credit scores tend to be higher
than the industry average from the partners that we've seen information on. We
don't expect that to be a large portion, but we won't know until we get a little
farther in.
KENT HOLDEN: Okay, thank you.
OPERATOR: [OPERATOR INSTRUCTIONS]. Here's the next question from Richard

Linhart with Opus Capital.
RICHARD LINHART, ANALYST, OPUS CAPITAL: Thank you. Two questions. The first
one, looks like the G&A in the fourth quarter is up about 20% from the third
quarter. Could you give us some feel for what the key elements of that are? And
the second question, are there operating metrics you can point to in your more
mature markets to give us confidence that longer-term, there is a good
profitable business model here company-wide?

FOCUS
PAT LASHINSKY: Okay. The first part of the question, as far as the G&A in the
fourth quarter, there's really a couple of components. One, it is kind of the
start of what I refer to as kind of our compliance season, our Sarbanes-Oxley,
and audit work. Professional fees pick up quite a bit in the fourth quarter and
continue through the first quarter as you complete that year. The other thing
is, we've built up the new district offices that we opened during the year. The
last couple rolled in during the fourth quarter, so we started office expenses
there, as well as we've been beefing up the staff in a couple different areas,
particularly in our product development for a website for our customers.
In terms of the existing market, there's a number of things that we think

that show that we're doing very well there. If you look at the gains that did
and the fact that we're gaining market share in these markets, that's one area
that we've continued to do very, very well in, and we continue to grow, as we
are gaining market share in our markets as we move forward. And in spite of
pretty heavy winds, headwinds, that we're going against, we're continuing to
make good strides there.
Second, we continue to see great activity in our existing market in terms of

our ability to attract clients and to have clients interacting with us, and
those numbers continue to get stronger over a period of time. Third thing is, if
you were to look at the number of clients that come directly to our website as
FOCUS
our brand builds credibility, we're getting a larger and larger percentage of
our clients that are coming directly to the website, which means that we don't
have acquisition costs for those, and it's a real sign of the strength of the
brand throughout the country.
And so we're seeing that in our existing businesses to the point where about
34% of our clients now are coming directly to our site without going through any
other means to get there. They're not coming through a third party and
aggregated, they're not coming through search. They're coming directly to our
site. So when you start to see those kind of numbers in an existing business,
it's a very, very good sign that the brand is building its credibility,
developing its footprint, and gaining share.
RICHARD LINHART: Do you have, just to follow that though, do you have any
markets that are reasonably mature enough that you can look at the operating
metrics and say, and with that, I'm not asking you to name the markets, but say
we've got X number of markets that have reached 5% of the market share in those
markets, and here are the key operating metrics.
PAT LASHINSKY: You know, we look at the business, and we definitely are
analyzing it that way. We haven't shared any of that information yet, and I
think it's something that we're going to have to look at as a management team
FOCUS
and decide if we're going to do for the next call. I will tell you that it's
important for us, the ROI of each of the markets that we're in, and each of the
new markets we go into, is really a key element of how we look at it, and how do
we drive incremental profits from each market is really our key indicator.
But we'll definitely take a look at that as we go forward and decide if we're
going to give you some information like that. Obviously, there are some reasons,
competitively, that we want to be careful about what we say about each
individual market that we're in, but I understand your point in terms of trying
to get a better analysis of the markets that we're in and which ones are
successful and why they're successful. And we'll look at a way to coming across
and getting that information out.
RICHARD LINHART: Great. I think it'd be very helpful, for as an investor. So

I look forward to seeing it.
PAT LASHINSKY: I appreciate the comment, Mr. Linhart, and we will definitely
look into that.
RICHARD LINHART: Great, thank you.

FOCUS
OPERATOR: And that is all the time we have for questions today. I'll turn the
conference back over to our speakers for any closing comments they may have.
RICHARD SOMMER: Thank you, everyone, for joining us today. I appreciate all
the questions, and we'll look forward to talking to you again in a few months.
OPERATOR: And everyone, once again, this will conclude today's program. We
thank you for joining us. Please enjoy the rest of your day.

such changes.
assumptions could prove inaccurate or incorrect and, therefore, there can be
FOCUS
no assurance that the results contemplated in the forward-looking statements
will be realized.

DECISIONS.]
LOAD-DATE: April 13, 2007

TRANSCRIPT: 110806am.721
LENGTH: 9873 words
BODY:
OPERATOR: Good afternoon and welcome to the ZipRealty Incorporated Third

Quarter 2006 Earnings Conference Call. [OPERATOR INSTRUCTIONS] It is now my
pleasure to turn the floor over to your host, Mr. Tom Ryan. Please go ahead,
sir.

FOCUS
TOM RYAN, IR, ZIPREALTY INC.: Thanks. Good afternoon and thank you for
joining us today to discuss ZipRealty 's third quarter results. With me on the
call today is Richard Sommer, Chief Executive Officer, and Gary Beasley,
President and Chief Financial Officer. Please note that earlier today the
Company issued a press release describing its results for the third quarter of
2006 that included guidance for the fourth quarter and full year ended December
31, 2006. A copy of that release can be viewed on the Company's Web site at www.
ziprealty. com.
Company constitute forward-looking statements for the purposes of the Safe
Harbor Provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from expectations, plans and prospects
uncertainties including those described in the Company's Form 10-Q for the
second quarter 2006 and other filings with the Securities and Exchange
Commission, copies of which can also be viewed on the Company's Web site.

presented in accordance with Generally Accepted Accounting Principles in the
United States, or GAAP, ZipRealty uses a non-GAAP measure of net income or
FOCUS
loss it refers to as pro forma earnings, which excludes certain items including
stock-based compensation charges, non-cash income taxes and one-time items such
as the litigation settlement expense incurred in 2005.
A reconciliation of this non-GAAP measure to GAAP is provided in the tables

attached to today's press release. These non-GAAP adjustments are provided to
enhance the user's overall understanding of ZipRealty's current financial
performance and its prospects for the future. Further, ZipRealty believes that
these non-GAAP results provide useful information to both management and
investors by excluding certain items it believes are not indicative of its core
operating results, and thus presents a more consistent basis for comparison
between quarters.
With that out of the way, I'll turn the call over to Richard.
RICHARD SOMMER, CEO, ZIPREALTY INC.: Thank you, Tom, and thanks for joining
us today. Before we review our financial performance, I thought it would be
helpful to share with you a little bit about my background and why I decided to
join ZipRealty just about 60 days ago.
First, I've been working in the convergence of the real estate, mortgage and
Internet sectors for sometime now. Mostly recently, I was CEO of HomeGain, an
FOCUS
online real estate lead generation company, which happened to be ZipRealty's
largest source of leads. Consequently, I gained a solid appreciation for the
Company's customer acquisition capabilities, which I think are second to none in
the brokerage industry. Prior to HomeGain, I held senior executive positions at
IndyMac Bank, one of the largest wholesale mortgage lenders in the country and
one of the leaders in online mortgage originations, and Realtor.com, where I was
President and Managing Director of International Real Estate Operations. During
that time, I helped to build the nation's leading real estate site, Realtor.com.
Further, I helped NAR fund and established the formation of the International
Consortium of Real Estate Associations, a group of 23 leading real estate
associations that promotes professional standards around the world.
Through these experiences, I feel I've been at the forefront of change in the
industry at it's embraced the Internet. And while I have deep relationships in
real estate industry, my passion is innovation and new business models, which is
why I'm so excited about my new role here at ZipRealty. Furthermore, after
meeting with the Board of Directors and the broader team at the Company, I see a
significant opportunity to create value. In fact, I welcome the opportunity to
lead a company that I've always admired and I hope that my presence will help
the entire organization go to the next level.

FOCUS
So how do we do that? Given the fact that I've only been here since Labor
Day, I'm still coming up the learning curve, but what I do see is a company that
has differentiated itself by blending superior customer service with great
technology. It's a pretty basic concept that's really achieved on a large scale,
but when it is, it can be powerful. Firstly, I'm supportive of whatever we could
do to strengthen the bond between agents and our corporate headquarters here in
Emeryville, which I like to think of as our agent support center.
I am also a firm believer in the importance of developing and applying

training and technology that will help agents be productive and consumers have a
better experience buying or selling their homes. And despite the fact the real
estate industry is in somewhat of an uncertain period, we all appreciate that
this is a cyclical business and at some point, we will be navigating more
favorable trends. Until then we have many advantages. First, we have one of the
strongest relative balance sheets in the industry and we're in the process of
reviewing how best to use it. As important as the strength of our balance sheet
is the strength of the management team I've inherited here. They believe
passionately in the business and its potential and I'm looking forward to
playing my part in helping take the business to the next level.
As many of you know, Zip has already expanded successfully into several new
markets and has done so with exceptional returns on invested capital. All this
FOCUS
adds up to a great market position in my mind and one that can lead to
significant profitability over time. But it will take more assessment on my part
before we are in a position to talk about strategic and performance objectives.
So let's talk about the recent past for a moment.
During the third quarter, market conditions remained challenging. Overall
sales volume in our markets contracted with total Q3 market transaction volume
down approximately 25% in our existing markets versus last year. California was
down about 35%, while outside of California decreased about 20%. As we will
discuss later, on a relative basis, we were able to perform better than the
market, allowing us to gain share during the market contraction.
Average inventories rose as well, up 89% in our existing markets

year-over-year compared to roughly a 100% increase we saw in Q2. Finally, months
of inventory, which measures inventory sell-through, increased to about 6.5
months in our existing markets in Q3 from the just under 5 months we saw in Q2,
which demonstrated an increase of about 150% year-over-year. These trends are
consistent with data released recently by the National Association of Realtors.
During September, NAR reported that the annualized rate of existing home sales
declined 14.2% year-over-year and the Pending Home Sales Index, which measures
contracts signed, was down 13.6%.

FOCUS
Finally, in the California region for September, the California Association
of Realtors reported that existing home sales decreased by 31.7% year-over-year.
Clearly, on a macro level, all of these data points indicate ongoing soft
fundamentals. That said, we've continued to make progress despite the market
conditions. In August, we announced through our operating in Austin, Texas, with
a growing team of agents actively working with customers in Travis and
Williamson counties. This is our third market in Texas, having entered
Dallas-Fort Worth in March 2000 and Houston in mid-2005. Austin in particular is
an exciting opportunity for us, as its tech-savvy reputation plays to our
strength and we believe our commitment to provide clients with the latest real
estate tools will benefit homebuyers and sellers throughout Central Texas.
Our Los Angeles and Houston markets, two cities in which we've been operating
for more than a year, are still profitable and performing quite well. And the
recently launched Minneapolis-St. Paul market is off to a great start, which is
promising.
In Florida, we're currently in four markets -- Miami, Orlando, Tampa, and

most recently Palm Beach. We've experienced excellent traction in Tampa and in
Orlando, we set a new record getting to profitability in less than four months
on an investment of less than $300,000. We owe our success to a terrific group
of people working there for us and great people always make the difference. We
FOCUS
continue to expect all of Florida to be profitable by the first half of 2007.
With respect to our latest new markets, we're in the process of hiring our
management team in Philadelphia. This market actually involves a three-state
launch as the Greater Philadelphia Metropolitan area encompasses suburban New
Jersey, Delaware, in addition to Pennsylvania.
I will now turn the call over to Gary, who will review our financials for the
third quarter, update our guidance for the balance of the year and offer some
commentary on Q1.
GARY BEASLEY, PRESIDENT AND CFO, ZIPREALTY INC.: Thanks Richard. Like last
quarter, we grew our share despite a substantial decline in overall transaction
volume. In fact, for markets outside of California, where we've been operating
prior to 2005, our closed transactions decreased by 5%, significantly
outperforming the 20% market contraction for the same period. In California,
after several quarters of tracking with the market, we finally gained ground,
contracting about 33% or 200 basis points better than the market. We're closely
watching the monthly year-over-year contraction figures for California, which
seem to have leveled at about 35% since the beginning of the quarter.

FOCUS
Regardless of where we stand in the cycle, however, it's important to note
that we're diversifying our business. In fact, California now represents only
about 40% of our transaction revenue versus 49% in last year's third quarter and
60% in Q3 of 2004. Conversely, new markets represented 10% of total transaction
revenue for the quarter and we expect it will generate a growing percentage of
our revenues in coming quarters.
Turning to productivity, we saw about 0.7 deals per agent per month, which
was within our range. Our agents who have been with us for at least 12 months
demonstrated productivity of about 1.0, a 43% premium to our overall average. In
terms of headcount, we added 78 agents net for the quarter and ended Q3 with
1,747 agents, up from 1,669 agents in the second quarter. This represents an
increase of 26% from a year ago, suggesting that many agents see ZipRealty as a
credible alternative to traditional models, which rely very heavily on sell-side
business.
Average net revenue per transaction for the third quarter was essentially
flat on a sequential basis at $7,332 versus $7,375 in the second quarter, which
is also slightly below our record-high of $7,475 in Quarters 2 and 3 of last
year. This is consistent with overall sales prices in our existing markets,
which are essentially flat on a year-over-year basis. These, along with the
other metrics I mentioned, drove net revenues of 26.2 million for the quarter,
FOCUS
which was slightly above the high end of our $24 million to $26 million guidance
range.
Moving to the expense side of the P&L, gross margin in the third quarter was
45.6%, a bit higher than expected, due primarily to the mix of commission splits
earned by our Zip agents. For the full year, we maintain our previous
expectations of 44% to 45%. G&A was 7.9 million, up modestly on a sequential
basis, driven primarily by higher stock comp and seasonally increasing S-Ox
expenses. Marketing and business development represented 3.1 million or about
12% of revenues versus 3.6 million or almost 13% of revenues a year ago. We
continue to drive efficiencies in this area as cost per lead dropped again on a
year-over-year basis. Contributing to this success were increases in our
direct-to-site traffic and a continuation of our Web site optimization and SEO
efforts.
Product development costs represented 5% of revenues compared to 2.7% of

revenues in the third quarter of 2005. This was actually a little lower than
expected as we continued to invest in technology and are therefore modeling
additional costs in the fourth quarter in this area. Overall, we reported net
income for the period of approximately $622,000 or $0.03 per diluted share,
which compares to net income of approximately $2.9 million or $0.11 a share in
last year's third quarter. Our previous guidance had estimated GAAP EPS to
FOCUS
come in between breakeven and a loss of $0.05. On a pro forma basis, which
reflects net income before non-cash income taxes and stock compensation
expenses, we earned approximately $1.6 million or $0.07 per share, a bit better
than the breakeven estimate we provided on our last call.
Turning to the balance sheet, our cash and cash equivalents of 88.4 million
once again represents a significant portion of our market capitalization at
roughly $3.76 per diluted share. We have no long-term debt, inventory costs or
material accounts receivable exposure.
Moving on to guidance, we are our tightening our full-year revenue

expectations to between $90 million and $92.5 million versus our previous
guidance of $90 million to $95 million. In terms of other assumptions, we
anticipate agent productivity of roughly 0.6 to 0.7 transactions per agent per
month, average net revenue per transaction of roughly $7,100 to $7,200 and an
ending agent count of between 1,800 and 1,850 agents.
For the full-year 2006, acknowledging the better than expected third quarter
results while remaining cautious about the near-term market condition, we are
improving our year-end GAAP EPS outlook by $0.10, reducing our loss per share
range to between $0.15 and $0.20. The improved outlook for the year on a pro
forma basis decreases our loss per share to between $0.10 and $0.15.
FOCUS
For the fourth quarter, this translates into a projected GAAP loss per share
of between $0.13 and $0.18, and pro forma loss per share of $0.17 and $0.22 on
expected Q4 revenues of approximately $18 million to $20 million. This guidance
is based on approximately 20.4 million basic shares outstanding for the year and
20.5 million for the fourth quarter.
Given the lack of visibility into next year at this time, as well as the fact
we're in the midst of a full business review with Richard just having joined the
Company, we're not prepared at this time to provide any formal guidance for
2007. We hope to be in a better position to discuss our growth strategy and 2007
outlook on our next call.
In terms of color on Q1 however, keep in mind our typical seasonal revenue

pattern. If you recall, this year our first quarter revenues were down
sequentially about 11% from Q4 of 2005. We also typically have higher expenses
in the first quarter, as we tend to invest in customer acquisitions to begin to
fill the future revenue pipeline for the year. Gross margins also tend to be
light in the first quarter as payroll tax withholding limits reset and
productivity reflects seasonal headwinds.
Additionally, we plan on continuing to invest in new markets in the first

quarter with Palm Beach and Philadelphia in their very early ramp-up stages
FOCUS
and at least two new markets slated for a Q1 launch, Naples, Florida and Tucson,
Arizona.
The first quarter is always a challenging one in our business and it will be
particularly challenging this year unless we see an unexpected improvement in
market fundamentals over the next couple of months. However, we're confident in
our ability to continue to make progress through this market contraction with
the objective of emerging on the other end of the cycle in a stronger relative
competitive position than when it began.
With that, I'd like to turn the call back over to Richard, after which we'll
open up the floor to questions.
RICHARD SOMMER: Thanks, Gary. In my opening remarks, I spoke about service

and technology. But when you think about it, both of those focused areas revolve
around improving customer experience. And no matter how much technology a
business brings to table, success is and always will be centered on long-term
relationships. So my initial focus will be on fostering that mentality
throughout our ranks. And that starts the support for our agents, which is
critical.

FOCUS
Our job is to create an environment where new agents can develop successfully
and where successful agents can join something that's helping redefine the
industry. I firmly believe that we can improve the quality, morale and retention
of our agent base by recommitting our belief and their importance in everything
we do. And to that point, we are a customer-centric model and need to remain so.
But we can accomplish this goal while building the finest professional sales
force in this industry.
In terms of specific initiatives, there are several exciting website and

agent platform features we've recently launched. First, a few weeks ago, we
initiated a test in which 10% of our new registrants are given an opportunity to
select the Zip Agent they would like to work with, after we provide them a
handful of choices. Our thesis is that by providing consumers a choice, we may
increase the likelihood of successful client-agent engagement. Should this test
validate our intuition, there may be more to come in this area over time.
Second, we launched a capability aimed at helping our agents get information

about new leads and priority contracts and delivering that information
immediately to their cell phones or other mobile devices. Our agents are excited
about this feature as it can allow them to be more responsive to customers.

FOCUS
Third, we have integrated content from Zilo into our website, providing
consumers with additional data points on home valuation by doing research on our
site. In addition to our ongoing focus on technology and innovation, we are in
the process of conducting a complete review of our recruiting and training
processes with a clear objective of making significant improvements in
execution, quality and retention versus just the numbers of hire. This quality
over quantity effort began before my arrival and I fully support it.
To conclude, I'm very excited to be at the helm of Zip and I believe the
long-term opportunities are considerable. We look forward to laying out more
detail on our next call, and with that I hope I've given you a feel for my
background and what I believe is important for the organization. Operator, let's
open the line for questions.
OPERATOR: [OPERATOR INSTRUCTIONS] And we'll take our first question from
Jeetil Patel with Deutsche Bank. Please go ahead.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: Yes, thank you. Hey, guys, a couple of
questions actually. Can you just give us a sense of what you're seeing in terms
of volumes or pricing relative to expectations? Can you just give us a sense of
how things are changing and what you saw in the quarter between California and
non-California markets relative to volume versus pricing -- volume and pricing
FOCUS
trends to get a better handle of what's moving around dramatically relative to
what you're thinking? And then secondly, I have a couple of more questions but I
may as well start with that.
GARY BEASLEY: Okay. Hi, Jeetil.
JEETIL PATEL: Hi.
GARY BEASLEY: In terms of, if you first look at transaction volumes, what
we've seen in each quarter this year, both inside and outside of California, is
each quarter the year-over-year declines have been greater. So if you look at
overall, it was down about 9% in our markets -- our existing markets, in
aggregate, in the first quarter, down about 13.5% in Q2 and down about 25% in
the third quarter. California, over the same time periods, down 21%, 25%, 35%.
And non-California was only down about 1% in the first quarter, was down about
6% in the second, and about 20% in the third. So I think what you're seeing is
an accelerating decline outside of California and a decelerating decline inside
of California. What we've seen is the last three months -- in the last three
months of the quarter, in California, we're all around 35%. So, one can surmise
that things might have leveled out a little bit in California.

FOCUS
In terms of pricing, we're finally -- in Q3, we finally saw the first quarter
of year-over-year declines in median home price in our markets. There was a
slight decline, really in aggregate at inside and outside of California. What we
did see is, if we look at each month, the month of September was about a 2.5%
decline versus about a 1% decline for the quarter. So I think what you're seeing
is a continuation of price decline which in our view has been long overdue and
is healthy, ultimately, to get some liquidity back in the marketplace.
JEETIL PATEL: This is probably a tougher question to answer, but what do you
think is a kind of a healthy amount that you would want to seeing pricing
correct in the -- I guess, across the board from a pricing standpoint, which
would I guess since you work on the buy-side equation from an agent standpoint,
you would obviously have a sense of where -- what would be market clearing price
from a buyer standpoint? So, how do you think pricing needs to contract to get a
sense of we get back to some transaction volumes kicking in?
And then second, just as you look at your new market strategy, is there --
are you looking at any sort of framework inventory positions in particular
markets that make it much more attractive? I mean, said another way, are you
looking at markets that have already seen a significant uptick in inventory,
meaning that they're actually in significant transition where you start to step
in and say, "Look, we can come in and start to help buyers find those homes
FOCUS
given the significant amount of inventory?"
GARY BEASLEY: Okay. First, it's really hard to answer the pricing question,
Jeetil, because one, it's sort of speculative and my guess would not be
necessarily better than anyone else's. It's probably more than what we've seen
now, which is essentially prices coming down to be about flat year-over-year.
What we are seeing is we do track market by market what percentage of home
listings have been reduced and that has continued to increase over the last
several months in just about all of our markets. In fact, a market like Boston,
about 50% now of all the listings have been -- have decreased. So I think
there's a combination of more homes being reduced and people getting a little
bit more realistic about the listing prices as well as bringing down transaction
prices.
So I'm not going to give you a number about how far it needs to come down
because it also varies a lot by market. In terms of the new markets,
interestingly, we do look at what's going on with inventory and transaction
trends and all that, but what we have found is with our model going into market,
we've experienced similar traction in markets of -- in various stages. For
example, Orlando, as Richard said in our prepared remarks, became profitable
within four months of operation and Orlando has been in the press as being one
of the markets with the worst inventory problem out there. But we attacked it
FOCUS
with an excellent management team and have been able to gain share there very
quickly and get profitable despite what would look from an external standpoint
maybe some not great initial market conditions to enter. So we do -- we look at
a lot of things, but we're in this for the long-term and so we're really not
going to let short-term market aberrations influence too much our rollout as we
look at new markets. We're trying to accomplish a lot of things including
geographic diversification.
JEETIL PATEL: So you're not looking at any sort of acceleration of kind of

market build-out given markets in different regions going into transition
faster?
GARY BEASLEY: Well, we look at a lot of different things. We obviously look

at population growth, job growth, transaction trends, competition, all that kind
f. So that's one of the things we'll factor in.
GARY BEASLEY: Okay.
OPERATOR: Thank you. We'll go ahead next to Ben Schachter with UBS.

FOCUS
BEN SCHACHTER, ANALYST, UBS: Hey guys, first of all, welcome aboard.
RICHARD SOMMER: Thanks.
BEN SCHACHTER: And then, on the questions, I was wondering if you're

beginning to see, with volumes coming down so quickly, first in California and
then excluding California, that the level of brokers beginning to leave the
industry at a macro level, not just -- not at ZipRealty, but overall? And then,
also, if you could begin to discuss how you're thinking about some of the
ancillary businesses given your background in mortgage and any initial thoughts
you might have there? Thanks.
GARY BEASLEY: Can you repeat the second part of the question?
BEN SCHACHTER: If you could just discuss a bit about some of the ancillary
businesses given your background in the mortgage business?
RICHARD SOMMER: Sure. Obviously, I've been here 60 days and part of the full
business review - I'll answer the second part of your question first -- is
really to take a look at everything we're currently doing in terms of ancillary
revenue streams. And as we go through that, we need to figure out what we can do
better. We are launching a new title partnership with First American, which is
FOCUS
the largest -- second largest title company in the United States, but certainly
one of the two largest and that's been - that's something we're very excited
about. We have to continue to look about -- at all of our opportunities and
figure out what makes the most sense because you have to carefully plan those
and the make sure you execute effectively.
In terms of the first part of the question, I thought -- I think what you're
going to see in any market where you've had almost a nine-year run on the
market, you're going to see the number of agents change dramatically and we
predicted heavier turnover in January as dues came due. And so, I would think
we're going to continue to see agents probably leave the market with the number
1.2 million, that number probably will decrease over time. So we're -- also
remember, with agents, there's a lot of part-time agents who, when times get
tough, don't really continue their license and continue their activities or they
continue their license and don't do a whole lot. So I think we'll continue to
see that trend going forward.
GARY BEASLEY: And then, one thing we're definitely seeing is smaller classes
coming out of real estate schools across the country. There's much less interest
in becoming a real estate agent today than there was 18 months ago.

FOCUS
BEN SCHACHTER: Okay, thanks.
GARY BEASLEY: Yes.
OPERATOR: Thank you. We'll take our next question from Jim Wilson with JMP
Securities.
JIM WILSON, ANALYST, JMP SECURITIES: Thanks. Welcome aboard Richard. I was
wondering -- and I know it's -- obviously with listing volumes going down, maybe
this was hard to look at, but have you seen any shift where you're getting more
sell-side listings and representing more sellers given the conditions out there
for your conventional competitors?
GARY BEASLEY: Yes. We're actually seeing - we're taking record numbers of
listings today. We're always -- we view ourselves as a being a bit contrarian
anyway and we view this as an opportunity to grow our sell-side business. It's a
helping us a bit on the recruiting side as well with agents who are bearing
marketing costs for homes that are selling and looking at our model as a way to
get buyers, but it's also -- I think because we do have buyers, I think it's
helping us when we make our listing pictures, we can help get homes sold because
we do have a growing and active stable of many buyers in each of the market. So,
yes, I think this is a -- it's a time for us to -- if people don't want to
FOCUS
take listings as aggressively, we're happy to take them. There's obviously
advantageous to helping get exposure and grow the brand as well by taking those
listings for us.
JIM WILSON: Gary, is there a percentage you could give of the difference
between buy-side and sell-side listings or is that something I can pick up
later?
GARY BEASLEY: We're still around the same percentage. We've been in that 80%
to 85% buy-side. So, over time if that changes materially, we'll let you guys
know. But right now, we're in the point where we are taking a lot of listings
but they're not necessarily all selling either, so that hasn't flowed through
the statements yet.
JIM WILSON: Transactions, yes, okay. And then, I guess the other thing is are
you seeing any movement by conventional realtors to adjust their pricing or come
up with creative ways to combat the slow market? I'm sure not quite equivalent
to yours, but at least heading towards lower commission rates in one way or
another?
GARY BEASLEY: Yes. What we've seen is almost a bit counterintuitive, but
we're seeing more upward pressure on pricing than downward pressure on the
FOCUS
listing side because as you know pricing set by the listing agent. And there is
a bit of a supply/demand dynamic going on that's interesting, is there are fewer
agents actively seeking listings in some of these markets because of the
marketing costs when they're not selling. So, they're commanding a higher -
they're wanting to seek -- get more of a full commission to go through that
process. So, because of that, that's helped our side of the equation in getting
half of the fee, we've actually seen that go up a little bit this quarter. So,
again, it's almost counterintuitive.
But, I think the biggest competitive response we're seeing is probably more
traditional folks cutting back on some of their marketing and lead gen activity,
and in some cases, starting -- closing down branches, which -- because as you
know, in the traditional world, the bricks and mortar expense is fairly
significant, which we don't have because we have the virtual office
infrastructure for our field agents. So it's a little bit of a different
situation. I don't know if, Richard, you want to add something to that?
RICHARD SOMMER: Just another comment as we still continue to see folks in the
industry, brokers and agents more traditional, still spending a significant
amount of their spend offline and they're finding it difficult to shift their
spend over as fast as maybe they would like to.

FOCUS
JIM WILSON: Okay. All right, great, thanks.
GARY BEASLEY: Thanks, Jim.
OPERATOR: Thank you. [OPERATOR INSTRUCTIONS] And we'll take our next question
from David Cohen with Midwood.
DAVID COHEN, ANALYST, MIDWOOD: Hi, gentlemen. I think Richard had made some
comment about the returns on capital in this business and I just want to sort of
discuss that notion. I mean, this Company has raised almost $140 million of
capital, it's got accumulated deficit of $32 million, negative operating income
in the year-to-date period, the recent quarter -- where are the returns in this
business? What kind of returns are there? I mean, were it not for the cash
balance and the interest income, there wouldn't be net income in this Company
right now?
GARY BEASLEY: Well -- this is Gary. The returns that we're talking about, the
returns on invested capital are in our new market expansion. We're obviously in
the early stages of building out a national footprint here. So, I'll give you an
example of Las Vegas, which is our first new market that we opened and you tell
me if you find these returns attractive. We deployed less than $300,000 to open
Las Vegas. This year, it will do, which is in its first full year of
FOCUS
operation, about 3 million of revenue with district income contribution of about
22%. So, call it $650,000 or so on a less than $300,000 investment. I think
that's a pretty good incremental return on capital as we look at adding markets.
We have a centralized corporate infrastructure that we will leverage over time
by building out new markets and going deeper in our existing markets. We're in
the early stages of this Company and there's tremendous operating leverage over
time, as you look at getting from 1,700 or 1,800 agents to maybe thousands of
agents over time.
RICHARD SOMMER: And only thing I'd add to that is having I think been in this
particular sector, the real estate industry has been slow to adopt the Web as
fast as certain other industry sectors, and part of that is due to a lot of the
disaggregation in terms of agents. But, bottom line is it's moved slowly and
we're seeing I think a rapid increase in change in the industry. So, we want to
continue to build out what we think is the best model and being in the probably
second or third inning, we want to continue to build that out and we think there
for this model fitting into that market.and there is a long bright horizon
GARY BEASLEY: I think another thing, just to keep in mind, is over the long
run, we view ourselves as being well positioned. Remember, we've been over the
last year facing one of the largest real estate corrections we've seen in

FOCUS
sometime and we've continued to grow our agent base and try to get better at
what we're doing. And when the market does come back eventually we're looking to
emerge in a much better competitive position than when we entered it, as we said
in our prepared remarks. So --
OPERATOR: Thank you. [OPERATOR INSTRUCTIONS] We'll go next to John Pitts with
Steadfast Financial.
JOHN PITTS, ANALYST, STEADFAST FINANCIAL: Hi, thanks. I was wondering if you
could just first off repeat the change in closed transactions for the Company
and then for the market in both California and non-California? And then a
follow-up.
GARY BEASLEY: Okay, the market transaction volume was down about 25% in our
existing markets.
JOHN PITTS: Okay.
GARY BEASLEY: And California market was down about 35%; outside of California
was down about 20%.

FOCUS
JOHN PITTS: Okay. And you actually were down only 33% in California yourself,
so --
GARY BEASLEY: That's right.
JOHN PITTS: -- you're actually starting to pick up market share there. So, I
was kind of wondering, I noticed that if you look at your website versus the
other websites, the quality of content is much, much better than every other
real estate website out there, in just California alone. And I was wondering if
that kind of difference could increase. I mean, obviously, your competitors are
going to improve upon that and I was wondering if you could a little bit more
about how maybe your agents, in putting listings, could actually -- in other
words, could your agents, as you get more listings and certainly as you grow the
business and grab more traffic, I would think you'd be able to leverage that
into getting on the sell-side of things and with that would come maybe better
data entry because I noticed a lot of listings just have horrible data entry.
Maybe it's an MLS problem, but --
RICHARD SOMMER: Well, I think -- it's Richard. It sounds like there is two
parts to your question. The first I will comment on and maybe let Gary answer
the second. The first in terms of sites, one of the reasons I came to Zip is
because there is a culture of innovation here and there has extremely been a
FOCUS
significant investment in technology over the years that's now starting to pay
off. And you see that in the website, you see that in the platform that we have
for agents. And so, it's more than just a website, it's what's behind that as
well. And while competitors will continue to improve and I'm sure they will
continue to get better and better, we're going to continue to improve and get
better and better as well. And one of the advantages we also have is having an
employee model allows us to have better management information system of
actually what's going on with our professional sales force. And those are two
things that really, I think, we're strong in and we can do better. We will
continue to innovate the website, innovate it to make it more attractive and to
bring in as much organic traffic as we can do so.
JOHN PITTS: Along that line, I know that you can kind of calculate what your
productivity level is for an agent in terms of number of units sold per month,
quarter or year. But do you have any idea or -- how to calculate that for
non-ZipRealty, like for the rest of your competitors and maybe -- in other
words, how are you able to figure out whether your agents are actually more
efficient than the rest of the industry?
GARY BEASLEY: Well, it's difficult to -- because not a lot of companies

report productivity and people -- it could be calculated different ways, et
cetera. I think we've come to the conclusion we're going to need to calculate
FOCUS
it ourselves and there are ways of doing it with the MLS data where we could
actually benchmark ourselves against our competitors, and just doing it that way
and have a similar definition of what an agent -- what an active agent is, et
cetera, because if you remember, as you know about our model, a lot of our
agents are new to the industry and new to our Company. So there is definitely a
ramp up period. So it's even hard to compare our overall productivity with what
might be reported by another brokerage that might be a 75-year-old brokerage
with an average experience level of five or 10 years of their agent. So we want
to be able to benchmark much more accurately agents relative to kind of their
peers across the board and I think we're going to need to sort of do that
ourselves and we're in the process of figuring out a way to do that, we hope,
fairly accurately.
JOHN PITTS: Thanks for the question and congratulations on gaining market
share in California again.
GARY BEASLEY: Thanks.
OPERATOR: Thank you. We'll take our next question from Patrick Stowe with
Priority Capital.

FOCUS
PATRICK STOWE, ANALYST, PRIORITY CAPITAL: Good afternoon. I noticed in your
guidance on ending agent counts, you lowered it a little bit versus what you're
talking about in the second quarter. Is that a sign that you are having some
trouble with increased churn or recruitment, or is that something else?
GARY BEASLEY: No, it's really kind of modest reduction but it's consistent
with what we've been talking about in the last couple of quarters of really
stressing quality over quantity. So we're -- what we really want to make sure
people aren't doing is trying to get inflated headcount numbers and compromising
quality of individual. So -- and the market, as you know, continues to be soft
so --
PATRICK STOWE: Right.
GARY BEASLEY: -- we'd rather, given finite resources, make sure our agents
that we've got in the system are getting plenty of leads and support, and we
will continue over time to build on that. But, that's now just a -- more of a
tweak.
PATRICK STOWE: Yes. And I guess that's kind of a second part to my question.
Nobody knows how long this slowdown will last, but if it extends for any
significant period of time and you pencil in the math on what your average
FOCUS
agent is making, it seems like churn could become a problem at some point, just
people need to support a family. I mean is there -- are your agents able to work
kind of on a part-time basis or are you flexible with them on that? I know you
have the virtual office, but can you just speak to that a little bit?
RICHARD SOMMER: I think a couple of comments. First, it really is a business

model that is a virtual office.
PATRICK STOWE: Right.
RICHARD SOMMER: So, you know that we are different that other folks on that.
Second, we want to get productive agents. So, we want to take control of
attrition over time, so that people are performing and measuring up and we are
giving them the right tools whether it is technology or training to perform and
do well. So, those are always things you need to improve and do better at.
GARY BEASLEY: Yes. And the whole idea of part-time agents is something that
we have talked about in the past and we are always looking at ways of figuring
out how to attract better people, keep people happy, keep them engaged, and
that's something that we may end up testing again at some point here in the
future to see if that is a model. As long as we can -- the biggest issue for us
with part-time agents has been responsiveness. And if someone is not available
FOCUS
to work with our clients half the time, that's not consistent with our model.
So, it would really have to be, if we want that direction, probably something
more in the lines of a job-sharing program where -- it would be a team of a
couple of people so there is always coverage.
PATRICK STOWE: Yes. I guess it's just question of balance, of being able to
keep your good people who can't help it being a down market. They have to get
the volume and make the money. So --
RICHARD SOMMER: Just like there is a correction in terms of the market in

terms of buyers and sellers and prices, a correction in terms of staffing in
this industry. And so, one of the strengths we have in attracting people is the
power of our platform, which I have gotten to take a close look and been through
agent training and technology training. So, I have done that and having looked
at other people in the industry, it's a real advantage that we have over other
folks. So, we invested in it and it was the right thing to do. It provides a
competitive advantage in the marketplace.
PATRICK STOWE: Well, I wish you continued luck.
RICHARD SOMMER: Thank you.

FOCUS
GARY BEASLEY: Thanks, Patrick.
OPERATOR: Thank you. We will go next to Michael Millman with Soleil

Securities.
MICHAEL MILLMAN, ANALYST, SOLEIL SECURITIES: Thank you. I guess a couple of

questions. First, [audio skip] model that [audio skip] tested were initial
capital 300,000. Did you say that the [audio skip] on the $3 million of
contribution was 22% or 660,000 or did I get that incorrect?
GARY BEASLEY: No, that's correct. You cut out for a part of your question,
Michael. But, it sounded like you were referring to my Las Vegas example.
MICHAEL MILLMAN: Yes, I was.
GARY BEASLEY: Yes. The rough numbers there are, this year we should do about
3 million in revenue with about a 22% district income contribution.
MICHAEL MILLMAN: And is this the first year?
GARY BEASLEY: Yes, it opened in early '05.

FOCUS
MICHAEL MILLMAN: And is this comparable to what you've seen, I guess, in
California where you've had much more experience and I think in --
GARY BEASLEY: Well, it's still in the ramp up stage. So I wouldn't say it's
necessarily comparable because we've been in California longer. So we've
obviously made a bit more progress there. But it's an example of where we would
like to see a market kind of in its first full year of operation.
MICHAEL MILLMAN: And is there something about a first year that gets you a
good bump with something new and you have all these agents and obviously, the
great growth from 0 to 3 million has to slow, but could you expect in year to 6
million?
GARY BEASLEY: Well, we are not going to project on an individual market

basis.
MICHAEL MILLMAN: But, let's talk about a hypothetical market that does 3
million in the first year.
GARY BEASLEY: No, we wouldn't expect to keep growing at that pace. But, what
we would anticipate is in the next year, it would certainly grow faster than our
legacy markets would. And so, there will be -- over time, the idea is
FOCUS
obviously developing a broad platform, going deep in our existing markets and
also selling ancillary revenues along the way. And so, in our legacy markets, we
think that that's where over time we can layer on some nice growth with
additional products we will be able to sell or through partnerships, monetizing
some passion to continue to have nice growth in our legacy markets in addition
to this -- the new ones.
RICHARD SOMMER: It's a good question. I mean part of our business review is
to continue to figure out where we want to put investment and the Company has
been very successful at going to markets and we want to continue to be
successful with penetrating into markets.
MICHAEL MILLMAN: And related to that is, your new and in a market where there
is a lot of -- presumably, most of these markets like the national market have
inventory, why -- does it necessarily or new market buyers will be more
aggressive in buying than they might have been with existing infrastructure of
brokers and the sellers become aggressive in reducing their price or is it Zip
then because it's XYZ or [call it a banker] or something?
GARY BEASLEY: Michael, I am not sure I follow your question, I am sorry.

FOCUS
RICHARD SOMMER: Want to repeat it?
MICHAEL MILLMAN: Yes. There is a whole bunch of brokers in Las Vegas. And so,
Zip comes in and to make transactions work, buyers and sellers have to up and
down, why are they likely to do this with Zip more than with the existing
infrastructure of brokers in Las Vegas or some hypothetical city?
RICHARD SOMMER: I think when you go into a market, there's always going to be
some responses to what other people are doing in the market. I think I would say
a couple of things. One, generally in the market, people -- our competitors have
been slow to really move online there. They're moving online but they need to
continue to set that pace. Second, the competitive advantage of the model is
being entirely online. We come in with great focus and execution, hitting on all
cylinders using our technology and our great skills in online lead generation to
really build a penetration. And as this Company has demonstrated great success
in it, so investors should have strong confidence of our ability to do that. And
as we look at markets and how we approach them, there are responses you get from
competitors, but it really depends on the dynamics in each market whether you've
got two brokers who each own 30% or do you have a market where no broker has
more than 5%. The competitive dynamics may change.

FOCUS
GARY BEASLEY: Yes, I think one of the real differentiators of our model,
Michael, is the responsiveness of our agents because we are an employee model,
we work very closely with our agents to give them tools and quite honestly, hold
them accountability for responsiveness when consumers are looking for contact or
information. And in a traditional model, with an independent contractor
workforce and without the technology infrastructure, you don't have that kind of
information let alone having an ability to act on it. So I think our model is
just different, our agents are very focused on getting back to customers
quickly, which in the traditional -- in the surveys we've seen, that tends to be
the number one complaint of customers about agents in our industry, is lack of
responsiveness. And so we've sort of structured a company around trying to
attack that very -- the heart of that issue.
MICHAEL MILLMAN: So I guess the biggest brokers presumably have gotten there
because they're responsive and I guess, there's a whole class of brokers that
haven't been enough and so, that's where you're I suppose seeing the market.
Could you also talk - and I apologize, you may have talked about this, whether
w much?seeing any cash burn and if so, ho
GARY BEASLEY: Well, not year-to-date because if you look at our - we've
actually made a little bit of money year-to-date. We're looking at - we're
forecasting, it's built into our guidance, a loss in Q4. But, this year, we
FOCUS
made a little bit of money year-to-date.
RICHARD SOMMER: And let me spend a minute maybe talking about the first part
of the question which is sort of the competitive dynamics of the industry.
Traditionally real estate, whether in terms of marketing, whether we are using
newspaper ads or word of mouth or open houses, the industry has relied heavily
on those techniques and almost exclusively on those techniques to find buyers
and sellers. And so, when you go into a market, the folks who have high market
share there are private companies. They are traditionally not strong technology
companies and they are having and making adjustment to an entire industry that's
moving on to the Web. And with 80% to 90% of buyers, for example, being on the
Web, whether it's the NAR statistic or the CAR statistic, suggest that there has
been major change in the industry. So, we are seeing a major change in how the
industry does business and the old ways of doing business may not be the most
successful ways of doing business. And Zip has focused on building customer
satisfaction and by building customer satisfaction combined with the technology,
combined with the agents; it's really a completely different model than what
else is out there. And having been out there in the other world, it is a
different business model.
MICHAEL MILLMAN: Okay, thank you.

FOCUS
RICHARD SOMMER: Thank you for asking the question.
OPERATOR: Thank you. We will take our next question from Tom Wyman with
Lamoreaux Partners.
TOM WYMAN, ANALYST, LAMOREAUX PARTNERS: Thank you for taking my call. So, my
question relates to lead generation which sounds like is kind of the key metric
for your Company driving leads to your agents. Could you comment on how that
process is coming along with where it was maybe a year ago? What the lead
generation looks like today? Where it might go over time? And how do you -- what
are the tools that you use to drive lead generation? Thank you.
GARY BEASLEY: Okay. It's obviously, as we mentioned in our prepared remarks,

it was a very good quarter from a lead generation standpoint for us. Our cost
per lead actually went down year-over-year about 22% and down about 10%
sequentially. And this is in an environment where -- on our paid search
component of our mix, the cost per click went up about 24%, but because of our
lead conversion rate we were able to control our cost per lead and the paid
search increased to about 3%. So in addition, we had about 34% of our leads come
direct-to-site this quarter, which compares to about 28% a year ago. So we've
continued to maintain and grow that direct-to-site component and as you know,
those are free leads. And that brings our -- a positive influence on pushing
FOCUS
down our blended cost per lead.
As to how we do it, we don't want to give you too much detail because we
think that that's part of our competitive advantage, but we spend a lot of time
-- we have a dedicated team of people here who spend a lot of time on how to do
it. We also spend a lot of time on optimizing our website and making sure that
the clicks that come through -- that's only part of the equation, it's what do
you do with those clicks, how you land them in the right place and present them
with the right offerings to get them to actually go further in the process. And
that's a really, really -- that's a process, not an event for us. We're always
doing that. And we're also doing some work on our search engine optimization,
which obviously helps us from an organic lead standpoint. So, it's a pretty full
-- it's a full program that we're constantly evolving and it's a rapidly
changing field. So we have to stay all over it.
TOM WYMAN: What are your unique visitors per month as compared to Realtor.com
for example?
GARY BEASLEY: We don't talk about unique visitors. We are not an advertising
model. So, it's not -- particularly, I don't know if it is necessarily that
relevant for you guys. But --

FOCUS
TOM WYMAN: Isn't that the key way that the lead generations takes place, one
of the key ways, is people come to the Web site and then they click on through
and meet their agent online?
GARY BEASLEY: That is -- yes, about a third of our people come to the Web
site directly and register for us. It's all about getting the right people there
and converting them through.
RICHARD SOMMER: It's the bottom of the funnel. We want to make sure we are
converting these people through and having come from the lead generation world
in this Company, I came here in part because the Company has demonstrated
tremendous skills that's second to none or anybody in this industry sector on
how to do that better. But, as opposed to the advertising models, we are really
focused on getting deals done.
TOM WYMAN: Okay. Just one other question. Agent churn, can you comment on
what the trends have been like there? Obviously, more difficult market, I am
assuming that more agents have been peeling out of your Company and out of the
business, but do you provide metrics along those lines?
GARY BEASLEY: We definitely talk directionally and give color on churn. Churn
was a bit higher this quarter than last quarter. But the composition of the
FOCUS
churn I think was healthier. One of the things we talked about in our last call
was kind of recommitting ourselves to productivity and really -- and making sure
that the agents we do have in our team are productive agents and are doing the
right things. And so, if you look at the composition of our churn, almost
two-thirds of the churn this last quarter were from agents of very, very low
productivity. And a majority, over 60% of our churn came from agents with less
than seven months of tenure. So the people -- sort of converse, the people who
are staying are more productive and more tenured. And that's an effort that we
want to continue and for us it's all about making the system attractive for
people who are productive agents and getting those who have that potential to
get productive. But, as you do point out, in a market downturn, a lot of people
do leave the industry, not just individual brokerages but leave the industry in
general. So that is something that we're dealing with.
RICHARD SOMMER: You got sort of two parts to it. NAR has predicted sort of
some pretty hefty dramatic reductions, which I don't have the statistics off the
top of my head, in terms of people leaving the industry. But, there are some
dramatic predictions for a high level of churn anyway -- I think everyone has
experienced a high level of churn. I think what you are saying is people come in
into the industry, find out that this is a hard time to do it and you really
keep the ones who really want to do real estate and really want to stay, and our
goal on churn is we want to keep the productive agents. We want to keep them
FOCUS
and retain them. And that's something that we are evaluating in terms of our
focus.
TOM WYMAN: Are there compensation tools that you can use to make sure that
don't lose them as they get better at their jobs? Like such as maybe using the
stock and some [inaudible].
GARY BEASLEY: Absolutely. We are constantly looking at our compensation

program and how to use, whether it be stock options or other incentives, to make
sure that we are rewarding the right behavior. So, that's an ongoing process and
something we are going to spend a lot of time on over the next months and
quarters [inaudible] make sure we are doing that.
TOM WYMAN: I just have one last question, sorry for so many. I went to the
road show a couple of years back, if I remember correctly, I think I came away
feeling that the biggest competitive advantage was the pricing advantage for the
buyer or the seller, obviously, other good tools at the website too. But, is
that a fair description of kind of the key competitive advantage?
RICHARD SOMMER: I will let Gary give his perspective too. As a newcomer,
there are several, that is one in terms of consumer value proposition that helps
us track customers and they see value in coming to us. But, in terms of
FOCUS
competitive advantages, I think there is several of which -- the ability to
market on the Internet, take that traffic, put it on a platform that leads to
skilled agents following up and leading to close the transaction. That process
in terms of a platform is where this Company stands out. So, I think that's a
little bit broader in terms of our competitive advantage than just what we are
pointing on the price. It's how do we optimize, how do we bring efficiency and
by optimizing what people do on the Internet is how we make a successful
business.
GARY BEASLEY: Yes, I think -- just to add to that, I think that we like to --
we have an unusual model in that we're offering full service at a lower price,
which is sometimes a difficult value proposition to convey without marginalizing
people's opinion of your service delivery. Because we do have -- we have
full-time agents who -- and we have a 94% customer satisfaction. So, we're doing
something right in the service delivery but we also charge less.
So I think that the idea that we can do that over time and over time attract
great agents and deliver great service and use information to our advantage, I
think one of the things that we should be able to do with our model, because of
the way we are set up, is be able to use information to make our agents the
smartest agents out there, and hence our clients the most well informed and best
educated clients. And if we can do all that and have the cost advantages that
FOCUS
we have being an Internet-based platform and get the scale and leverage the
information capabilities across the enterprise, then that should put us in a --
hopefully in a unique position to offer great service and continue to offer a
great value.
OPERATOR: Thank you. That is all the time we have for questions. At this
time, I'd like to turn the program back over to Richard Sommer for closing
comments.
RICHARD SOMMER: Well, I just want to thank everybody for being on the call.
I've enjoyed meeting everybody at least on the call in this manner, but I thank
everybody for participation. We look forward to future calls.
OPERATOR: That does conclude today's conference. You may disconnect your line
at any time.

such changes.
FOCUS
be realized.

DECISIONS.]

FOCUS

TRANSCRIPT: 080806as.766
LENGTH: 9404 words
BODY:
OPERATOR: Good afternoon, everyone, and welcome to ZipRealty Inc. Second

Quarter 2006 Earnings Conference call. Today's call is being recorded. At this
time, all participants have been placed in a listen only mode and the flow will
be opened for actions following the presentation. It is now my pleasure to turn
the floor over to your post, Mr. Tom Ryan. Please go ahead, sir.

FOCUS
TOM RYAN, IR, ZIPREALTY INC.: Thanks. Good afternoon, and thank you for
joining us today to discuss ZipRealty 's second quarter results. With me on the
call today is Gary Beasley, President and Chief Financial Officer. Please note
that earlier today the company issued a press release describing its results for
the second quarter of 2006 that included guidance for the third quarter, and
full year ended December 31, 2006. A copy of that release can be viewed on the
company's website at www. ZipRealty. com.
remarks we make about future expectations, plans, and prospects for the company
constitute forward-looking statements, for the purposes of the Safe Harbor
Provisions under the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from expectations, plans, and prospects
contemplated in these forward-looking statements, and are subject to risks and
uncertainties including those described in the companies form 10-Q for the first
quarter 2006, and other filings with the Securities and Exchange Commission,
copies of which can also be viewed on the company's website.
Please also note that, the supplement [technical difficulty] consolidated

financial statements presented in accordance with generally accepted accounting
principles in the United States, or GAAP. ZipRealty uses a non-GAAP measure of
net income or loss it refers to is pro forma earnings, which excludes certain
FOCUS
items, including stock based compensation charges, noncash income taxes, and
one-time items such as litigation settlement and expense incurred in 2005.

performance, and its prospects for the future. Further, ZipRealty believes these
non-GAAP results provide useful information to both management and investors, by
excluding certain items it believes are not indicative of its core operating
results, and thus presents a more consistent basis for comparison between
quarters.
With that out of the way, I'll turn the call to Gary.
GARY BEASLEY, PRESIDENT AND CFO, ZIPREALTY INC.: Thanks, Tom. Today, I'd like
to review our performance, and update you on several key initiatives. After
that, I'll end with a review of our guidance for the third quarter and fiscal
year, and update everyone on the status of our CEO search. Finally, we will open
the call for questions. First off, we were pleased with our second quarter
performance which exceeded expectations on almost every metric, including our
guidance range from both the top and bottom line perspective. Despite these
results however the overall environment remains challenging and we don't see
FOCUS
evidence yet that we've seen a market bottom.
In fact, sales volumes continued to contract with total Q2 market transaction

volume down approximately 15% in our existing markets, versus last year. This
compares to a first quarter year-over-year decline of approximately 10%,
indicating a further softening of conditions. Average inventories have continued
to rise as well, up about 100% in our markets year-over-year, compared to the
roughly 80% year-over-year increase we saw in Q1. Finally, months of inventory,
which measures inventory sell-through and return sales rates, increased 140% in
our existing markets and Q2, versus the same period last year.
These trends are also consistent with national data released recently by the
National Association of Realtors. During the month of June NAR reported that the
r and that rate of existing home sales declined 89% year-over-yea
Pending Home Sales Index, which measures contracts signed during the month, was
down 9.6%. Given the typical timing of transaction closings we believe this is a
leading indicator for the upcoming quarter. Finally, in the California region
for June, the California Association of Realtors reported that existing home
sales decreased by 26.3% year-over-year. So on a micro and macro level, all of
these data points indicate to us that fundamentals will continue to soften at
least in the short-term.

FOCUS
Despite our near-term caution however, we remain bullish on our business
model and of return prospects. As a reminder, the market opportunity is massive
at $60 billion, and it's clear that consumers are increasingly demanding the
type of information, great service and value our company provides. Fortunately,
our market position relative to these demands remains strong, as evidenced by
our record website traffic and consumer engagement levels. Therefore rather than
retreat during this challenging market environment, we believe it's critical to
engage, and make some meaningful investments in several key areas, including
technology and innovation, improved agent productivity, geographic expansion,
and ancillary revenues.
First, technology and innovation. We realize that the efficient transfer of

information and market knowledge to our customers and agents is critical to our
success. To that end, the most recent updates on our website incorporate several
key features. First, through a recent deal with Microsoft we launched enhanced
mapping capabilities, incorporating their Virtual Earth technology, which
provides rich graphics, aerial mapping, and birds eye inventory. We will
continue to search for ways to enhance these visual tools as we know they are
extremely important to our users.
Second, we are always looking for technology solutions that will and power
our consumers, and help them get into the right home. We are pleased to
FOCUS
announce the introduction of two initiatives in this area, one targeted towards
for sale by owner or FSBO sellers, and the other toward the new home segment.
With our new FSBO products, sellers can register on our site and learn how many
ZipRealty buyers are searching for homes in their neighborhood within 10% of the
property's asking price.
Should the FSBO seller decide to accept our terms, which include paying us a
commission, each of our agents with relevant clients will be notified of the
home's availability. The agents can then notify their clients searching for
homes that meet that profile with the touch of a button. The other product we've
launched targets the new home segment, specifically builders and it's currently
being tested in the Phoenix area. The way it works is as follows; in exchange
for signing an agreement to pay ZipRealty a commission we upload the builders
available inventory with the goal of exposing it to our extensive buyer
database.
We believe the program should have increasing appeal to homebuilders given
the growing inventories of unsold properties in a down market. Finally, we
believe we are the first real estate brokerage to offer capability for consumers
to post and view comments on listed properties, a feature that just went live
last week. It represents another step towards building an active community on
our site, which is critical in a new Web 2.0 world.
FOCUS
Our objective is to alter the paradigm of Internet leads, transforming them
into a growing community of users, rather than the perishable goods they've
traditionally been viewed as. And although this transformation will take some
time, we believe the payoff will be significant. Second, agent productivity.
Given the fact that our productivity has slipped, our near-term operational
focus will attempt to reverse that trend. It all starts with hiring the right
people. We are in the process of taking a hard look at how we recruit and hire
our agents, with a goal of measurably improving quality. Part of this exercise
will be to utilize our data warehouse to better analyze agent attributes, and
correlate them to such things as productivity and tenure. We are just beginning
this exercise, but we hope that some meaningful insights will emerge in the
coming months.
Second, in the spirit of quality not quantity generally, I think we've been
overly accepting of agents with poor productivity, or those not exhibiting the
right level of effort on behalf of our clients. While growing our headcount is
important and essential, it should not be done at the expense of finding the
right people. Ultimately, we believe that our long-term growth objectives will
be better met with this philosophy, one that stresses all at the performers who
will be with us for the long haul.

FOCUS
The third initiative under productivity, which may in fact represent our
biggest opportunity, is the reengineering of our agent training program. We are
simply not saying adequate results from our historical efforts and it's becoming
clear that the program needs to be revamped. We plan to invest considerable
energy and resources in this area over the coming months to make ZipRealty a
world-class training organization which we believe is essential for us to unlock
the ultimate potential of our model.
The final productivity lever involves improving lead allocation and

conversion. Toward this end last week we launched a new system which allocates
leads to agents based on 10 objective criteria. Under the system, we have
further refined the ways we reward agent performance, giving disproportionately
more leads to the people most likely to convert them into closed clients. While
this represents an obvious step in the right direction we believe there is much
more we can do to move the needle on late conversion, and it will be an ongoing
focus.
The third area of investment is geographic expansion. During the second

quarter we celebrated our one-year anniversary in Las Vegas and we are very
pleased with the returns we've seen in that market. To put the investment in
perspective, we expect to earn twice as much in Las Vegas this year than the
$300,000 we invested there to reach profitability. Houston, which we open
FOCUS
early last summer, represents our second new market. As we have noted before, we
reached profitability in Houston with an investment less than $500,000 in
business continues to ramp nicely.
In Florida, despite a deep decline in market transactions in large rise in

unsold condominium inventory, we are pleased to announce that our third the
market, Miami, achieved profitability for the first time in the month of May.
Again, we saw a total market level investment of about half $1 million and we
were able to get into the black well inside our objective of 12 months. We are
also experiencing solid traction in Tampa in Orlando, and in the aggregate we
expect all of Florida to be profitable by early to mid-2007.
Moving to other market openings we recently launched in Minneapolis St. Paul,

and are in our soft launch phase in Austin. We are in the process of hiring
management teams in Philadelphia, in Palm Beach, and believe we are on track for
an official launch in those markets by the end of the year. As we said on our
last call, our current thinking is to open at least as many markets in 2007 as
we did in 2006, and we are optimistic that will be the case, however we are
still evaluating our alternatives and look forward to updating you on our next
call.

FOCUS
Our fourth initiative is developing ancillary revenue streams, which include
related business lines, such as mortgage, title, escrow and insurance services.
This fits logically with our growth strategy, which consists of three principal
levers; going deep in existing markets, expanding to new markets, and developing
ancillary revenue streams. We've been studying how to attack several of these
related business areas since late last year, and today are in a position to
announce progress in this area with the formation of a joint venture between
ZipRealty and First American Title, one of the largest title insurance companies
in the country.
This JV will be focused on serving our customers through First American's

local operation in select ZipRealty markets. We anticipate announcing the
location of our first test market shortly and from that we will be able to
learn, test and evaluate. We are excited about the venture and we hope it's the
first step in building a substantial portfolio of ancillary service offerings
over time.
er results. Despite a fairlyo our second quart

substantial decline in overall transaction volume in our markets we've been able
to grow our share. In fact, for markets outside of California, that we've been
operating since before 2005, the Companies closed transactions increased by
8.9%, significantly outperforming the 7.7% market contraction of the same
FOCUS
period. In California, our closed transactions decreased year-over-year by about
26.5%, in line with California's overall market performance.
During the quarter we continued to diversify our revenue base away from
California, with the state representing only about 40% of our transaction
revenue, versus 52% in Q2 of 2005. Conversely, new markets represented 7% of
total transaction revenue for the quarter and they should generate a larger
percentage of our revenues for the year as those markets continue to ramp.
Turning to productivity, the seasonally strong second quarter saw about 0.8
deals per agent per month, which was a bit better than expected. Our agents who
have been with us for at least 12 months demonstrated productivity of about 1.2,
a roughly 50% premium to our overall average. While productivity is clearly
lower than we would like to see, despite contracting market conditions we were
able to generate an increase in closed transaction volume of 5.2% versus the
prior year.
Recruiting for the period [gave us] some traction as we were able to take
advantage of the untitled market. We ended Q2 with 1669 agents, representing 35%
growth from a year ago. And on a net basis, added 188 agents since the end of
Q1, exceeding our estimate of 125. These results indicate that many agents see
ZipRealty as a credible alternative to the traditional model, a position we've
FOCUS
always maintained. In fact, as power continues to shift from seller to buyer,
many agents are shying away from taking listings as there can be significant
costs associated with marketing homes that aren't selling.
Joining ZipRealty's buyer centric model can be an attractive alternative for

agents worried about high selling costs, as well as how to attract buyer clients
in today's shifting marketplace. Average net revenue per transaction for the
second quarter increased to $7,375 from $7,069 in the first quarter, which
represented a modest decrease from the record high of $7,475 we experienced in
Q2 of last year. On a year-over-year basis, median selling prices are up
approximately 4%, the fourth consecutive quarter that the growth rate in median
home prices in our existing markets have declined. These, along with the other
metrics I mentioned, drove net revenues of 26.9 million for the quarter versus
our guidance of 22 to 24 million. This represented a 4.5% increase over the
second quarter of 2005.
Moving to the expense side of the P&L, please be aware that we have allocated
stock comp expense to each line item which unfortunately distorts comparability
of it with prior periods. Gross margin in the second quarter was 45.8%, a bit
higher than expected, due primarily to the mix of commission splits earned by
our Zip agents. We continue to expect a response and to approximate 44 to 45%
for the year. G&A came in at 7.5 million, which represented 27.8% of revenues.
FOCUS
Included in this figure was approximately 416,000 of stock comp expense.
Marketing and business development represented 3.2 million or 12% of revenues

versus 3.3 million or 12.8% of revenues a year ago. We continue to drive
efficiencies in this area as our cost per lead again dropped on a year-over-year
basis due to increases in our direct to site traffic and our ongoing website
optimization and SEO efforts. Product development costs represented 4.7% of
revenues compared to 2.4% of revenues in the second quarter of 2005. Against our
revenues, all of this lead to a net loss for the period of approximately
$220,000 or a penny per share, compared to a net loss of approximately $950,000
or $0.05 a share in the year ago period.
Turning to the balance sheet, our cash and cash equivalents of 86.4 million,
represents a significant portion of our market capitalization, roughly $3.50 per
diluted share. We have no long-term debt, inventory costs, or material accounts
receivable exposure. Moving on to guidance, while we were encouraged by the
better than expected second quarter results, we continue to face a tough market.
In addition, as I outlined previously, we plan to invest a small amount of our
capital to ensure we attack key business opportunities and grow our platform.
For these reasons we are lowering both revenue and earnings guidance for the
remainder of the year. In terms of the top line, we are lowering our fiscal
FOCUS
2006 outlook from a range of between 105 and 115 million to a range of 90 to 95
million. Underlying this assumption, we expect agent productivity to be roughly
0.6 to 0.7 transactions per agent. We'll also see average net revenue per
transaction at roughly $7100 to $7200, and we are projecting an ending agent
count of between 1800 and 1900.
In terms of bottom-line guidance, for the full year we expect our net loss
per share to be between $0.25 and $0.30, including an estimated $0.15 in stock
compensation expense under FAS123R. For the third quarter, we expect revenues to
range from 24 to 26 million. Underlying that assumption is productivity of about
0.7 transactions per agent, net revenues per transaction of about 7,200 to
$7,300, and an ending agent count of 1800 to 1850. At these revenue levels,
reported loss per share is estimated to range between 0 and $0.05.
On a pro forma basis, a measure that we believe is also useful for investors,
we expect full-year loss per share to range from $0.15 to $0.20, with third
quarter pro forma EPS to be approximately breakeven. Implicit in this guidance
is a pro forma loss of approximately $0.15 to $0.20 per share in Q4, which is
predicated upon an assumption of a substantial decline in sequential revenues in
the fourth quarter driven by further erosion in market conditions.

FOCUS
Finally, our full year average shares outstanding are projected to be
approximately 20 .5 million, with our fully diluted share count at approximate
24.5 million. Before we get into questions, I'll give you a quick update on the
status of our CEO search. The Board has been very pleased by the quality of
candidates and the interest level in the position and the process is ongoing.
The Board's objective is to fill the role quickly, but only once the right
candidate has been identified. In the interim I will continue to run the
business on a day-to-day basis and will be working hard to make progress on the
initiatives I touched on earlier.
With that, I'd like to thank everyone for listening and open up the call to
questions.
OPERATOR: [OPERATOR INSTRUCTIONS]
We will go first to Jeetil Patel, with Deutsche Bank.
HERBERT MED, ANALYST, DEUTSCHE BANK: Hey guys, this is actually [Herbert
Med] for Jeetil. A couple of questions. First question is basically in terms of
y kind of issue was wondering on the demand equation,
was wondering if you guys are still getting a lot of kind of folks getting into
cars with agents and just kind of what the equilibrium point is and have you
FOCUS
seen in a bit of improvement from that standpoint?
And the second question is regarding real estate agents and was wondering if
you can comment on some of the hiring trends over there. I think you guys had --
obviously had a pretty good quarter on the hiring front and was wondering if
there's any improvement [inaudible] standpoint. Thanks.
GARY BEASLEY: Okay, start with the demand. We have continued to see increased
demand in terms of activity, although consistent with what we saw last quarter,
it's not necessarily translating into offers being written or offers being
accepted. Our registration volume is up about 14% year-over-year. Our scheduled
visits are up more than 50% and I think -- but offers are down slightly, down
about 3% if you look at the comparison year-over-year. So you're seeing a lot of
people in cars active, but a lot of tentativeness on the part of buyers. Another
trend we're seeing is taking about 50% more homes for a buyer to see before that
buyer is tending to write offers.
So for example last year we were seeing probably nine homes on average and
now today people are looking at roughly 14 to make an offer. So our agents are
busy and there's clearly record website activity in our sector in general and on
our site, but it's not translating into necessarily closed business yet. In
terms of the hiring trends, yes, we did have a good quarter in terms of
FOCUS
hiring.
We hired a lot of people, our attrition was a little bit higher than it was
in the first quarter, but a bit better than it was in the fourth quarter, but
what we are seeing is slowly but steadily more experienced agents who are
considering another alternative to their traditional model, calling us. So that
the phone is ringing more, which is good. It's very in line with what we're
trying to do in terms of focusing on agent quality and productivity. We think
that this should the a good time to possibly attract some more seasoned agents
into our system who could hit the ground running and plug them into our system.
HERBERT MED: Great, thank you.
GARY BEASLEY: Okay.
OPERATOR: We will go next to Michael Millman, with [Solay Securities].
MICHAEL MILLMAN, ANALYST, SOLEIL SECURITIES: Thank you, that's Soleil

Securities. And could you leave the line open because I have some follow-ups,
but could you tell us what your fixed and variable costs or the percentage of
fixed to variable costs are today and what they may have been a year ago and
what you would like to see them?

FOCUS
GARY BEASLEY: Well, one of the -- I would say generally in the field the
biggest expense that we have is a variable expense, which is our sales and
marketing costs. So that varies with the agents that we hire. Our corporate
infrastructure, so the majority of our G&A, is fixed, sort of by definition.
Obviously operating leverage works both ways. One of a think reasons our model,
we believe, is attractive long-term is that there's a fair amount of operating
leverage when revenues grow. Obviously when revenues contract it works the other
way. We plan on growing over time obviously and so our focus is to continue to
invest for the balance of the year in key areas here which are fixed costs,
that's ultimately going to position us better when the market does turn.
MICHAEL MILLMAN: But do the agents get some draw or salary?
GARY BEASLEY: They do not. They are commission based. What we do cover is for
certain agents we do pay their expenses. For all the agents in California we do
and for agents of a certain performance level we do as well outside of
California, and then after six months or so we pay for half the health care
costs and we have a small 401(k) match, things like that, but the majority of
the costs associated with the agents are the variable costs of delivering leads
to them.

FOCUS
MICHAEL MILLMAN: Okay. You just mentioned -- just repeat, that year-over-year
the median price -- did you say was down 4% or up 4%? And was that the median
price of homes you're actually selling or is that just in markets?
GARY BEASLEY: I'll clarify. In our markets. So it's a little bit of a

confusing point, I realize, because what we are talking about is a decelerating
growth rate. So prices grew at approximately 4% year-over-year in the second
quarter for us, but if you go back, that's the fourth quarter in a row where
that rate of price increase has declined. So if you look back a year we might
have been talking about 15 or 18%, and then it's steadily gone down.
What you may see next quarter is flat; prices may be flat or slightly down,
like we're actually seeing in some of our individual markets, and there is a big
variety as we look across the company and what's happening, but generally what
we are talking about is inventories have increased dramatically, so the supply
of homes is there. Pricing has not corrected materially enough to reach clearing
prices, which will accelerate transaction volume. That's kind of the overall
thesis -- that's what we're seeing.
Markets where we're seeing prices come down more are probably closer to
stability and reaccelerating, than others where you still see a big disconnect.
For example, in places like Los Angeles we see inventories increasing a lot,
FOCUS
and in Phoenix, but pricing still went up 10% year-over-year. So people are
holding -- they are not transacting. There is a big disconnect between buyers
and sellers. You see other markets where pricing growth has been say flat or
just slightly up, and the volume of transactions is not down nearly as much.
MICHAEL MILLMAN: When you say pricing is up 10%, do you mean that's the
asking price or the transaction price?
GARY BEASLEY: The actual transaction price. So what I'm saying in Los Angeles
for example, in LA market, in the second quarter the median home price that
traded was 10% higher than the median home price a year ago. And that's the same
thing when we are talking about the 4% in aggregate in our existing markets.
That's the median home price in all of our markets compared to a year ago.
MICHAEL MILLMAN: Do you have a rough breakdown between California and other?
GARY BEASLEY: In terms of those --
MICHAEL MILLMAN: Transaction pricing.
GARY BEASLEY: Yes, California -- one second. If you look at pricing in

California for us, it's gone up about 4.2%.

FOCUS
MICHAEL MILLMAN: That's in the second quarter?
GARY BEASLEY: The second quarter in aggregate, but transaction volume was
down almost 27%.
MICHAEL MILLMAN: And that's, again, just your experience.
GARY BEASLEY: Right. No, this is not our experience, this is the market data
in the markets that we are in.
MICHAEL MILLMAN: All right.
GARY BEASLEY: Okay. And outside of California, the median selling price is up
about 3.3%, and then transaction volume down about 7.7%. So transaction volumes
not down nearly as much. Pricing is not up as much, so the level of price
reduction as gone a little bit further in some of the non-California markets.
MICHAEL MILLMAN: And can you tell us a little bit about the CEO search? Is
the company looking for someone with real estate experience or is the company
looking for someone with consumer sales experience or something else?

FOCUS
GARY BEASLEY: I think the company is looking for the best individual to bring
something unique to the table. To the extent that person has real estate
experience, that would be fantastic. The person obviously needs to have a
passion for the business, a strong leader, someone who can be very helpful with
strategy and really helping us implement our growth plans and we have a lot of
exciting growth plans and someone who's got experience growing businesses, who
is a good communicator and who is smart. Really what we're looking for is
someone who's got the right DNA to fit into the corporate culture, and can
really take the company to the next level. So, we are not narrowing our search
necessarily to any one sector.
MICHAEL MILLMAN: I see. And just a final question, is it fair to say that in
your opinion the market needs the sellers to come down, at this point the buyers
are unlikely to step up?
GARY BEASLEY: Yes. I think the buyers are going with their feet, and what
we're seeing is they are not writing offers at the rate, or at the prices that
sellers would like to see. I think one thing that we are seeing which is
evidence of what's finally starting to happen though along these lines is we
have started to track the percentage of listings in our markets that have
reduced prices, and in this latest month what we've seen is 36% of the listings
in our markets have been reduced, which is really extraordinary. We don't have
FOCUS
the historical data on that, but because we just started pulling the data, we
will track it now going forward, but my guess is that was a much, much lower
number a year ago.
MICHAEL MILLMAN: And what's the average reduction?
GARY BEASLEY: The average is probably -- yes, don't look at the averages, but
I would say -- are you talking about the average reduction in the market in --?
MICHAEL MILLMAN: Or the average reduction between the original listing --
these 36% of reduced homes how much were they reduced?
GARY BEASLEY: Oh, I understand your question. I don't know, I can tell you
that.
MICHAEL MILLMAN: Okay, great.
GARY BEASLEY: All we did was track to see what percentage was reduced.
MICHAEL MILLMAN: Terrific, thank you very much.

FOCUS
GARY BEASLEY: You're welcome.
We will go first to Ben Schachter, with UBS.
DAN SOLVERIN, ANALYST, UBS: Hey, this is [Dan Solverin] in for Ben, I have
two quick questions. First, I was wondering if we could get some more color on
the newer markets as a percentage of total revenue, looking out over the next
couple quarters. And also, which markets you think have the largest short-term
potential in terms of actually contributing meaningfully, on the top line that
is, and second question, would it is possible to get any sort of timeframe,
color, detail, on when you'd expect to wrap up the CEO search? Thanks a lot.
GARY BEASLEY: Okay, start with the last question first. Don't know the answer
to that, that's an ongoing -- it's a priority for the Board and I know that
there have been a lot of great candidates that they've talked to, and it could
be next week, it could be many weeks from now, it could be months from now. I
honestly can't tell you, but as soon as a decision's being made we will
obviously communicate it to the marketplace. In terms of the new markets -- what
was your second question, I'm sorry.

FOCUS
DAN SOLVERIN: I was curious if we could get any sort of color on which
markets, which of the newer markets have the largest short-term potential
looking out over the next couple quarters.
GARY BEASLEY: Yes. Well, what's interesting is the way our business model
works, home prices and [inaudible] tend to be very similar inversely, so in
higher home price markets, productivity tends to be low and vice versa. So the
amount of revenues that we are generating from markets aren't dependent on home
prices, so I would say when you look at all the markets that we opened last
year; Las Vegas, Houston and Miami, those should all be meaningful contributors
to us. So I think each market has a lot of potential for that. In terms of your
first question, which was how much will the new markets contribute this year. We
think it's probably in the eight to 10% range by the end of the year.
DAN SOLVERIN: Great, thanks a lot.
GARY BEASLEY: Okay.
OPERATOR: We will go next to Patrick Stowe, with Priority Capital.
PATRICK STOWE, ANALYST, PRIORITY CAPITAL: Hey, thanks for taking the call. I
was a little surprised that the ARPU was so strong, given just your move away
FOCUS
from California and the higher medium homes. Is there any color you can give as
to what drove that in the quarter?
GARY BEASLEY: What is ARPU?
PATRICK STOWE: I'm sorry, the average revenue per transaction.
GARY BEASLEY: New acronym for us.
PATRICK STOWE: Yes, sorry about that.
GARY BEASLEY: Oh, that's okay. Well, you know, what's interesting -- I think
what's important, what's supporting that, is the fact that pricing hasn't
corrected as much as we would like to see. So we're seeing volumes way down, but
we're not seeing pricing down as much. So, I think that's really the explanation
and we'd be willing to make a trade of pricing for volume --
PATRICK STOWE: Yes, I understand. I just thought as the mix moved from
California, you know, you guys were growing in some just lower median price type
markets. Just thought that the expectation was that for that number to kind of
gradually as you spread.

FOCUS
GARY BEASLEY: Yes, and that should naturally happen over time. I think as we
grow the business in some lower-priced markets, dashed just say is we -- it
should have -- hopefully put pressure on productivity longer term, but downward
pressure on pricing, ARPU you say.
PATRICK STOWE: Yes. You can quote me on that. You gave some good color kind
of from a macro perspective on where you see buying and selling activity. I
wondered if maybe we can dig a little deeper just on what you saw through the
quarter if there was middle of May end of May, start of June, was there a time
where activity really fell off or was it pretty gradual through the quarter and
kind of moving into July.
GARY BEASLEY: Are you talking about market activity in general, our activity,
be a little more specific.
PATRICK STOWE: I mean in your market specifically, if you can give us any
color there or just in general if that's easier.
GARY BEASLEY: Yes. You know, I think that what we've seen is now we are kind
of in the high season of the real estate market. We were anticipating to see
probably at least more of a stabilizing of some key metrics in the second
quarter and not an erosion of that. The reason we are being rather cautious
FOCUS
for the balance of the year, although quite honestly we don't really have
visibility into Q4 right now.
We have a little bit of visibility in Q3 obviously, but really nothing in Q4

except we are not seeing the things we'd like to see from a macro standpoint
yet, and I'm sure the question is going to come up, well, what are we looking
for there? And so they basically inventory growth to stop and start reversing
itself. We're looking for months of inventory to contract, we are looking for
pricing growth. You know, really pricing to correct and then start growing
again.
We're looking for that listing price reduction metric that we look at to
start showing the number of homes that have been reduced percentage decreasing,
all those things kind of in aggregate, there's no one kind of thing that we're
looking for, but when we look at all of those things together and we want to see
some evidence over time that those things are holding steady in moving in the
right direction. There may be some noise in there where we see for a month or
two or a quarter that something improves, but we want to see kind of a
sustainable improvement in a lot of those metrics.
That will give us confidence that we [inaudible] moving right, but there
hasn't been, over the course of this quarter, any sort of events for -- you
FOCUS
know, one point in time where activity dropped, our activity has been steady. If
anything, what we've seen is more kind of a gradual increasing of the caution,
if you will, with buyers, where when they are making offers, they are less
aggressive and in general, fewer people making offers than we'd like to see.
PATRICK STOWE: Understood, that's helpful, thank you. And maybe one more, as
you look at Q4 and there's obviously some implied gamuts, with your fiscal year
numbers and I think you mentioned that you foresee kind of even another
sequential decline in Q4. How much of that is just typical seasonality versus
all the macro factors, pressures you've described, including inventory?
GARY BEASLEY: Well, until last year every year we've experienced typically
relatively flat revenues in Q4 versus Q3. So the short answer is I would
attribute it pretty much all to the macro environment. If we felt better about
the macro environment, we would be probably guiding towards more a flatfish Q4
versus Q3. Last year we had a substantial drop in Q4. If you recall, things
started to soft and in September and we saw it coming and so we let everyone
know that it was going to be a down quarter. We are sort of anticipating that
things will continue to worsen and building that into our forecast, just because
of the preponderance of the evidence we are seeing today.

FOCUS
PATRICK STOWE: And actually let me sneaking one more if I can. [inaudible]
having any trouble recruiting agents in Florida specifically? I just seem to
read a lot of articles that suggest that if there is pressure nationwide there
is a lot in Florida.
GARY BEASLEY: Interestingly, we are not. We are having very good success in
Florida. We are new there, but partially because maybe we are just [inaudible]
model and there's a lot of curiosity about our system. And partially I think
because the macro environment there is very tough. I know Orlando have seen --
the inventory numbers for Orlando are some of the biggest expansions in the
country, yet we are doing very well in Orlando, and we are recruiting very well
in Orlando. So we are not seeing issues recruiting in Florida as of yet.
PATRICK STOWE: All right. Well, thanks for the time, good luck to you.
GARY BEASLEY: Okay, thanks.
OPERATOR: We will go next to Jack Pitts, with Steadfast Financial.

JACK PITTS, ANALYST, STEADFAST FINANCIAL: Thanks. I was wondering if first of
all you could restate your volume metrics for what the market did within
California and non-California versus what Zip did in both of those separate
FOCUS
entities.
GARY BEASLEY: Okay. What Zip did in terms of California was about what the
market did about 26 1/2% decline, and outside of California, the market
contracted about 7.7%, and we grew about 8.8% or 8.9%, those are in our existing
markets.
JACK PITTS: Okay, thanks. And then could you also give us a number for what
you would have grown non-California with just the agents that were in existence
last year at this time, sort of the same-store sales growth rather than -- you
know, obviously you've got a lot of growth from new agents in non-California
markets.
GARY BEASLEY: Yes, the comp is de minimis last year, because we really didn't
have -- you try to compare new markets now to new markets last year because we
just started them sort of last summer, so the growth is extraordinary. It's not
meaningful in terms of percentage.
JACK PITTS: I guess what I'm getting at is one of your three initiatives
seems to be related to agent productivity and minus the obvious difficult real
estate market countrywide, I'm just trying to understand what it is you think
you can do better because it was my understanding that agent productivity
FOCUS
relative to non-Zip agents was pretty good, and did that change this quarter?
Was your productivity in your Zip agents relative to the rest of the world not
so good and therefore you need to make some drastic changes?
GARY BEASLEY: You know, it's hard to say because there's not necessarily any
current data on agent productivity. Just objectively, we feel like our
productivity should be better, and we're not necessarily -- it's interesting to
benchmark us against traditional realty companies, but we don't necessarily want
to hold ourselves to that standard. We look at some of our agents who are doing
three, four deals a month, with the same number and types of leads as we are
giving to agents who aren't doing any. And we look at how they're working the
system.
It's very different from how other agents are working the system and we feel
like through attracting the right people who are going to work the system
properly and then training the people to use the system properly, there's
enormous upside in our productivity. So again, it's hard to compare us against
the industry. We will be able to look back at industry transaction data a year
from now, once that stuff all gets reported, but I still feel like we do have a
premium. We'd like to see that increase though substantially.

FOCUS
JACK PITTS: And within the California market, I know that obviously with some
legal discrepancies last year concerning agent compensation, there was kind of a
transition for you guys in that market, which is your biggest market and
obviously the market share has kind of come back from kind of losing market
share in the last several quarters kind of trend in with the market now. Do you
see any signs that might kind of turn where you might actually gain some market
share in California for the rest of the year regardless of the fact that
obviously the California market is pretty bad.
GARY BEASLEY: Yes, we are certainly going to try, but the market is -- it's
very unpredictable right now. And we have a market that's declining 25, 26%,
it's fairly turbulent. So certainly we are going to -- our guidance doesn't
anticipate that we are going to gain share. If we are successful in doing that,
it will be helpful, this year at least. Certainly, long-term, that's our
objective, is to gain substantial share in California.
OPERATOR: Okay, we will go next to Frank Gristina, with Avondale Partners.
FRANK GRISTINA, ANALYST, AVONDALE PARTNERS: Thank you. I'm sorry I missed a
good bit of the call, so I apologize if this question has been asked, but it
us whatike the environment is still at a standoff, and I was just curio
you guys do in this kind of environment, where do you spend your ad dollars to
FOCUS
attract leads? I mean are you still directing, spending online to pull people to
the website to create the leads? And then how do you change the advertising to
get buyers, which I imagine our -- you are obviously going for potential
homebuyers, so if you could talk about how you're marketing spend, in terms of
mix, and then if you given any guidance on what you expect to do with marketing
for the remainder of the year, if you could repeat that.
GARY BEASLEY: Yes, okay, thanks Frank.
FRANK GRISTINA: Thank you.
GARY BEASLEY: We do target buyers and have for some time. About 85% of our
business is buyers. Our performance in leads this quarter was pretty strong.
Cost per lead was down actually about 9%, even though we are facing double-digit
cost per click increases. So the market for leads is competitive, but we're
still -- it's a growing market. You've got companies like Zillow and [Truly] out
there, generating a lot of interest in the real estate space. We still think
traffic is up 15 or 20% year-over-year in our space, so there's plenty of
traffic that's coming to us. We are also this last quarter we had 33% of our
leads came direct to site, which is up from 29% last year in the second quarter,
which is a real positive. We find that encouraging for obvious reasons.

FOCUS
So for us, Frank, it's not -- we're not changing our marketing strategy at
all in terms of lead acquisition. We are getting plenty of customers in cars.
That's up about 50%, which we missed -- we talked about earlier. But offer
writing is slightly down in the offers that are being written and to have more
contingencies and not be as strong relative to asking prices, as we saw in the
past. So it's more about, for us, rather than changing our marketing messaging,
it's changing how we train our agents to convert tentative clients into
confident buyers.
And part of that, I think part of that, is arming our agents with
information, arming consumers with information so they know what's going on in
their markets and help them feel good about their decisions and confidence I
think comes with information in that circumstance.
FRANK GRISTINA: Great, thank you.

GARY BEASLEY: Okay.
OPERATOR: We will go next to Steve Novak, with Palladio Capital Management.
STEVE NOVAK, ANALYST, PALLADIO CAPITAL MANAGEMENT: Gary, could you elaborate
on the inventory growth trends, what level you're seeing in terms of number of
FOCUS
weeks of inventory out there, given current sell-through rates?
GARY BEASLEY: Yes. Well, in general, and I'm speaking just to our markets
because what we do is we aggregate all the data in the markets that we serve and
really, just our existing markets, so our new markets which we started in '05
are not included because we have partial data. So granted it's an imperfect
subset, but in our markets we've seen months of inventory go from roughly two a
year ago to about five today. We've seen total inventories up about 100% in that
same period of time, and transaction volume down about 15%. And were you curious
about individual macros or just in general?
STEVE NOVAK: How would it be in California versus outside of California?
GARY BEASLEY: Yes. California is worse. Our months of inventory in California

went up about 250%. An overall aggregate inventory is about 160% in California.
And the figures are less than obviously outside of California.
STEVE NOVAK: Right. Could you elaborate a little bit on the kinds of
assumptions you're making about the fourth quarter decline? You stated earlier
that that was you know all -- increment in terms of it not being flat would be a
function of the softness, but do you see -- do you expect fewer transactions and
stable commission levels in terms of dollars per transaction or are you
FOCUS
forecasting declines in both on a sequential basis?
GARY BEASLEY: Yes. We think that what's giving us a little bit of pause is
we've seen California market conditions potentially reach what appears to be a
relatively stable trough, in some respects, in that at least in terms of
transaction contraction has been kind of mid-20s now for a couple quarters. What
we have seen though outside of California is transaction volume decline from
kind of mid single digits to greater than that. So what we don't know is outside
of California does that continue to grow and it works or, does that stabilize
sooner, so our working assumption is things get worse outside of California and
are you know flat to slightly worse within California, and that's just based on
the best information that we've got.
STEVE NOVAK: Okay, thank you.
OPERATOR: We will go next to Kent Holden, with Gagnon. Please go ahead.
KENT HOLDEN, ANALYST, GAGNON SECURITIES: Yes, hi Gary. I got the net ads at
188 and I was curious what the gross ads added in the last quarter.
GARY BEASLEY: You know, that's not something that we talk about publicly.
What I did say about the attrition level this quarter was that it was a bit
FOCUS
higher than last quarter, a bit lower than Q4. And it's quite honestly something
-- well, I don't want to minimize the importance of attrition at all, but I
think one of the points from the prepared remarks is that we might have
financially focused a bit too much on reducing our attrition percentages. That
is a means to an end, that's not an end in and of its self.
If agents aren't doing deals for several months and we're paying their leads
and expenses, then it might not be healthy to have a low attrition level and
keep them on. So you might see that we have some higher churn over the next
quarter or two as we work through and you know in difficult market conditions,
and holding people to the right standard of not only productivity.
But I would say even more so than that, effort because if someone is doing
the right behaviors, being responsive to clients, working with people, writing
offers, the fact that those offers aren't getting accepted could very well be
market conditions, but if you have another agent whose doing none of those
things, that's probably not someone that belongs with the company.
KENT HOLDEN: Yes, I understand that. I did notice that one of the President's
Club people had left and was just curious about if you're losing some
good-quality agents.

FOCUS
GARY BEASLEY: Well, I would say we do occasionally lose a President's Club
person or a top producer. It's the exception rather than the rule. Our lowest
attrition bucket is people who have been here for two years and second lowest is
people who have been here for a year or more. So --.
KENT HOLDEN: Okay. So not a big change anyway?
GARY BEASLEY: No. We did lose some -- we lost some by -- some really good
people and some producers at the end of last year when we went through the
compensation changes in the lawsuit, things like that. That has really
stabilized and we feel very good about that and we're building on that core
group of performing agents. That's not something that is really a concern to us.
KENT HOLDEN: Okay. And then can you run me through the for sale by owner,
what your compensation on that is going to be and how that's going to split out?
GARY BEASLEY: Yes. For that product, it's a 2 1/2% commission, the way that
we have it designed, so if you are a FSBO seller, you go on ZipRealty's website,
you can very easily put in the information on your home and our site will spit
back at you how many -- it may say we have 346 buyers within 10% of this price
range, looking in this area. And then are you interested in reviewing our terms
of use? And if so, read down, click here.

FOCUS
And part of the terms of use are if you accept this, you'll pay ZipRealty 2
1/2 % commission then our agents get automatically notified of that home being
available for sale and then the agent can then, in a pretty elegant way, passed
that information along to their clients. Their clients could then contact the
ZIP agent and say I'd like to see that home, and the agent will take them there.
And we're protected in terms of the commission, our client gets the inventory or
gets access to homes that are on the MLS, and it's an incremental transaction
potential is for the company. So we think it's a win-win.
KENT HOLDEN: Okay. In the revenue is split between the agent and the firm. It
would be the same as standard?
GARY BEASLEY: Yes, standard, and we offer our standard 20% rebate to our
client as well.
KENT HOLDEN: 20% of the 2 1/2?
GARY BEASLEY: Yes.
KENT HOLDEN: Okay. And then my last question, you talked about a little bit
of capital expenditure in setting up some of these new programs. I don't think
that will add up to a lot of cash will it?
FOCUS
GARY BEASLEY: No.
KENT HOLDEN: Then does it make sense to consider buying back some stocks?
GARY BEASLEY: Well, you know, it's a fair question and obviously with the
stock at the levels it's at, it's something that we take very seriously and we
talk about it at -- the Board talks about it at every meeting. We'll be looking
over the course of the next several months. Obviously we've got a new CEO
hopefully coming on board at some point in the relatively near future and that
has strategic implications. We're going to be looking at different ways to grow
the company and different uses of our cash over the balance of the year in the
next year, so it's a fair question and something that we will take very
seriously.
KENT HOLDEN: Okay, thank you.
GARY BEASLEY: I'm being told we have time for one more question.
OPERATOR: Our final question will come from Michael Millman, with Soleil
Securities. Please go ahead.

FOCUS
MICHAEL MILLMAN: Thank you. That was much better. Could you talk about any
changes you're seeing in affordability and in particular in light of the rates
have been --
GARY BEASLEY: Hello?
OPERATOR: Yes sir, its star one please. Mr. Mellman, please go ahead.
MICHAEL MILLMAN: Yes, sorry. Could you talk about affordability in line with
rates -- mortgage rates have been declining slightly recently and Fed held the
rates today. Is that an important near-term impetus?
GARY BEASLEY: I don't know that it necessarily is. I think affordability has
been a challenge generally in the housing market recently. I think what we saw
was finally a breaking point in the fall of last year where some macro factors
lined up and finally consumers took a pause and a breather and with rates having
gone up and now may be recently flattening a little bit will affordability
improved? I think affordability at this time may be more influenced by some
price declines that you'll see in certain markets.
You know, we are seeing -- it's also interesting that there are lots of new
mortgage products that are popping up that are -- where people can get 100%
FOCUS
financing for example at much, much lower rates and we saw product from our
mortgage partner E-loan 100% mortgage for about 7% recently. So that's less than
one month old. Those types of products I think counterbalance the lack of
affordability. I think historically we've seen particularly new home buyers,
first home buyers, impacted to a great degree with affordability. If you don't
have the equity to trade up its a bit hard, but we will just have to see how it
shakes out here over the upcoming months.
MICHAEL MILLMAN: Also, Las Vegas, at least for one, has a reputation of being
a low commission market. Do you look at those kind of things or maybe that's not
even correct?
GARY BEASLEY: It's not correct. It's an average market for us in terms of
commission.
MICHAEL MILLMAN: I see. And maybe final question, to what extent do you find
that possibly your very productive agents move on to collect 70% rather than 50%
when they feel they got it sold?
GARY BEASLEY: Well, it's a fair question. I would say that we see a fair
number of those producers actually come back company after going over to the
dark side if you will. Remember, the commission split is only part of it. Our
FOCUS
commission split goes from 35% up to about 80%, and our top producing agents
tend to be toward the higher end of commission splits, so the delta between our
compensation package for producers and then going over to a new firm may be
smaller than you think.
Plus we actually give -- remember, we provide leads, we provide our CRM

tools, we provide a lot of other things, some other benefits to them, where I
think it's -- we hear a lot from agents who have left and come back that they
didn't realize how much they relied on our platform and our system and our
support. Closing support for example, broker support, active management
oversight, which you don't have all of a sudden, you go up to an independent
contractor office and all of a sudden it's an extremely competitive environment
with a lot of other people in your office, fighting over clients. And we have a
collegial team environment.
We have production goals obviously, we hold people accountable for that, but
for us it's really ultimately about customer service and it's a different
environment I think when you leave. So we have an open door policy. As long as
someone leaves on good terms with us we'd love to see them come back and some of
those people tend to be our best and most loyal contributors.

FOCUS
MICHAEL MILLMAN: Okay. Thank you, very much.
GARY BEASLEY: You're welcome.
OPERATOR: This does conclude today's question-and-answer session. At this

time I'd like to return the conference back to your speakers for any additional
or closing remarks.
GARY BEASLEY: Okay. I just would like to thank everybody for their time and
we will talk to you next quarter. Thanks.
OPERATOR: Thank you. Ladies and gentlemen, this does conclude today's
teleconference. We do appreciate your participation. You may does connect your
phone lines at this time.

such changes.
FOCUS
be realized.

DECISIONS.]

May 8, 2006 Monday
TRANSCRIPT: 050806ai.776
LENGTH: 7552 words
BODY:
OPERATOR: Good morning and welcome to the ZipRealty Incorporated First

Quarter 2006 Earnings Conference Call. As a reminder today's call is being
recorded. At this time, all participants have been placed in a listen-only mode
and the floor will be open for your questions following the presentation.
Instructions on how to queue up will be given at that time.

FOCUS
It is now my pleasure to turn the floor over to your host Mr. Tom Ryan.
Please go ahead sir.
TOM RYAN, INVESTOR RELATIONS, ZIPREALTY, INC.: Good afternoon and thank you
for joining us today to discuss ZipRealty 's first quarter results. With me on
the call is Eric Danziger, our CEO; and Gary Beasley, President and Chief
Financial Officer. Please note that earlier today the company issued a press
release describing its results for the first quarter 2006 that included guidance
for the second and full year ended December 31, 2006. A copy of that release can
be viewed on the company's website at www. ziprealty. com.
Before we begin, I would like to note that during the course of this call
Harbor provision under the Private Securities Litigation Reform Act of 1995.
uncertainties including those described in the company's Form 10-K for fiscal
2005 and other filings with the Securities and Exchange Commission copies of
which can also be viewed on the company's website.

FOCUS
United States or GAAP, ZipRealty uses a non-GAAP measure of net income or loss
it refers to as "pro forma earnings" which excludes certain items including
as the litigation settlement expense incurred in 2005.

performance and its prospects for the future. Further ZipRealty believes these
non-GAAP results provide useful information to both management and investors by
excluding certain items it believes are not indicative of its core operating
results and thus presents a more consistent basis for comparison between
quarters.
With that out of the way, I will turn the call over to Eric.
ERIC DANZIGER, CEO, ZIPREALTY, INC.: Great. Thanks Tom. Let's start by
reviewing our performance. After that Gary will cover the financial results in
more detail, I will then come back with an update on the growth initiatives and
we will conclude with Q&A. First and foremost, we were very pleased with our
FOCUS
first quarter results. Despite ongoing market challenges our revenues exceeded
the top end of our guidance range and consensus estimates driving 8% year over
year. We also saw our earnings exceed guidance. Our revenue performance for the
period was driven principally by better than anticipated closing deals in our
existing markets outside the California, as well as better than expected
momentum in our new markets.
The result was a 13% increase in transaction volume versus the prior year's
quarter when we were expecting it to be essentially flat. Therefore, our bottom
line results were a function of better than expected gross margin and various
operational efficiencies particularly in the area of customer acquisition. To
that point, we continue to do a great job with optimization and we are seeing
higher conversion rates than ever before. This is particularly gratifying and we
credit the content of our sight and our ability to create simple, yet meaningful
tools for our visitors to help them make these critical buy or sell decisions in
relation to their home.
Regardless of any single quarters performance however it is important to keep

our eye on the bigger picture. And the fact remains that we have a huge market
opportunity. For example, our revenues still represent less than two-tenths of
1% of the $60 billion market we are targeting. Moreover in the markets where we
currently have a presence, we still account for less than 1% of all
FOCUS
transactions. Unfortunately for Zip stockholders, we are competing in an
industry that we believe desperately needs improvement. In fact research shows
that many consumers still don't have positive experiences buying or selling
their homes. And we believe that's due to several structural challenges the
industry faces including the pervasiveness of disconnected franchisers and
independent contractors.
The fact of the matter is that the current system has been constructed around
the agent not the consumer. And as a consequence the consumer often suffers. In
contrast, we look at everything through the lens of the consumers, and
ultimately believe that by sticking with that philosophy our employees and
stockholders will prosper. So, our success today stems from attacking the
current industry dynamics with a whole new level of information and
organization, making it easier for consumers to make decisions and easier for
our ZipAgents to generate and convert leads. And in the process we have
maniacally focused on servicing the customer and that effort has led to above
industry performance.
As I mentioned earlier, in our markets we grew closed transactions by about

13% in the quarter year over year and that's in the context of an 11% overall
market decline over that same period. Like any business, a satisfied customer is
the best marketing tool and we are creating new ones with each month that
FOCUS
passes.
Turning to new markets, we are very excited to report the Houston, a market
we launched just last July achieved profitability in March. This nine month ramp
is well ahead of the 12 to 18 month timeline we forecasted and even more
impressive, was the capital investment of less than $500,000.
This is the second market, the other being Las Vegas, to reach profitability
within one year and certainly speaks to the portability of our brand. These
results give us increasing confidence as we think about our new market growth
plan for 2007 and beyond. Miami, which launched just five months ago, is gaining
solid traction despite a noticeable cooling over the past several months
particularly evidenced by growing condominium inventories. With this launch, we
implemented several new initiatives including a Spanish language version on our
website, live online chat with ZipAgents, satellite images and enhanced search
criteria.
We launched Tampa late in the first quarter, and are in the process of
opening up Orlando this quarter. Moving to the middle of the country we remain
on track to being operations in Minneapolis this summer, and we think it
provides a great opportunity for us to enhance our penetration in the Midwest.
Moreover, last month we announced our plans to enter Austin, our third Texas
FOCUS
market. This further builds our presence in the Southwest and we are excited to
bring ZipRealty's business model and expertise to this vibrant metropolitan
area.
Finally, I would like to take this opportunity to announce our intention to

enter two more metropolitan areas before the end of this year, Palm Beach,
Florida and the Philadelphia metropolitan area. Those of you familiar with
Philadelphia may know that to serve this area, we will need to cover parts of
New Jersey as well. It happens to be one of the states where cash rebates to
consumers are not allowed. We plan on offering the same grade service and
technology to customers in New Jersey and are working on alternatives to our
rebate offerings. We will keep you apprised on our approach as we get closer to
our launch later this year. And with that entry due to the geographic
components, we will also be doing business in parts of Delaware.
Accordingly, with this new market, we will in effect be entering three new
states. As we stated in the past, each new market presents a great opportunity
for us, not only to expand and diversify geographically, but to refine the
launch process stressing superior returns on invested capital. And although we
lity guidance of 12 to 18 months in new
markets, we are certainly pleased with Las Vegas and Houston and hope to
replicate that success in all new markets.
FOCUS
I will now turn it over to Gary, and he'll review the financial results in
greater detail.
GARY BEASLEY, PRESIDENT AND CFO, ZIPREALTY, INC.: Thanks Eric. Just like we
did on our last conference call in January, I would like to begin my remarks by
contrasting ZipRealty's performance with market averages, an exercise that
illustrates our market share gains. During the first quarter, we estimate that
overall transaction side volume in our markets was materially down about 11%
year-over-year driven by an ongoing decline in California, which was down around
23%. According to our estimates, markets outside of California where we had had
a presence for at least a year showed a decrease in transaction side volume in
Q1 of about 3% year-over-year.
In terms of ZipRealty's performance, first quarter closed transaction in

California decreased about 26% during the period, generally in line with the
overall market. However, it's encouraging to note that in Zip markets outside of
California that we have been in operation for more than a year, our closed
transactions increased by roughly 24% for the same time period significantly
outperforming the market.
On a blended basis, company wide our closed transactions increased by 13%

year-over-year as Eric previously mentioned. So, much like the fourth quarter,
FOCUS
we outperformed the broader market. However, our financial performance is still
tied closely to California. It's important to note, though, that when California
ultimately rebounds, its impact on our business should be disproportionately
positive.
And as Eric suggested, our new market progress certainly illustrates our
intent on promoting geographic diversification, mitigating the impact of
California on our consolidated financial results. Towards that end, California
represented only 43% of our transaction revenue this quarter versus 58% in Q1 of
2005. A significant reason that we were able to achieve this revenue
diversification was our new market expansion efforts, which represented 7% of
total transaction revenue for the quarter. Bear in mind that all of our new
markets are outside of California and that we just began launching them last
May.
Moving on to the financial results. We reported net revenues of 19.2 million

in the first quarter, an 8% increase over the first quarter of 2005. In terms of
profitability, net loss for the period was 0.8 million or $0.04 per share
compared to net income of 0.7 million or $0.03 per share in the year ago period.
We ended the quarter with 1481 agents representing 51% growth from a year ago.
mportantly, we added 115 for the quarter on a net basis, reversing the
trend of Q4 where we had a slight net decline in agents for the period. We
FOCUS
were pleased with the agent count growth and attribute it to both solid
recruiting efforts as well as reduced agent churn versus both Q4 and Q1 of last
year.
Turning to productivity, the seasonally slow first quarter saw about 0.64
deals per agent per month, which was a bit better than we had anticipated in our
last guidance. With record numbers of real estate agents in competition for a
decreasing number of transactions, we believe industry productivity was very low
during the period, much like it was during the fourth quarter. We continue to
think that as market conditions act as a catalyst for many agents to leave the
industry, productivity should ultimately improve for those who remain. Average
net revenue per transaction for the first quarter decreased to $7,069, compared
to $7,203 at the end of the year. This decline is due primarily to mix shift
caused by more rapid growth outside of California's high priced markets.
Moving to the expense side of the P&L. Please be aware that in connection
with our implementation of FAS 123R, we have allocated stock comp expense to
each expense line item, which unfortunately distorts comparability a bit with
prior periods. Gross margin in the fourth quarter was 44.1%, a bit higher than
expected despite the inclusion of stock comp expense, which negatively affected
this line item by about 60 basis points. We continue to expect gross margin to
approximate 44% to 45% for the year. Due to aggressive cost control, G&A came
FOCUS
in at 7.4 million, which on the seasonally low revenue base represented
approximately 39% of revenues. Included in this figure was approximately 370,000
of stock comp expense.
Marketing and business development represented 3.1 million or about 16% of

revenues versus 2.8 million or 15.7% of revenues a year ago. It's important to
note that our company generated 46% more leads for the quarter at a cost per
lead that decreased 24% versus the same period last year. As Eric mentioned in
his opening remarks, this is primarily due to our ongoing SEO and web page
optimization efforts, resulting from an improved site design and content and
enhanced customer tools. Product development cost represented 6.7% of revenues,
compared to 3.3% of revenues in the first quarter of 2005.
Turning to the balance sheet, our cash and cash equivalents of 83.5 million
represents a significant portion of our market capitalization, roughly $3.40 per
diluted share. We have no long-term debt inventory cost or material accounts
receivable exposure. In terms of capital expenditures, we spent approximately
2.1 million during the quarter reflecting among other things payment for the
build out of our new office space. Note that this figure -- note that this
not reflect our landlords TI allowance of approximately 525,000
which per GAAP is being applied over the term of the lease to reduce occupancy
cost.
FOCUS
Moving on to guidance, while we are encouraged by our better than expected
first quarter performance, we do not believe that the overall housing market has
churned. For that reason we think it is appropriate to leave our annual guidance
unchanged. We expect second quarter revenues to range between 22 million and 24
million, and reiterate our fiscal 2006 revenue guidance of between 105 million
and 115 million. Underlying our revenue assumptions for the year, we expect
agent productivity to decline approximately 10% to 15% compared to 2005. Average
net revenue per transaction is expected to decrease to roughly $7,000 from
approximately $7,400 in 2005. Still projecting an increase in count of between
1,800 and 2,000 agents.
In terms of the second quarter, our objective is to add about 125 agents net.
In terms of bottom line guidance, our second quarter loss per outstanding share
is expected to range from $0.02 to $0.04. For the full year, we reiterate our
diluted earnings per share guidance of between $0.02 and $0.08 including an
estimated $0.08 to $0.09 in stock compensation expense under FAS 123R. Note that
a couple of items will now be impacting our EPS that had not previously been a
factor. I have already mentioned our implementation of FAS 123R.
Additionally, because we reversed the valuation allowance last quarter for a

net operating loss carry forwards, we will now carry a book tax rate on our P&L,
despite the fact that we should pay no material cash taxes until we exhaust
FOCUS
our federal and state carry forwards. Our EPS guidance reflects these two items.
On a pro forma basis, we expect our second quarter pro forma earnings per share
to approximate break-even with the full year 2006 pro forma earnings per share
to be between $0.15 and $0.25. Our outstanding shares totaled about 20.3 million
and our fully diluted shares total about 24.4 million. Pro forma earnings and
its reconciliation to the nearest GAAP measure are included in the financial
tables in our earnings release.
With that, I would like to turn the call back over to Eric for some
additional thoughts.
ERIC DANZIGER: Great, thanks Gary. You know we spent a lot of time on our
last two calls referencing industry statistics that support our transitioning
market thesis. We think it is pretty evident by now that buyers are more
tentative as sellers evaluate their stance on pricing. So, instead of sharing
more macro numbers with you, I thought I would spend some time on ZipRealty's
investments over the last two quarters from technology to new markets.
Starting with online initiatives, we are continuing to invest in lead

generation so that we are well positioned for the market turn. While we haven't
ly turned up the pipelinein Q4, we have aggressive
since January 1, leading to a 50% increase in registered users relative to the
FOCUS
first quarter of 2005. As I mentioned in my opening remarks, these leads are
coming to us in a more efficient way and to echo various comments, the cost per
lead in the first quarter was down 24% versus the same period a year ago, a
rather remarkable achievement given all the chatter about rising customer
acquisition costs.
In terms of website investment, let me revisit two new features that we

believe are taking the customer experience to a new level. As I described last
quarter, Price Track enables buyers to search for and track price reductions on
listed homes and to give sellers the chance to get more interest from buyers
through additional visibility. The new feature displays a listed homes complete
listing price history, including the amount and date of each price reduction.
Buyers in most areas can also see the number of days each house has been on the
market. These tools are particularly helpful for consumers in transitioning
markets and we think they have helped drive engaged site activity.
Second, the View Similar Homes feature offers users the option to see homes
with similar criteria that were previously viewed by other home buyers. That's
similar to the Amazon.com feature that shows what prior customers of the same
product have bought in the past. These online investments are intended to
perpetuate a virtuous cycle, where site traffic generate leads, leads turn into
closed clients, satisfied clients boost traffic through word of mouth
FOCUS
testimonials.
Another area where we continue to invest in is new markets, which will plant
the seed of growth for 2007 and beyond. This includes ongoing investments in
Miami, Orlando, Minneapolis, Tampa and Austin, as well as some preliminary work
in Palm Beach and Philadelphia. Given our new market success to-date, our
objective is to increase the number of new markets we enter in 2007 above the
six that we plan to enter this year. Stay tuned, we will keep you updated as our
2007 plan develops.
Our investments are certainly starting to pay off for us in very tangible
ways. Site activity remains at record levels and client visit activity is very
strong. Total scheduled visits increased by approximately 50% in the first
quarter. We are still finding that the average consumers' interest in real
estate remains very high. While offers were virtually flat in Q1 of '06 versus
the same period last year, we believe that the overall strong client activity
should translate into more offers and improved offer conversion as we navigate
through this transition market for the rest of the year.
So, as we enter the remainder of the year, we are certainly battling the
headwinds that we stated before. That said, we are investing in the business
during this period so that we'll be even stronger when the market turns. And
FOCUS
as our core business and new market data suggests, we are seeing progress with
regards to our efforts. We think it's only a matter of time before market
equilibrium reveals the true leverage inherent in this business model.
One more thing before I open it up to your questions, briefly I just wanted
to address the press release we sent out last week. After five years at the helm
of the company, I intend to move back to my home in Arizona on August 1. I have
had the pleasure and honor of leading this company from its very early days,
through its IPO and its initial growth period. And I say initial simply that all
of us here are very excited about the many, many wonderful opportunities which
lie ahead.
You know there is that line, that to everything there is a season, and this
is just simply my season to return to Arizona and to be near friends and family.
So, I hope that you would agree after hearing what we have just shared with you
that the performance of this company is solid. A fabulous and great experienced,
knowledgable and dedicated team is in place, and it follows, then, that it is a
good time to exit stage right, and let others move it to the next level.
With that, I would like to open up the call to Q&A, operator.

FOCUS
OPERATOR: Thank you, sir.
[OPERATOR INSTRUCTIONS]
And our first question comes from Jeetil Patel with Deutsche Bank.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: Hi guys. Couple of questions, first of

all can you just give us a sense of, you know, Q2 you are down on kind of
revenue year-on-year. I guess what are the trends looking like in terms of open
transaction? May be, you know, how did the quarter fare by month? Or maybe
another way to cut it is, how is Q2 looking in terms of the early days?
Obviously you have got, you know call it 40 days of data to work with, but give
us a characterization of what the open transaction rate look like in the
business? And then I have a follow-up.
ERIC DANZIGER: Great, sure Jeetil. You know, I think what we are trying to do
is trying to triangulate around a reasonable set of assumptions for the rest of
the year in the context of - still a fair degree of uncertainty. If you look at
a few indicators, one of the fundamental questions is, has the market turned?
And in our view, it hasn't. If you look at inventories of homes for sale, for
example, this year they've increased about 18% in the last three months from
January to March.
FOCUS
And we haven't seen the April data yet, but if you look at a year ago
January, February, March, the level of inventories was flat. So, we have seen
inventories continuing to increase and we just have not seen a reversal of that
trend yet. Overall transaction volumes, we have seen go from about 10% growth in
Q3 to going down about 3% in Q4, down about 11% in Q1 in our markets. We don't
know if that's the trough yet, the trough very well may be still later this
year.
So, we just want to be conservative. We are looking at our open pipeline, we

are looking at the fact that overall market, the pending homes index was down a
little bit if you look nationally. We are looking at a lot of different trends
and until we see kind of a reversal of either inventories really starting to
come south, months of inventories starting to decline in a meaningful way,
pricing stabilizing.
We really have seen pricing go down over the last couple of quarters about 1%
on average in each of the last two quarters across our markets. And that's
compared to, you know, if you rewind a year, things were growing at 12% to 15%.
So, we are clearly seeing volumes slowing and price growth flattening and we are
really baking that into some guidance that we think is reasonable based on all
that.

FOCUS
JEETIL PATEL: What do you think as you look at your business by year-end,
California, you know still at 43% the revenue, but where do you think it gets to
assuming, I guess, California is obviously down this year as of market. But you
know I guess if we take it down 20% or your 15% viewpoint of California in
general, what do you think the exit rate at the end of the year looks like of
California as a percentage of revenue?
ERIC DANZIGER: Well, you know, it's hard to say Jeetil, because we would love
to see the California percentage of revenue maybe migrate back up a little bit,
because that would mean things are picking up from these really anemic levels in
the state. So, it's hard to say; there are a lot of moving pieces there.
But what we are seeing is, as we said in our prepared remarks, surprising
strength outside of California in terms of our performance in a declining
market, we are definitely gaining share. And then we are also seeing new market
growth being more rapid than we had anticipated. So, whereas before I think we
had said, we expected new market growth not to contribute as much, you know it
looks like that could be 10 percent-ish of our overall revenues this year, which
for us as we look at the platform going forward that's a very encouraging sign.
JEETIL PATEL: Great, thanks.

FOCUS
And we will now move to Patrick Stowe with Priority Capital.
PATRICK STOWE, ANALYST, PRIORITY CAPITAL: Hi guys.
ERIC DANZIGER: Hi.
PATRICK STOWE: I wonder if you could comment just on the environment in terms
of average commissions out there, I mean given that things have slowed down a
little bit has there been compression in what I would call the competitive
environment in terms of commissions? You see your competitors offering
discounts?
ERIC DANZIGER: You know, it's interesting Patrick, we have not seen that. In
fact, what you are seeing is almost counterintuitive, but you are actually
seeing commissions being increased in some areas as people are offering more
attractive incentives to get people to buy their homes and look at their homes.
So, we have not seen pressures on commissions during this downturn, which is, as
I say, a bit counterintuitive.

FOCUS
PATRICK STOWE: Yes, so the expense structure in terms of the commissions is
not likely to change any time soon then?
ERIC DANZIGER: We are not seeing any indicator of that.
PATRICK STOWE: Okay. And you mentioned the churn rate improved both I guess
year-over-year and sequentially, anything you would attribute that to in terms
of what you guys are doing?
ERIC DANZIGER: Yes, you mentioned churn?
PATRICK STOWE: Yes.
ERIC DANZIGER: You know as you will recall from every call and since the
beginning of our company, it's been a high priority for us to focus on hiring
better, finding the right ways to hire the kind of people who -- it sounds
trite, who have that "it". So, as we get better at that, certainly that helps.
And then, too, as the value of the company continues to morph and evolve to
help people become successful, to help them market and use technology and help
customers where they have been on the other side and don't have those sorts of
tools particularly in a down market, it helps people retain. And the company
FOCUS
works on everything from culture improvement, your reward systems, touch, feel,
banks, corporate kinds of things that make people feel part of the company to
systems, process and procedures.
So, hiring better, training better, training's a huge emphasis on this

company, it is a really huge point of differentiation for us to be able to gear
individual kinds of training to people who join us, help people to be
successful, show a little care about them, show a little bit of care about them
helping customers; it's kind of a one of those again virtuous cycles, works for
the customer, works for the people. Accordingly, we are hiring more people, we
are hiring better people, and we are losing fewer than the same time last year.
PATRICK STOWE: Would you characterize the recurring environment as more
difficult over the last six to nine months or so?
ERIC DANZIGER: You know I don't know, you could call it either way. My
personal opinion is it's going to be easier. You know there are so many realtors
out there all fighting for fewer opportunities. So, to have a company behind
you, a system of marketing, it's not just you know we are on National TV, which
we are not.

FOCUS
Another company might be National TV and say that's our marketing program,
you know, we are down in the marketplace, we helped people acquire leads; they
don't have to pay a thing out of their pocket compared to their traditional
industry where they do have to pay for aleads, for marketing, for all kinds of
things. They certainly don't have quite the technology tools we believe that we
have. So, really in that environment, if you are a realtor and you choose that
as your profession, it seems to me you would want to seek people and a company
which is growing and more help to make to you successful than just a brand name.
PATRICK STOWE: Okay, all right. And one last one, if I can. I guess you
covered a lot of ground there on the guidance, and there is obviously a lot of
uncertainty in trying to project in this sort of environment --. I mean, I just
pencil in some numbers and try to use the guidance you have given and it looks
like for the second half, productivity guidance would be kind of flat to even up
a little bit. I just wonder if that's really fair to characterize that as
conservative given what we have seen for the last two quarters?
ERIC DANZIGER: I'd be happy to help work through that offline with you, but
it's not. Our productivity guidance is actually down. If you look at Q3, it's
looking as being slightly up in Q4, but that's because of the comp because Q4
last year, if you remember, our revenues dropped dramatically because that was
the onset of the transition market, we dropped from about 28 million to about

FOCUS
21.5 million.
And over the prior several years, revenues from Q3 to Q4 have been pretty
flat and we anticipate that that will be the case again this year, we would see
no -- we can't foresee another catalyst which would cause that dramatic fall
off. So, that's probably where the disconnect is.
PATRICK STOWE: Okay, fair enough. I appreciate the time. Good luck to you.
GARY BEASLEY: Thanks Patrick.
ERIC DANZIGER: Thank you.
OPERATOR: And we will now hear from Frank Gristina with Avondale Partners.
FRANK GRISTINA, ANALYST, AVONDALE PARTNERS: First of all Eric, good luck on
your future seasons in Arizona.
ERIC DANZIGER: Thanks, Frank.
FRANK GRISTINA: You mentioned two interesting data points, a 50% increase in
users year-over-year and a 24% decrease in the costs to I guess, acquire those
FOCUS
users. What's going on with your marketing mix, is there something that you are
doing better that's bringing traffic to the site for less? I mean have you
dumped one medium for another or is this word of mount kicking in, but there is
some good fundamentals if you could expand on those a little bit?
ERIC DANZIGER: We don't want to tell everybody Frank, because they will want
to go out and do it too, but I think Gary will give you a couple of the
highlights of it. But, you know keep in mind, before he does the specifics of
[direct to] site and all that, and all the efforts we have had with SEO and we
have been working on tons of stuff for a year or two that make us better. You
know, that is an area of core competency for us, and it was the way this company
started six years ago [that it] was in the online leads acquisition business.
The others that are into now are short of babes in the woods and God bless
them, and I am glad they are doing that. We should all work on doing the right
things for customers, but the fact is we have people who have been a part of if
from the beginning, we have the relationships, we know how to move [it], and
that's -- so that's kind of the -- truly if there is a first mover advantage, it
is that we are the experts in that area and we have incredibly talented people
who work on that.
FOCUS
Then secondary, the kind of other warm piece of that is, obviously as a brand
grows and it has 94% or better customer satisfaction and it is entering into new
markets and it is now longer and deeper into the original markets, it is clearly
building up the direct to site traffic, referrals, and all of those things which
help decrease the actual cost. So, that's the warm stuff, but I will let Gary
give some real stats.
GARY BEASLEY: Yes, the direct to site figure this quarter was again around
32% so that number has been very consistent, we love that number. Our affiliates
remained about 44% and paid search increased a bit to almost 20%, about 19% in
terms of our overall mix. The other components, a smattering of other
partnerships and things like that make up the balance.
FRANK GRISTINA: Have you seen price, better pricing from your affiliates
since the market is at least -- from a transaction standpoint looking solid or
weak?
GARY BEASLEY: You know, we don't really want to talk about pricing by segment
because obviously that's the price area we obviously -- have relationships with
a lot of different folks there. But what we can say is on the pagepaid search
side, we feel like we really made some strides as Eric said, we threw some more
resources at that last year.
FOCUS
So, in fairness, Q1 it's a little bit an easy comp for us because we don't
think we did a very good job last Q1 compared to the way we did it this year.
But we have more resources thrown at it, we have another body and we've also
done some, I think, pretty interesting optimization work on our website, landing
people in the more relative sites and presenting them with the right information
more quickly.
So, the other thing I think that's benefited us quite honestly is kind of
again counterintuitive, but traffic in our space the real estate vertical seems
to be up materially year-over-year, we estimate maybe around 20%. And that's --
we thank our friends out there, our friendly competitors, who spend a lot of
money on television advertising and get people interested in how much is their
home's worth, and drive -- ultimately these people go to the Internet and we
take advantage of that by, we think, creating a pretty compelling place for them
to go as long as they are trolling around the Internet. So, it's surprising
transaction volume is down, but people interested in real estate is higher than
ever.
FRANK GRISTINA: Great. And then just to clarify the direct to site traffic a
year ago, what percent was it of the lease, is it still 32% or --?

FOCUS
GARY BEASLEY: It was right around that same number, right around the same
percent.
FRANK GRISTINA: Okay. And then on the guidance, you said decline of 10% to
15%, was that in productivity, is that for the year?
GARY BEASLEY: That's for the year.

FRANK GRISTINA: Okay, great.
GARY BEASLEY: That's consistent with where we started the year with our
guidance.
FRANK GRISTINA: Great. Thanks, very much.
ERIC DANZIGER: All right, Frank thanks.
And our next question comes from Wendy Snow with Lamoreaux Partners.

FOCUS
WENDY SNOW, ANALYST, LAMOREAUX PARTNERS: Hi guys. I also -- Eric I want to
wish you the best of luck in your future in Arizona and thank you for your last
five and a half years of leadership. My question has to do new markets, you
stated that you were going to open four to six and accelerate it next year in
'07, but already in the last less than six months you have announced six new
markets.
So to me you are already accelerating it. I was wondering if you could give
some color, is that to trying to diversify out of California quicker, is it
easier with the market slowdown to hire agents and open new markets and now this
is getting easier since you have done so many so far, what's driving this
acceleration?
ERIC DANZIGER: Well. I think that -- so I will go back down memory lane a
little bit Wendy thanks for your comments. You know, keep in mind, we only added
our first market this time last year, up until last time what we wanted to do
with the business was learn how to do what we did here.
Let's run all of our markets, make them profitable learn, then let's add one,
let's learn from that which was Vegas. And then let's add two which was Houston.
And so we decided to truly being under no pressure to do it until we knew how to
do it well, let's learn. So, we did one then we did two then we did the third
FOCUS
one, and we got pretty good at it here. We have sort of created the ability to
do it, do it well and we know what we are doing in it, it is obviously proving
to be successful for us. The first two are at profit, you know, well below what
we said.
So, we now feel more comfortable and confident in rolling out the brand. And,
we always said that the brand would be diversified across the United States in
all kinds of markets leading outside of California, so that although California
is a great market when it's good we never wanted this brand to be dependent on a
one state market. So, it's simply a matter of we have know experienced it, we
like it, you know we did it, we like it, we want more.
So, we have simply said, we are ready now to do a slightly more aggressive
rollout than we had obviously started with, and that is happening here as you
see here in summer and in the fall, and then here in the next few months we'll
talk to you about '07. So, I am sorry to go on except to say, we now know we're
good at it, we now know it works in various different markets, from Vegas to
Houston to Miami and so on.
The receptivity we are seeing to us, and initially in some of our other new
markets where we are really just starting, is fantastic. So, we are going to do
more of it. As we always promised you, this brand is portable, it could be
FOCUS
almost anywhere and we will begin a thoughtful rollout to truly become a
national brand.
WENDY SNOW: Great, thank you.
ERIC DANZIGER: Okay, Wendy, see you.
OPERATOR: And Joe McDonald with Barrington Partners has our next question.
JOE MCDONALD, ANALYST, BARRINGTON PARTNERS: Hi, Eric and Gary.
ERIC DANZIGER: Hey, Joe.
JOE MCDONALD: Hey, congratulations on a fantastic quarter.
ERIC DANZIGER: Thanks.
JOE MCDONALD: Let me say, also thank you Eric for your leadership of the
company over these eventful years. I'd ask you guys to comment on the
competitive environment with specific reference to what Google and eBay are
doing, and also do I understand correctly that realestate.com is adopting your
model for doing business?
FOCUS
ERIC DANZIGER: Well, thanks Joe. So, let me just again sort of talk at 50,000
and Gary can add the substance to it as he always does in case it's not adequate
enough. The reality is, you know, all -- Google and eBay and partridge in a pear
tree -- participating in real estate is a natural evolution of the Internet. The
fact that -- I want you to know that [inaudible] coming in here yelling that --
the fact that customers are changing their buying habits in all phases just like
-- travel agents don't exist much any more because customers go to the Internet.
So, it's a migration of the way that customers look and buy real estate where
they never did until companies like us and a few others came along.
So the big Googles and eBays are populated by really smart people who know
they've got to be in the game. Now they are in a slightly different game, they
are in a game like basketball and we play baseball. So, what we do have in
common is we are in professional sports, but we are in different sports. What I
mean by that is, we are in the transaction business. We have real live realtors
with technology, we are not a search agent, we are that virtuous cycle.I am
sorry to repeat again, where people can use the technology, they can
-participate in, through the power of technology, [inaudible] but Google doesn't
have people, I mean they have got people, smart people but they don't have
transaction people; neither does eBay. So, it's slightly different. So, let's
look at that as a really positive thing because in the same way Gary said, the
companies out there like the traditional realtors who are advertising for
FOCUS
people to come to internet.com, century21.com or whatever, I just use that as an
example, are helping people come to the Internet.
The [Zealos] of the worldare helping people come to the Internet. So, [I
think] relationship with all these companies is a really good thing and we look
at it as a new channel of business for what we have here which is unique in the
way we operate in real estate space. I don't know that Gary could even add to
that Joe, I think that probably was about as complete as it can possibly be
said.
JOE MCDONALD: I appreciate it. How about realestate.com? I thought it was

interesting that they are hiring realtors, and they are adopting what I consider
the ZipRealty model.
GARY BEASLEY: Yes, our understanding is that they are operational in two
markets and we really haven't come across them yet, so I can't really speak to
how, whether they are dipping their toe in or diving, but we will obviously
continue to monitor that over time.
JOE MCDONALD: Okay.

FOCUS
GARY BEASLEY: Thanks, Joe.
ERIC DANZIGER: Thank you.
JOE MCDONALD: Take care.
OPERATOR: And our next question comes from Kent Holden with Gagnon
Securities.
KENT HOLDEN, ANALYST, GAGNON SECURITIES: Good afternoon gentlemen. You had
mentioned churn a couple of times, but I missed the number, what was the churn
for the quarter?
GARY BEASLEY: Well Kent, as you know, and you ask us this every quarter, we
don't specifically disclose churn, what we talk about are trends and we talk
about net additions to the agent force. So, what we specifically said was that
the churn was improved both over last quarter and over the same quarter last
year.
KENT HOLDEN: AndIt's like trying to get a square out of a [Boston sand],
okay. On the new additions of the agents was 115, 120 something like that, how
many of those were inside of California and how many were outside?
FOCUS
GARY BEASLEY: The majority were outside of California.
KENT HOLDEN: Okay. And then my last question on the New Jersey portion of
Philadelphia, do you have a feel for what size of percentage of the Philadelphia
market the New Jersey thing is, and kind of how you will attack it if you are
not allowed to do the rebates?
ERIC DANZIGER: Well, we won't talk to you about how we are going to attack
it, we have some very interesting ideas that we are talking about, and so we are
going to continue to talk about those internally but not externally; that's
another thing we won't tell you, I guess, can't forecast, just [not give any
estimate].
But you know again, the principal value to the company is, although a piece
of it certainly is rebate, there is lots of ways we can attack that issue, but
the value of the Internet and the Agents and all that is still going to be in
place. So, if you look at Delaware, at Philadelphia, New Jersey [inaudible] so
about 20% looks to be in the Jersey area.
KENT HOLDEN: Okay. Does Delaware have the same rebate rule?

FOCUS
ERIC DANZIGER: No, I think it's only New Jersey of those three states that we
are going into where we have an issue.
KENT HOLDEN: Okay, great. Thanks a lot.
ERIC DANZIGER: All right, thanks Kent. And you know, you can try next time
again.
KENT HOLDEN: Okay, I will -- yes just write me down for that same question
next time.
ERIC DANZIGER: We got you.
OPERATOR: And there are no further questions. I will turn the call back over
to you gentlemen for any closing remarks or comments.
ERIC DANZIGER: Well, we thank you all very much for your participation, and I
hope you are as enthused with our both performance and prognosis. Although it is
a tough market and there are headwinds ahead, this company is getting better
what it does in both the way it operates in existing markets, in it's growth
strategy. We appreciate your support in that as we continue to rollout this
great brand. We are proud to be part of it, we hope you are as well. Thanks
FOCUS
very much for listening in. Let the force be with you. Thanks. See you.
OPERATOR: And that does conclude our conference call. Thank you everyone for
your participation, and we do wish you a great day.

such changes.
be realized.

FOCUS
DECISIONS.]
LOAD-DATE: June 14, 2006

February 28, 2006 Tuesday
TRANSCRIPT: 022806ab.783
LENGTH: 8502 words
HEADLINE: Q4 2005 ZipRealty, Inc. Earnings Conference Call - Final
BODY:
OPERATOR: Good day and welcome to the ZipRealty Incorporated Fourth Quarter
2005 Earnings Conference Call. At this time, all participants have been placed
in 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.
Tom Ryan. Please go ahead, sir.
Q4 2005 ZipRealty, Inc. Earnings Conference Call - Final FD (Fair

FOCUS
TOM RYAN, INVESTOR RELATIONS, ZIPREALTY, INC.: Good afternoon and thank you
for joining us to discuss ZipRealty 's fourth quarter results. With me on the
call is Eric Danziger, President and CEO, and Gary Beasley, Executive Vice
President and Chief Financial Officer.
Please note that earlier today, where recently the Company issued it's press
release describing its results for fourth quarter for 2005 and giving guidance
for the first quarter and full year ending December 31, 2006. A copy of that
release can be viewed on the Company's website at www. ziprealty. com.
remarks we make about future expectations, plans and prospects for the Company
constitute forward-looking statements for the purposes of the Safe Harbor
provisions under the Private Securities Litigation Reform Act of 1995 actual
results may differ materially from expectations, plans and prospects
contemplated in these forward-looking statements that are subject to risks and
uncertainties, including those described in the Company's Form 10-Q for its
third quarter 2005 and other filings with the Securities and Exchange Commission
copies of which can also be viewed at the company's website.
Please also note, to supplement its consolidated financial statements

FOCUS
referred to as pro forma earnings which excludes certain items including
as the litigation settlement expense incurred in 2005. A reconciliation of this
non-GAAP measure to GAAP is provided in the tables attached to this press
release. These non-GAAP adjustments are provided to enhance the users overall
the future.
Further, ZipRealty believes that these non-GAAP results provide useful

information to both management and investors by excluding certain that believes
are not indicative of its core operating results and thus presents a more
consistent basis for comparison between quarters. With that out of the way, I'll
turn it over to Eric.
ERIC DANZIGER, PRESIDENT AND CEO, ZIPREALTY, INC.: Great, thanks, Tom. Lets
start by reviewing our performance. After that, Gary will cover the financial
results in more detail. I'll then come back with an update on our growth
initiatives, and we'll conclude with Q&A.
First, given the challenge and macro environment in the back half of 2005, we
were very pleased with what we were able to accomplish. We closed a record
FOCUS
number of transactions, 12,317 in 2005 compared with 8,500 in 2004, or a 45%
increase. And the total value of those transactions increased nearly 50%, to 4.4
billion compared to 3 billion in the prior year. We ended 2005 with 1,366 Zip
Agents, up from 914 a year ago. And from a financial perspective, we were
pleased to see a near-50% rise in year-over-year revenue.
Additionally, we were pleased with our fourth quarter performance. Despite

the transitioning market we spoke of last quarter, our revenue was within our
guidance range, and our earnings succeeded consensus estimates.
Let's shift gears for a moment and talk about the tangible steps we're taking
to grow the business over the long term. First, our revenue still represents
less than 2/10 of 1% of the $60 billion market we are targeting and
quarter-over-quarter, year-over-year, we're gaining market share as we grow our
company. It's important to appreciate that in our market we grew closed
transactions 25% in the fourth quarter year-over-year when viewed in the context
4% overall decline over that same period.
Clearly, market headwinds slowed our growth, but we were, nonetheless, able
to grow our business at a meaningful rate in the face of declining volume. This
is a clear signal of growth in market share, and, in fact, with each
transaction, we're leaving behind overwhelming numbers of satisfied customers,
FOCUS
in numbers well above what we believe is typical in our industry. And in our
view, that's ultimately what makes our people and our brand nationally
successful, focusing passionately on our customers.
One of the new markets we opened last year in Las Vegas continues to ramp,
and if you recall, it reached profitability in just four months, well ahead of
our original 12 month to 18 month forecast, and the profitability timeline,
although impressive, was also complemented by the fact that our investment was
just under $300,000, compared to the .5 million to 1 million we originally
expected.
Houston also continues to do very well for us. Given the lower average home
prices in that market, we believe it will take Houston a bit longer to reach
breakeven than it did in Las Vegas, but we continue to believe that it will
reach profitability within its first year of operations on a total investment of
less than $500,000.
We are very pleased to launch Miami on December 1st, and with this launch, we
also implemented several new initiatives, including a Spanish language version
of our website, live online chat with Zip Agents, satellite images that enhance
search criteria. While Miami may have been our first metropolitan area in
Florida, we have not let any grass grow under our feet in terms of expanding
FOCUS
our Florida presence. We plan to officially launch Tampa late this quarter, and
we also announced a launch of Orlando in the second quarter, making it our third
market in the state.
Our goal is to enter a total of four to six markets in 2006, and to that end,
it is my pleasure to announce another new market today. We are planning to
commence operations in Minneapolis, Minnesota mid-summer, and we are excited to
solidify our presence in the midwest as we strengthen our national footprint.
Each of our new markets presents a great opportunity for us not only to
expand and diversify geographically but to fine-tune our launch strategy and
become increasingly proficient at getting new markets off to a strong start. We
think it bears repeating that our return on invested capital profile in new
markets continues to be truly compelling. I'll now turn it over to Gary, and he
can review some of the financial results in greater detail.
GARY BEASLEY, EXECUTIVE VICE PRESIDENT AND CFO, ZIPREALTY, INC.: Thanks,
Eric. The company reported revenues of $21.6 million in the fourth quarter, a
23% increase over the fourth quarter of 2004.
In terms of profitability, net income for the period was $17.9 million which
includes an income tax benefit of $16.8 million related to the reversal of our
FOCUS
valuation allowance, which was primarily attributable to our net operating loss
carry forwards. We have conditioned the market for this occurrence on all of our
previous earnings calls, and we determined, after consultation with our
advisers, that Q4 would be the appropriate period to undertake this action.
Excluding this one-time non-cash benefit, net income for the fourth quarter was
$1.1 million, or $0.04, per diluted share compared to $0.9 million, or $0.01, in
a year ago period.
In order to contrast our results with market averages, an exercise that
illustrates our share gains, let me talk about the overall market and then
specifically about ZipRealty.
During the fourth quarter, we estimate that overall transaction side volumes
in our markets was slightly down about 4% year-over-year, driven by a
significant decline in California which was down around 13%. According to our
estimates, markets outside of California, where we have a presence, actually
showed a slight increase in transaction side volume in Q4 of about 3%
year-over-year.
In terms of our own performance, fourth quarter closed transactions in

California decreased by 12% during the period, flat to slightly better than the
overall market. However, company-wide, our closed transactions increased by
FOCUS
25% year-over-year, which was over 20 percentage points better than the market.
Going a step further in Zip markets outside of California that have been in
operation for more than a year, our closed transactions increased by roughly 40%
for the same time period, again, significantly outperforming market growth.
Other breaking out markets and data like this is certainly helpful in better
understanding our business and its potential. We can't deny the fact that we
have a material California presence, and in a down environment as we've
experienced these past several months, we'll be disproportionately affected on a
consolidated basis.
It's important to note though that when California ultimately rebounds, which
history suggests it will, its impact on our business should be as
disproportionately effective on the upside.
As Eric stated earlier, our new market progress certainly illustrates our
intent on mitigating the impact of regional shifts in market dynamics. And to
quantify that fact, California represented 47% of net transaction revenues
during the fourth quarter, versus 61% in the same period a year ago. We think
direction. And ourtage point drop is a step in the right
objective as we grow will be to continue to diversify our revenues and reduce

FOCUS
our reliance on California. We ended the quarter with 1,366 agents within our
previously guided range of [1,350] to 1,400 agents, representing 49% growth
since the beginning of the year.
Turning to productivity, the fourth quarter saw about 0.7 deals per agent per
month. With record numbers of real estate agents fighting over a decreasing
number of transactions, we believe industry productivity was likely very low
during the period in comparison, probably averaging less than half a deal per
agent per month.
As we've seen recent evidence that market conditions will serve as a catalyst
for many agents to leave the industry, as they did in early 1990s when
membership in NAR dropped from about 1 million members to only about 600,000 in
a few years; as was the case then productivity should improve for those
remaining in the industry.
Average net revenue per transaction for the fourth quarter decreased 4% to
$7,203, compared to the third quarter. This figure is in line with the $7,200 we
projected on our last call, with a decline due primarily to mix shift caused by
more rapid growth outside of California's high priced markets.

FOCUS
Moving to the expense side of the P&L, gross margins in the fourth quarter
were 46.1%, about 100 basis points higher than we expected. Also note that our
Q4 results went against the seasonal trend of recording slightly lower margins
in the first and fourth quarters and higher margins in the second and third
quarters.
In 2006, we expect gross margins to reflect more typical seasonal patterns

and to approximate 44% to 45% for the year. Due to aggressive cost controls, G&A
came in lower than we expected at 28.7% of revenues. Our SOCS costs were lower
than anticipated for the period, which benefited EPS this quarter by about a
penny. We expect that these expenses will be incurred in the first quarter,
however, as we finalize our SOCS certification process. So note that, overall,
our SOCS costs remain unchanged.
Marketing and business development represented $2.6 million or about 12% of

revenues versus $2.5 million, or 14.2%, of revenues a year ago. Knowing that
this is transitional market, we were very selective in our lead acquisition
during the seasonally slow fourth quarter. Prior development costs represented
$0.8 million, or 3.6%, of revenues compared to $0.6 million, or 3.5%, of
revenues in the fourth quarter of 2004.

FOCUS
Turning to the balance sheet. Our cash and cash equivalents of $88.9 million
represents a significant portion of our market capitalization, or roughly $3.60
per diluted share. We have no long-term debt, inventory costs, or material
accounts receivable exposure. In terms of capital expenditures, we spent
approximately $866,000 during the quarter, in line with our expectations.
Looking forward, we believe that providing accurate guidance is particularly

difficult at this time given our belief that the current residential real estate
market continues to be in a state of transition in many of our markets. As we've
described in the past, market power is in the process of shifting from sellers
to buyers, and the result has been rising inventories, increased time [in]
market and flattening to declining median home prices sequentially.
In this context, we're choosing to moderate our growth assumptions in the

near term until we see a definitive shift in market dynamics in our favor. For
these reasons, we expect first quarter revenues to range from $16.5 million to
$18.5 million, with fiscal 2006 revenues of between $105 million and $115
million.
Underlying our revenue assumptions for the year, we expect agent productivity
to decline approximately 10% to 15% in 2006, compared to 2005. Average net
revenue per transaction is expected to decrease to roughly $7,000 from
FOCUS
approximately $7,400 this year. We're now projecting an ending agent count of
between 1,800 and 2,000, slightly below our earlier guidance as we are choosing
not to add agents as aggressively as previously planned in some markets. In
terms of Q1, our objective is to add about 100 agents net over the course of the
quarter.
In terms of bottom line guidance, a couple of things have changed recently

that are worth noting. First, we are including the estimated impact of expensing
stock options under FAS123R in our EPS forecast going forward.
Second, because we reversed the valuation allowance for our net operating
loss carry forwards, we will now carry a book tax rate on our P&L despite the
fact that we should pay no material cash taxes until we exhaust our federal and
state carry forwards. Our EPS guidance will reflect these two items beginning in
Q1.
So based on these changes, our first quarter loss for outstanding shares
expected to range from $0.17 to $0.22 with the option expense components being
about $0.02. For the full year, we expect diluted earnings per share to be
between $0.02 and $0.08, including an estimated $0.08 in stock compensation
expense under FAS123R.

FOCUS
But given the fact that stock option expense is non-cash in nature and it
will be booking a full tax rate provision despite having little cash tax
liability, we feel that pro forma earnings defined as GAAP earnings excluding
the effects of stock-based compensation under FAS123R, non-cash income taxes and
one-time items such as the litigation settlement expense incurred in 2005 can
also be useful for investors. On this basis, we expect Q1 pro forma loss per
outstanding share to range from $0.15 to $0.20, and full year 2006 pro forma
earnings per diluted share to be between $0.15 and $0.25. Keep in mind that our
outstanding shares total about 20.3 million, and our fully diluted shares total
about 24.8 million.Pro forma earnings and its reconciliation to the nearest GAAP
measure are included in the financial tables in our earnings release.
Our strategy will be to manage the business in a tight fashion, assuming more
modest revenue targets with a goal of getting strong flow through to the bottom
line once revenues ultimately rebound. With that, I would like to turn the call
back over to Eric for additional thoughts.
ERIC DANZIGER: Let me take a moment to review some relevant industry

statistics. Nationally, sales of existing homes fell 5.2% year-over-year in
January to a seasonally adjusted annual rate of 6.6 million, the lowest in two
years-- nearly two years. This represented the fourth month in a row that sales
have softened. Moreover, inventory of house - I'm sorry, unsold homes is the
FOCUS
largest since August of 1998.
The situation in California is even more pronounced with Q4 average inventory

levels in our markets increasing about 50% year-over-year, and total
transactions decreasing by roughly 13% over that same period. So while on the
surface this may not sound all that positive, the reality on the ground is that
residential real estate market is still very strong from a historical
perspective both in California and elsewhere, but we still foresee a soft
landing rather than a dramatic correction.
Furthermore, our performance in new markets has been excellent to-date. We

are actively reducing our reliance on any one market as evidenced by the fourth
quarter's 40% increase in year-over-year closed transactions in the markets
outside of California where we have been operating for at least a year. So
despite the circumstances, we're not sitting still. In fact, we're investing in
several areas; most notably, Lee Generation, so that we're well positioned for
the market currents. And while we had pulled back in this area in Q4 during the
early stages of this market transition, we have now aggressively turned up the
pipeline since January 1st which has led to a 40% increase in registered users
relative to the year ago period.

FOCUS
Second, we're also investing heavily in the new market strategy this year
which can dampen near-term earnings but plants the seeds for revenue growth in
2007 and beyond. This includes investments in Houston, Miami, Orlando, Tampa and
Minneapolis, as well as some preliminary work on additional markets we plan to
enter later this year. And in our view, this spending will pay off.
Site activity remains at record levels, and client visit activity is very
strong. Total online offers and scheduled visits have increased approximately
38% year-over-year through the first six weeks of the first quarter, and we're
finding that average consumers' interest in real estate remains very high.
They're just having a tough time on pricing.
Let me give you an example. In Phoenix last week alone, we showed 780 homes
which interestingly enough resulted in only 47 offers, probably about half as
many as would have been the case a year ago. This typifies the current market,
we have eager buyers in our store;is that
it's just that they're waiting for items to go on sale before they head to the
checkout counter.
Before we go to questions, let me briefly talk about two new website features
that we also believe will enhance the customer experience and further our
reputation as innovators in this business.
FOCUS
First, "price track." That enables buyers to search for and track price
reductions on listed homes and to give sellers the chance to get more interest
from buyers through additional visibility. The new feature displays a listed
home's complete listing price history including the amount and date of each
price reduction. Buyers can also see the number of days each house has been on
the market in most regions.
Second, the "view-similar-homes feature" offers users the option to see homes
with similar criteria that were previously viewed by other home buyers. This is
similar to the Amazon.com feature that shows what prior customers of the same
product have also bought in the past. With these features buyers now have even
more ways to search for homes and sort through these rising levels of inventory
now available in the marketplace.
So when we add all this up, 2006 will likely be a year where market trends
are working against us. Could the market change and shift in our favor at some
point throughout the year? Certainly, but we don't want to count on that in
terms of our guidance. We'd much rather be realistic and conservative at this
point. The silver lining in all this is that it is only February, and given our
buyer- centric model, we believe over time, a more normalized market will
certainly benefit us. With that, I'd like to thank you all for listening this
afternoon and open up the call to Q&A.
FOCUS
OPERATOR: Yes sir, thank you. [OPERATOR INSTRUCTIONS] And we'll take our
first question from Jeetil Patel, Deutsche Bank. Please go ahead.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: Question one, you lowered revenues in
the guidance for Q1 in 2006 roughly by our estimates, but I guess the real
question is what do you think the change in the expectations on guidance for
this year is related to market versus - I'm just trying to figure out how much
the agent attrition or productivity is affecting you relative to just the market
dynamic and setback in the industry? Then I have a quick follow-up.
ERIC DANZIGER: Hi, Jeetil. Well, Gary can follow on with anything. Look, the
reality is, sort of what I said last call, we were three weeks of this history
into the transition market when we last spoke. It's started after Labor Day in
September, and we reduced guidance a little bit, saying we don't know any
better. We now have three months, but we don't know any better in terms of how
long this thing lasts.
You know, we know we are in a market, that it's a hard market, you read the
paper every day. And so we are really just choosing to take a posture that since
we don't know any better, we are just going to assume the market is what it is
until it changes, and then we will offer a more encouragement when we actually
experience it as opposed to trying to be in the prediction business, which we
FOCUS
are not.
So I would say to you that that is generally the issue. We are not shy of
agents, to the number of agents that we wanted to have, we continue to work in
this company on retention issues, which you know, we are not going to get into
too much details, we peaked as a high turnover, which we talked about as a
result of the California lawsuit and the expense thing which followed last
September, October. It's been declining since then, we are doing very well
relative to that peak this year already.
So I really choose to say that we are battling a tough market, we are going
to continue to work at growing market share and improve our position within each
of those markets, but still, it is a nasty market out there, it's tough, it has
not yet worked its way through the transition, and that's the principal issue
that we are being guided by in our guidance.
JEETIL PATEL: Got it, and if you just look at market equilibrium, you've
talked about you know I guess improving inventory levels, which I would kind of
view it as a positive 50% increase in California, but where do you think you are
in terms of kind of monthly averages for the industry as you look at California
versus, let's say, a market like Boston, where I think the transition probably
started even earlier than even California and then just broadly in the US.
FOCUS
ERIC DANZIGER: Yes, fair enough, and I did say last time that the average
inventory kind of equilibrium [like stuff], we are really intended to be like 5
1/2 or six months, and that many of our markets had already achieved that. And
by the way, that's why in some cases, we are 30% above last year when the market
is down. The problem is it's not just inventory, let's say, in California,
because here you have the [biggest sticker] shock issue of the pricing issue, so
whereas the inventory has increased substantially, which is really what we
wanted, we want to have more houses available for buyers, it doesn't necessarily
mean that sellers have yet reduced the price to where the buyers are willing to
pay. And I love that the inventory is what it is, I love that our buyers have
all these great choices.
Phoenix was a great example to give you, Jeetil, that there's tons of
inventory. We've got tons of buyers, but they are not buying at the prices that
the sellers are selling for, so the sellers have to get a little bit more
realistic, and that's what we don't know how long that takes. That's a market
specific issue. That could take months, it could take three, we just don't know,
so we don't want to predict it.
But I would say to you again that California has been our biggest problem,
witness the numbers that we gave to you. Outside of California much less of an
issue. In fact, I'm very proud of 40% year-over-year growth in a market which,
FOCUS
I don't know, thirtysomething points better than the market or whatever it was,
I forgot the exact number. So inventories are good, but this transition market
is still not settled in, and I don't know when it will stop.
GARY BEASLEY: Jeetil, to put some numbers for that, you asked about inventory
in California relative to some markets like Boston. California right now is, in
our markets, a little bit below four months of inventory, about 3.8, where a
year ago during the same period, it was about 1.9 months of inventory, so that
shows you the increase in California.
Boston, however, if you look at Q4, was about six months of inventory, which
is pretty much kind of at an equilibrium level, so that, as we had mentioned
before, seemed to start to transition several months before the rest of the
market, for whatever reason; so just to put some numbers around those examples.
JEETIL PATEL: Quick follow up then. Do you think that-- I hate to go to the--
ask about the markets, I'm sure you don't want to, but feeling at Boston with
six months of inventory, are you kind of getting to the point where you're
seeing transactions start to get done in that marketplace?
And the last thing is do you think just broadly, in terms of open
transactions or closed transactions, however you want to look at it, you are

FOCUS
kind of flattening out in terms of the transaction rates on a monthly or weekly
or kind of biweekly basis at this point?
GARY BEASLEY: Well, I would say that we are actually doing quite well in
Boston as a market. In fact, last year we were one of the top offices in the
whole state of Massachusetts, if you look, because ZipRealty is effectively one
office. We do all of our business out of there. So we do a lot of business
there, and it's healthy.
In terms of the open transactions, obviously, we've been in the seasonally

slow time here, so it's difficult to tell exactly what is seasonality versus
what is overall weakness in the macro environment. I think quite honestly, we
will know a lot more as we get into the spring, when transactions typically
start happening at a higher rate. It's hard to tell where we are today.
But what is encouraging, as Eric mentioned in the prepared remarks, is that

the activity of our clients and the number of clients using our web site is very
hile it's not translating into near-term revenues or immediate term
revenues; we are getting the registrants, they are getting in cars with our
agents. And we feel that over time, we should be able to monetize those clients.
FOCUS
ERIC DANZIGER: So generally, Jeetil, we, obviously, feel good about a company
which has customers which are seeking to buy; they just haven't bought.
ERIC DANZIGER: OK, thanks, Jeetil.
OPERATOR: And we will take our next question from Frank Gristina, Avondale
partners. Please go ahead.
FRANK GRISTINA, ANALYST, AVONDALE PARTNERS: Thanks, guys, thanks for taking
my questions. You mentioned lead generation, how you are accelerating lead
generation now, starting in 06. I was curious what exactly does that mean? Does
that entail marketing designed to drive traffic right to your site, or are you
actually buying third-party leads?
And then a follow-up to that is when you launch these new markets, given that
you are in a transition environment, especially in California, what does that
entail exactly? Do you tackle it with, you know, a blend of TV, print, local
page search? How do you tackle that? And you mentioned the cost to set up a
market. Is that marketing spend included in that cost?

FOCUS
ERIC DANZIGER: Yes, let me do the last one, then Gary will do the first one.
FRANK GRISTINA: OK.
ERIC DANZIGER: How are you doing, Frank?
FRANK GRISTINA: I'm doing well.
ERIC DANZIGER: Great. Listen, so the new markets, we don't -- no where in our
company is currently do we do TV and radio. All of our customer acquisition is
done via technology and we have so many initiatives underway, not only third
party and partners, and [SEO]. I mean we have lots of ways at which we attract
customers to the site. Referrals, of the 95% customer satisfaction, you'll
recall we told you it was around 30% direct to site registration.
So the company's success is so far driven without the costs of a lot of

off-line advertising, which I'll want to do one day, by the way; TV, and all
those things which are good for both brand awareness and driving customers to
the site; but you really want to have distribution greater than the numbers of
cities we have before you make that investment. So the cost of the new markets
really includes everything.

FOCUS
As you will recall, that small capital cost is really some build-out of a
very small office and some training computers and all that, but all of the costs
are loaded into the-- whether it was 300,000 or 500,000-- which is people, and
training, and advertising, and the recruiting of new agents, and all of that,
and customer acquisition for that. So it's all shown and exactly what it cost.
But our dependence on off-line is zero at this point, but I do want to say it is
something that the company has-- we are doing focus groups now to talk about the
kind of messaging that would be the appropriate one and all that. So did I
answer the new market question for you enough before I take it Gary?
FRANK GRISTINA: Yes, sir, let me get a little clarity then. How does a
consumer know to go to the site? How do you get all this direct to site traffic?
Is it word of mouth that's kicking in, or how are they exposed to it? All
online?
GARY BEASLEY: Frank, this is Gary. I'ts word of mouth, as well as natural
search, organic. We've developed off some affiliate web sites, things like that,
with good localized content, some blogs, things like that that are getting us
picked up without having to pay for it.
ERIC DANZIGER: And one of the reasons, Frank, we get so much attention, I
mean first of all we have a bunch of traffic to the site. When we turned on
FOCUS
Las Vegas, it was amazing to us -- you know, keep in mind, any given moment in
time that someone's on the site, you don't know exactly where they're looking.
We had incredible traffic to our Las Vegas leads, like, in day one. I think in
one of our cities in Florida we had a thousand or something leads the first day
or two or three or whatever.
So number one, we have a lot of natural search. A lot of people looking. And
one of our advantages when we go to a new market, as we said before, if you
think about it, and gosh, particularly in tough times, if you think about it,
you know, it's not that we are just another real estate company coming in doing
business like everybody else, and our Blazers are orange instead of yellow or
red; we are so different. We have such a value proposition for customers that it
draws and drags a very significant initial and sustained level of interest to
the brand.
FRANK GRISTINA: OK, and then in terms of lead generation, I think you've kind
of answered this, most of the leads are direct to site, organically originated,
or how many are acquired, for example -- I know you turned on a partnership with
[zilo], and that created leads. How many come from affiliates like that?
GARY BEASLEY: About 40% come from affiliates. About 30%, 30 1% in Q4 came
direct to site, and about 18% come from paid search, principally Google, but I
FOCUS
think one thing to keep in mind, I mean, there's a lot of talk about the cost of
paid search and how the cost per click has been going up, which it has, but our
cost per lead in Q4 actually went down fairly substantially because what we've
been able to do, although our cost per click has gone up, we have -- our
conversion of clicks into registrations has improved dramatically, and that's
one of the things that we focus on a lot here in terms of optimizing our web
site, making the landing pages more relevant, making the registration process
easier, all that kind of stuff. So there are ways even in the context of more
expensive leads and more expensive lead environment, we feel like that we cannot
control. What we can control is what we do with those clicks when they come, and
that we think is a core competency that we can continue to work on.
ERIC DANZIGER: One last thing, too Frank, just again, to put it in context,
you know, we are a fairly small company on our way to doing things bigger, we
because of what we do, howe public-relations, both
we do it, and how we are received out there. So you know three weeks ago we were
covered in the Wall Street Journal, a little company like us, with the writer
who was talking about doing a business with us and why, and whether we -- and we
are in the top 20 of the BusinessWeek top 20 or whatever it's called. I don't
know if I said that right, I think it was Web 20, things like that. So the --
the what? The fact is that we have incredible presence and public relations, so
people are looking at what is this company is all about? So it certainly helps
FOCUS
with direct to site traffic.
FRANK GRISTINA: Ok, thanks very much guys.
ERIC DANZIGER: All right, Frank, thanks.
[Operator Instructions]
OPERATOR: And we will go next to Derek Brown, Pacific Growth Equities. Please
go ahead.
DEREK BROWN, ANALYST, PACIFIC GROWTH EQUITIES: Thank you. Two questions.
First, can you my guess is sort of in the aggregate talk about the percentage of
revenue from the new markets that you launched during 2005 and sort of the
year-over-year growth I guess in organic business during the fourth quarter? And
then as a comment about guidance, or a question about guidance, can you just
walk through the EPS on I guess a fully taxed basis or does that even -- is that
even reflected in the guidance that you gave or -- and I guess more
specifically, how has the EPS guidance changed relative to prior guidance on a
tax adjusted basis?

FOCUS
GARY BEASLEY: OK, the first question, if you look at new markets -- revenue
from new market contribution was quite small, you know, if you look at what it
was in 2005. You know, a couple percent. So it wasn't something that had a
material impact on our overall numbers. Now, it will be a significantly larger
percentage we hope in 06, because we will have the three markets that we opened
in 05, plus some revenues from some markets we are opening early this year, so
we want that to become an increasing component.
In terms of the guidance, Derek, we've given our guidance two ways; fully
taxed, including stock comp and everything. That was our GAAP guidance we just
gave. The comparable guidance to what we gave historically, which excluded stock
comp's, and taxes, what we are talking about now is that we are calling it a pro
forma, which is excluding stock comp's, and non-cash taxes. It's $.15 to $.25,
so that's comparable to be $.40 or so you probably would want to compare to on a
pretax basis.
DEREK BROWN: Great, thank you.
GARY BEASLEY: OK.
OPERATOR: And we will take our next question from [Ben Schachter]. Please go
ahead.
FOCUS
BEN SCHACHTER, ANALYST: Just wondering if you could discuss what the cash
burn might be for 2006, and then also has there been any discussion about
changing the fundamental business model structure in terms of how you employ the
agents, how you pay the agents? And that's it.
ERIC DANZIGER: Yes, I'll answer that one, Ben, and we will go back to Gary.
You know, that is also one of those continuing discussions here. We have made
some modifications in the last couple quarters, and I suspect we will continue
to, whether it's different incentives or different groupings, or different
levels of pay for performance or different initial compensation, different
long-term.
So I think the answer -- your question was has there been discussion. The
answer is there's always discussion and it's a continual evolving. We are not at
the place we were last year, we've changed it. We are not at the place we will
be next year, I doubt. We will just always review the ways that makes it better
for our people, to get the right people in, to get them better trained, more
productive, more income generation, and more successful because it's good for us
to have us do that.
So I'm not going to detail any specific things we've changed, only to say
that we have evolved the model several times. Well, first of all, the model
FOCUS
has evolved many many times in the last five years, but I could say to you it
has evolved at least two or three times this last year and will continue to. OK?
GARY BEASLEY: And, Ben, regarding your question, we should generate a fair
amount of cash still this year. I mean we are talking about, with our -- even at
the low point of our guidance, you know, at the $.15, that's about 3.7 million
of net income before taxes and stock comp, which -- before non-cash taxes and
stock comp. Plus we've got in there about 1.7 million of depreciation and
amortization, and so in our CapEx we will be you know probably more in the 3 to
$3 1/2 million range, so we will definitely generate based on those numbers a
fair amount of cash.
BEN SCHACHTER: OK, thanks.
GARY BEASLEY: OK.
OPERATOR: We will take our next question from Patrick Stowe, Priority
Capital. Please go ahead.
PATRICK STOWE, ANALYST, PRIORITY CAPITAL: Hi guys.

FOCUS
GARY BEASLEY: Hi.
PATRICK STOWE: I'm wondering on the full-year guidance. If I just back out
what you are guiding to for Q1, it looks like the full-year guidance suggests
that the last three quarters will be up perhaps even significantly over the last
three quarters of this year, which seems to suggest you expect the environment
to improve pretty significantly. I'm just wondering what that's based on or if
that's not the assumption, if you can give us more color on some of the other
variables that go into that guidance, maybe productivity or ARPU, or any more
color you can give us there.
GARY BEASLEY: Sure. Actually, we are assuming pretty modest acceleration. We

are looking, as you can see based on the guidance, somewhat of a decline in Q1,
with you know kind of around a 5% probably growth rate year over year in the
second quarter and then accelerating a little bit later in the year, but
remember, the comps, as we get later in the year, the comps become much easier,
particularly Q4.
So the underlying assumption I think, to dissect it, we are assuming a

reduction in overall productivity versus what we saw this year, which was a
disappointing year for us productivity wise. Part of it obviously macro
environment, or part of its company related, we are addressing those issues,
FOCUS
but we are assuming a further degradation, but obviously we are going to hope
that it's not there and we are going to do everything we can to improve
productivity, but even assuming that productivity goes down with the 100 net new
agents a quarter that we are projecting, and the kind of revenue per transaction
that we are anticipating, that's what drives, just by doing the math and holding
tight on our expenses, which is our plan as we grow through the year, that will
generate or should generate some acceleration in the earnings growth.
PATRICK STOWE: OK, and I guess in terms of the expenses, you mentioned
investing more heavily in lead generation. Will that not kind of show up in the
marketing a line or do you still expect to leverage as you grow the agents?
GARY BEASLEY: Well, we should still get some leverage their. We were speaking
investing heavily relative to what we did in Q4, where Q4 we pared back because
the market conditions dictated such that we didn't like the ROI, we didn't buy
the expensive leads in Q4 that we might have otherwise, and so costs were very
good, but what we wanted to do was deliver more leads per agent in the first
quarter, and as you probably know, leads tend to be expensive on the Internet in
Q4 generally because they are competing with retail around the holidays, so
price of leads got more attractive, so we were able to kind of refill everyone's
pipelines in the first quarter.

FOCUS
PATRICK STOWE: OK, and maybe just to turn to some of your newer markets, I'm
wondering you mentioned some of the difficulty in the quarter comes from lower
transactions in the industry in general, and an increased number of agents in
most of your markets. I just wonder when I look at numbers from out of Florida
for instance, that are down pretty significantly in recent months and I assume
agent counts there would be fairly high year of the year. I mean do you have any
trouble getting off the ground and getting agents into the system, and where you
might have higher concentrations and less experienced agents, I would think
those were the ones whose volumes would suffer and, you know, is that leading to
an acceleration in turn from your system?
ERIC DANZIGER: I think what we would say is we have to look at our

performance, and the performance in Las Vegas and Houston, which are the markets
that came on in May and July I think respectively are ones that have traction
and they are up and going and doing obviously very very well. Miami has only
been on for two months or something like that, and so I would say that's not the
case. And do keep in mind, that's sort of what I said earlier, Patrick, the
reality is they is 6.6 or 6.5 or whatever the latest number is, number of
transactions, so it's not like nobody is buying homes.
We are in a marketshare game, and to your comment about less experienced

agents, you know, that is not the entire profile of agents we bring into this
FOCUS
company, we try to bring the people that have the right stuff, that have the
passion for customer service, we do the ability to use technology in the way
that we put it in there and the ability to really care about contributing. Some
of those agents are new, they are newly licensed, they are sort of hours to
mold.
Many of them are experienced from 2, 5, 15 years. We have people who have
been in real estate for 25 years. So what I would say to you is we are able to
generally hit the guidelines that we seek to open new markets and grow new
markets with, and they are performing in a financial result the way I've
described in Vegas and Houston.
PATRICK STOWE: All right, well, thanks for the time.
ERIC DANZIGER: Thanks, Patrick.
OPERATOR: We will go next to Mark Anderson, [Axial Capital], please go ahead.

MARK ANDERSON, ANALYST, AXIAL CAPITAL: Yes, my question really is around sort
of a normalized level of transactions in the industry and midyear last year
things were pretty frothy, you know, right now, people saying things are soft
but little bit. If you consider what you think would be a normalized level of

FOCUS
transaction volume in real estate, you know, my concern is your ability to
leverage your cost structure in a normalized volume environment, and looking at
your projections for next year, obviously Q1 is going to be you know rough, and
you are expecting pretty significant improvement throughout the rest of the
year. What I am concerned about is your ability to scale back expenses if the
environment is not the way you hope it will be in the second, third, and fourth
quarters.
ERIC DANZIGER: Yes, fair question, Mark. I guess what I'd say is you know we
are in the business of building a company for more than a quarter. So we make
decisions every day around here on predictions of sort of normalized, and I hate
to put a number, you've got to look at [NAR] from now, whatever, 10 years at 6.6
million it was 7 million last year, 5.5, what ever it is, it is generally a
market that's pretty healthy from a total number of transactions done in the
United States of America.
It's still $60 billion a year in commissions, so I guess what I used to say
as we developed our strategy is never in the history of mankind has this
business gone 10% off let's say. No, that I know of, so I say never strong, I'm
going to say the last 30 years we've looked at I don't think it's ever gotten
down to that, but if it did, it would be $54 billion in commissions as a pie out
there, so it's a very significant business.
FOCUS
So we will always make the decisions on what's -- just like we scaled back
certain expenses in the fourth quarter that we felt were not appropriate from a
return on investment, but yet chose other expenses to continue to do, and then
in this quarter, we choose to even increase some of those. So we do not see a
doom and gloom, we did a lot of research into the proverbial bubble, looking at
the various reports, is there a bubble, what defines a bubble, what markets are
that?
Just for interest, the only time that -- do you remember who the report was
that did that -- the bubble. The bubble defined I think is [ex] year, where
there was more than 15% growth in a row or what ever, and intended to conclude
that when there is a kind of bubble bust, it is market specific, not related to
normal home buy and sell activity, it's related to defense contracting stocks.
Well, oil busts in Texas or those kinds of things.
So because that's what we have to go on or look back in history as when a

market got in trouble, but I can say to you is there doesn't appear to be any
way you can talk about the market getting in trouble nationally. There are
always markets that do well, that work outside these declines and by the way
that's one of the reasons we love to diversify across -- so that we are not
subject to any geographic temporary or long-term decline.

FOCUS
So our expense model, you know, it is what it is, but we have some ability to
turn off for instance customer acquisition, if we wanted to, or reduce it such
as we did in the fourth quarter, but I do believe that what we are in the
business of doing here is growing the brand, growing market share, we are only
at 2/10 of a percent, and so the objective is if the market declined X percent,
and we are only at 2/10 of a percent, what a good company does is find ways to
get to be a larger share of the market, and that market is so big I think that
is our mission, so we will balance market growth, activity to grow our brand,
with prudent thoughtful careful expenses that are the right thing at the right
time.
MARK ANDERSON: OK, thank you.
OPERATOR: We will go next to Chet Boulden, [Gagnon]. Please go ahead.
CHET BOULDEN, ANALYST, GAGNON: Good evening. I came on to the call a little
bit late, so you may have covered this, but I was curious to the number of
transactions in the California market.
GARY BEASLEY: Yes, we did cover it. The transaction -- what we said was the
net transaction revenues from California in Q4 were about 47% of the total, and
that was down from about 61% a year ago.
FOCUS
CHET BOULDEN: OK, and what percentage of your agents in California?
GARY BEASLEY: About that same percentage or less than 50%.
CHET BOULDEN: OK, OK. My other question has to do with the balance sheet and
you still got this big pile of cash. Are you considering the stock buybacks at
this point?
ERIC DANZIGER: I think that the company looks at its cash reserves and tries
to evaluate on an ongoing basis the most prudent use of that, which is the best
interests of the company, including stock buybacks. That's a Board decision, the
subject is reviewed with the Board and by the Board at each quarterly meeting,
and at this point, we have chosen not to exercise that option. That will be an
ongoing discussion, as all companies should do, with not only regard to buy
back, but also various other uses of that capital, whether it be for acquisition
or other purposes.
CHET BOULDEN: OK. My last question would be what percentage of your business
was done on the buy side?
ERIC DANZIGER: About [80], we have always been about 80% buyers, 20% sellers.
As I've said for a couple of years, it was really only about a year ago that
FOCUS
we started throwing some resources against the selling side. I did not want the
company to focus on too many things and try to do a lot of things not well, so
we just really in the last few quarters introduced like the new CMA online,
various other things like that that were seller-centric, but generally we are
buyers model and you can look at us continuing to be heavily slanted towards
that for some number of years.
CHET BOULDEN: OK, thank you.
ERIC DANZIGER: Yes, thank you. I think we are going to do one more after
this, is that right?
OPERATOR: Yes.
ERIC DANZIGER: OK.
OPERATOR: And we will take our final question from Stephen Silk, C. Silk &
Sons. Please go ahead.
STEPHEN SILK, ANALYST, C. SILK & SONS: Most of my questions have been
answered, so where would you see your absolute cash at the end of the year?

FOCUS
GARY BEASLEY: At the end of 06?
STEPHEN SILK: Yes.
GARY BEASLEY: Well, just walking through the math that we walked through
earlier, you know, it should be probably a couple of million dollars higher than
it is today.
STEPHEN SILK: Very good. Thank you.
ERIC DANZIGER: Thank you, Stephen.
OPERATOR: And at this time, I would like to turn the conference back over to
the speakers for any additional closing remarks.
ERIC DANZIGER: I appreciate everyone's time and interest again in our

company, and I thank you for listening to us and for your participation in Q&A,
and I guess we will speak to you about three months from now. OK, thank you very
much, everyone.
OPERATOR: And that does conclude today's presentation. We thank you for your
participation, and you may disconnect at this time.
FOCUS
such changes.
be realized.

FOCUS
DECISIONS.]
LOAD-DATE: March 8, 2006

November 3, 2005 Thursday
TRANSCRIPT: 110305at.773
LENGTH: 6957 words
HEADLINE: Q3 2005 ZIPREALTY INC Earnings Conference Call - Final
BODY:
OPERATOR: Good afternoon, and welcome to the ZipRealty Inc. third quarter
2005 earnings conference call. This call is being recorded. (Operator
Instructions) It is now my pleasure to turn the floor over to Mr. Tom Ryan for
opening remarks and introductions. Please go ahead, Mr. Ryan.
Q3 2005 ZIPREALTY INC Earnings Conference Call - Final FD (Fair

FOCUS
TOM RYAN, INVESTOR RELATIONS, ZIPREALTY INC.: Thank you and good afternoon.
With me on the call today is Eric Danziger, president and CEO and Gary Beasley,
executive vice president and chief financial officer. Please note that earlier
today the company issued its press release describing its results for the third
quarter of 2005 and giving guidance for the remainder of the year and 2006. A
copy of that release can be viewed on the company's Web site at
www.ziprealty.com.
remarks we make about future expectations, plans and prospects for the company
constitute forward-looking statements for the purposes of the safe harbor
provision under the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from expectations, plans and prospects
contemplated in these forward looking statements and are subject to risks and
uncertainties including those described in the company's form 10-Q for second
quarter 2005 and other filings with the Securities and Exchange Commission,
copies of which can also be viewed on the company's Web site.
With that out of the way, I'll turn the call over to Eric.
ERIC DANZIGER, CEO AND PRESIDENT, ZIPREALTY INC.: Thanks, Tom. Hello,
everyone and thanks for calling. Let me start by reviewing our performance.
FOCUS
After that, of course, Gary will cover the financial results in a bit more
detail and I'll come back with some of our growth initiatives and conclude, of
course, with Q&A.
We're pleased with our third quarter results. For the period we closed 3,689
transactions, representing $1.36 billion in real estate sold. Revenue of $28.2
million was a record, up 61% year over year and within our guidance range of $27
to $29 million. This top line growth helped drive a significant earnings per
share increase to 11 cents.
This was a penny below our guidance range for a few sound reasons. First, we
incurred some final and unplanned expenses related to the lawsuit we mentioned
last quarter. This involved making some additional payouts to employees that
totaled about a penny a share. We believe that these payments are now complete
and we have received preliminary approval for the final settlement from the
court.
Second, we incurred extra costs associated with Sarbanes-Oxley compliance

that also cost us about a penny. We remain on target to complete our 404
compliance in time for certification. Also during the quarter we invested a bit
more than usual in recruiting as we once again looked to improve our effort to
hire and train agents who have sort of what we refer to as the "it" factor.
FOCUS
Now what I mean by the "it" factor is a shared passion for customer service,
a desire to be part of a great company that is changing an industry and an
aversion to being an independent contractor, which he or she would be with one
of the big residential brokerages. Finally, we invested in building the company
culture in Q3 as I personally, along with several of the key executives here,
began conducting an internal road show, so to speak, during the quarter.
You know, while it wasn't planned, I felt it was critical at this time to
connect with the troops, share the vision of this company. In any event, these
kinds of expenditures are extremely important as we progress towards our
strategic objectives.
We have consistently said that our goal is not just to create growth, but to
create an enduring national brand. And I think that our willingness to invest
and our ability to balance that investment with growing profitability is a
testament to that focus.
Remember, ZipRealty is an operating company, not a franchiser. This allows us

mes totrol our brand and therefore our destiny, particular when it co
delivering unsurpassed service to our customers which we did again last quarter
as evidenced by our 94% customer satisfaction rate.

FOCUS
Shifting to new markets for a moment, I want to take a moment to update you
on the progress. Let's start with Las Vegas. If you recall, on our second
quarter call, we talked about this market tracking ahead of plan on all fronts,
agent headcount, transactions, revenue per transaction and leads.
We also indicated that it would be profitable by the end of the year. Well,
we're thrilled to announce that Las Vegas has achieved district level
profitability in just its fourth month of operation versus the 12 to 18 months
we had originally projected. On top of that, our initial investment, which we
projected at more than $1 million, has come in at less than $300,000, which is
also significantly below the low end of the $500,000-$2 million range we
discussed in our last call.
We're delighted to have successfully executed the Las Vegas launch plan and
although we don't want you to necessarily extrapolate this experience into every
new market, what you can do is factor in a terrific return on investment
relative to almost any traditional business that at least I can think of.
Houston is another market that's doing very well for us, tracking along many
of the same metrics as Las Vegas. I should point out that our business in
Houston was slightly influenced by the effects of Hurricane Rita, but the impact
was short-lived and really immaterial.
FOCUS
Given the lower average home sales price of Houston, though, we anticipate
the ramp up to profitability will take a bit longer than it did in Las Vegas.
Our current estimate is that Houston should reach profitability within its first
year of operations and that the total investment should be less than our
$500,000 low end benchmark.
In terms of Miami, we're right on track with our official launch scheduled
for December 1st.
Each of our new markets presents a great opportunity for us, not only to
expand and diversify geographically, but to fine tune our launch strategy and
become increasingly proficient at getting new markets off to strong starts.
Regarding future expansion, we're planning to enter four to six new markets
next year and as I stated before we believe the return on invested capital
profile in these new markets continues to be truly compelling.
Finally, we believe that our success in Las Vegas and earlier results in
Houston are tangible evidence that we can support our model with very low
execution risk. Let me now turn it over to Gary. He can review the financial
details in greater detail and I'll come back in just a bit.

FOCUS
GARY BEASLEY, CFO AND EVP, ZIPREALTY INC.: Thanks, Eric.
The company reported record revenues of $28.2 million in the third quarter.
These results represent an increase of 61% over the third quarter of 2004 and
sequential quarterly growth of 10%. In terms of profitability, net income for
the third quarter was $2.9 million, or 11 cents a share, up from 1.3 million in
the year ago period, which represented zero cents a share.
We ended the quarter with 1,383 agents, up 148 net from the previous quarter,
representing 12% growth for the quarter and 51% growth since the beginning of
the year. We're certainly on track to finish the year at the high end of our
previously guided range of 1,300 to 1,400 agents.
Our objective in Q3 was to approach that target early so we can get those
agents some seasoning in advance of next year's spring selling season. We intend
to moderate our hiring pace a bit in Q4 as we like where we are headcount wise
and are focused on a smaller number of high quality hires in target areas for
the balance of this year.
Turning to productivity, we believe our ratio of 1.0 deals per agent per
month for the quarter was significant above industry averages, particularly in
light of the tremendous number of new agents who have entered the industry
FOCUS
over the past 18 months.
It's currently estimated that there are about 2.5 million licensed agents in
the United States, which translates this year into only about five closing per
agent or a 0.4 productivity ratio.
Our productivity number looks even more compelling if we look at the agents
who have been with us fro at least four months. Under that scenario, which
assumes agents have had some training and gotten their feet wet in our system,
third quarter productivity was approximately 1.3, representing a 30% premium to
our overall average and as these agents mature, their productivity typically
increases further.
Our goal is to continue to generate productivity in excess of industry

averages as we scale the business and focus on improving our systems, processes,
people, training and lead allocation. Average net revenue per transaction for Q3
increased to $7,475, representing a four percent increase over last year's third
quarter.
We expect this figure to show a slight decline sequentially in Q4 to

approximately $7,200, based upon current pricing and business mix trends.

FOCUS
Moving to the expense side of the P&L, gross margins in the third quarter
were in line with our expectations at approximately 45%. Note that the unplanned
litigation related expense mentioned earlier affected gross margins by a little
over a half a point in the quarter.
At this time we remain comfortable with our ability to deliver gross margins
in this 45% range over the long term. Keep in mind that given seasonal factors,
gross margins tend to be slightly lower than that in the first and third
quarters and slightly higher in the second and third quarters.
Product development expenses for the quarter represented 2.7% of sales versus
3.7% of sales last year, reflecting a point of operating leverage in this area.
As a percentage of revenue, G&A increased to 21.4% of revenues versus 20.7% in
the third quarter of 2004, which, as a reminder, did not yet reflect public
company operating costs.
That being said, absent some of the unplanned items in the quarter that have
been mentioned, we would have shown a small amount of operating leverage in this
line item nonetheless.
Marketing and business development represented 3.6 million, or 12.9% of

revenues versus 2.5 million or 14% of revenues a year ago. Overall, despite
FOCUS
the impact of some of the unplanned costs in Q3, our operating profit margin of
eight percent for the quarter represents 100 basis point improvement over last
year and our pretax net income margin increased 300 basis points to 10%, from
seven percent for the same period last year.
Looking at the balance sheet, our cash and cash equivalents of 89.2 million
represents a significant portion of our market capitalization at roughly $3.50
per diluted share. We have no long term debt, inventory costs or material
accounts receivable exposure.
In terms of capital expenditures, we spent approximately $571,000 during the

quarter, in line with our expectations.
Looking ahead to the fourth quarter, we were taking into consideration some
of the company specific and macro factors. Eric will speak more about this in a
moment, but what we are seeing is the beginnings of a transition from a sellers
market to a market that reflects more of an equilibrium between home buyers and
sellers. We expect to benefit once the market shift becomes more definitive but
during the transition prior to that equilibrium, our business will likely
experience some softness relative to expectations.

FOCUS
Therefore, we believe it's prudent to adopt a somewhat more conservative
outlook for the fourth quarter and for the full year ending December 31, 2006.
For the fourth quarter, we expect revenues between 21 and 23 million and
earnings per share between two and four cents. This would result in full year
revenues in the range of 93 to 95 million and pro forma net income of between 28
and 30 cents per diluted share.
Pro forma net income excludes the one time charge associated with the lawsuit
settlement we announced in the second quarter and assumes 25.5 million fully
diluted shares outstanding during the year.
Note that the midpoint of the revised revenue guidance for the full year 2005
represents a growth rate of approximately 50% over the prior year. For 2006 we
expect revenues between 130 and 135 million and pretax income per diluted share
between 40 and 45 cents.
Note that the 2006 guidance excludes the impact of stock option expensing
associated with the company's planned implementation of FAS-123(r) next year as
the impact is difficult to quantify at this time.
The middle of our range represents greater than 40% growth for both the top
and pro forma pretax net income lines.
FOCUS
Given the prevailing market dynamics, our 2006 guidance is built upon the
following metrics. We're forecasting flat agent productivity compared to this
year. The average net revenue per transaction is expected to decrease to roughly
$7,000 from the approximately $7,400 this year. We are projecting an ending
agent count of between 1,900 and 2,100 agents.
To get to this total, we need to add about the same number of agents we did
this year to our existing markets, or about 4 to 500, with the balance coming
from the new markets we plan on opening next year. As we've mentioned in the
past, it's likely that we'll recognize our deferred tax assets at some point in
the future. That would give us a significant one time gain with a book income
tax line of approximately 40% applying thereafter.
Keep that in mind when evaluating our guidance and also remember we will not
be paying material cash taxes until we exhaust our approximately 47 million of
carry-forward losses.
With that I'd like to turn the call back over to Eric for additional
thoughts.
ERIC DANZIGER: Thanks, Gary.

FOCUS
As we said, the market is beginning to transition from a classic sellers'
market towards a market that should be characterized by greater equilibrium. Let
me remind you, please, that as a buyer-centric model, we believe that a more
balanced market benefits us in that it implies fewer realtors, fewer multiple
offers, and greater selection for our buyers to choose from.
As about 80% of our transactions are currently on the buy side, we believe
that such trends truly play to our strengths. We also believe, by the way, that
a rebate becomes even more important in a cooler real estate environment.
Digging into some of the macro numbers in our markets reveals some very
interesting trends and insights. First, the average available inventory across
our markets spiked dramatically during September to a level approximately 40%
higher than a year ago and up nine percent over August levels.
Industry-wide closed transactions in our market were down three percent

versus last September and median selling prices declined versus the prior month
for the second month in a row. And, of course, average days on the market are
increasing. All of these data points suggest a market that is beginning a
transition still characterized by sellers expecting rapid price appreciation and
by buyers acting more tentatively, having more homes to choose from and
expecting falling prices even more as selections come their way.

FOCUS
Frankly, we expected more clients to take advantage of the growing inventory
situation immediately, but that hasn't happened. Therefore, since we cannot
predict the future or the length of this transition, we're going to assume that
it will continue until we see otherwise.
Near term market dynamics notwithstanding, our goal is to be one of the five
largest real estate brokerages in the United States in the next five years with
a minimum of 4,000 to 5,000 agents operating in 40 to 50 cities, 300 to 400
million in revenues and pretax profit margins in the range of 15 to 20%.
While we have elected to be a bit more conservative with regard to our

outlook, primarily due to the fact that we are not sure how long this period of
transition will last, we are still looking at growth in excess of 40%, which I
think illustrates the strength of our business model. Ultimately, we are very
optimistic about this business and we want to be very realistic about what type
of growth is achievable even if market headwind is persistent. With that, I'd
like to thank you all for listening in and open up the call to Q&A.
OPERATOR: Thank you, sir.
(Operator Instructions)

FOCUS
Our first question come from Jeetil Patel of Deutsche Bank Securities.
JEETIL PATEL, ANALYST, DEUTSCHE BANK SECURITIES: Hey guys. A couple of

questions. Can you characterize, I guess, any particular markets that have shown
- that have slowed back I guess more so than the broader averages that you've
been seeing up to this point. Do you think that within that context markets that
have been probably, let's say, bigger seller markets are correcting faster that
would cause you a little bit more exposure on that end.
Secondly, can you talk about from a buying agent - or lead generation or kind
of lead volume standpoint, are you seeing any changes there in terms of the
number of leads that you're going to capture starting to slow down as kind of a
precursor and kind of how is the cost or sales and marketing cost going at this
point and then I have a quick follow-up.
ERIC DANZIGER: Thanks. How you doing?
JEETIL PATEL: Good.
ERIC DANZIGER: I'll answer the first one and I'll let Gary answer the second
one. The interesting thing is this is really - although we've always said that
real estate cannot be looked at nationwide. It's - you can't do it macro, you
FOCUS
have to kind of look into neighborhoods, it is interesting that this is pretty
predominant throughout the United States. Most of our markets are affected in
this transition period and it's really, really interesting to see, A, how fast
it's developed and frankly I acknowledge that I didn't see it coming and we
really did think as inventory became more plentiful things would go real fast
for buyers.
But so even here in our backyard, which you'll recall, six months ago I gave
some examples of a market that had an average of 14 offers sold for about
250,000 over list and went within a day. That market now, I mean, a real live
story which we heard yesterday is same market, same block, house gets listed at
a little less than it was six months ago, sits on the market for two and a half
months, somebody makes an offer, the seller rejected it thinking that's too low,
I can get more and then six weeks goes by and the seller calls the buyer and
says, I'll take your offer. So I think - and that's right here in a very
previously strong market, being the Bay Area.
So there are a couple - I think it's easy to answer the other way, candidly.
There are a couple markets that are not experiencing it and there are a couple
that are already out of it so if we look at all kinds of statistics, you know
which you probably know a bunch better than I do, but based on the number of
homes on inventory, how many offers, all that sort of thing, some of our
FOCUS
markets are already kind of at the tail end of it and they're doing better.
They're recovering faster. But I'd say to you generally I think it's fair to say
and honest to say that it is a general statement across the country right now
and I'd rather have us have more evidence that there are markets that are
pulling out of it than to forecast we magically will come out of it on a giving
month, which just wouldn't be right to do for you, for me, for anybody else.
Gary, why don't you do the leads one?
GARY BEASLEY: Yeah, Jeetil, on the lead side we have actually continued to, I
think, make really good strides on the customer acquisition front. Our costs
were up modestly. The cost per lead basis. Low single digits for the quarter.
We continue to have a lot of direct to site traffic. We've got great

relationships with our partners, so we have not - that has not been an issue.
The issue has not been traffic or getting people into cars, the issue has been
getting those people in cars to actually write offers and write offers that are
acceptable to sellers given the current disconnect, I think, between
expectations, between the two.
JEETIL PATEL: Got it.

FOCUS
Just as a follow-up, I guess, have you looked at, historically, as you've
seen these types of shifts around a sellers' market to more equilibrium or
towards a buyers' market eventually, or maybe not. How long does that typical
transition take? Is it typically a year because it takes a while to kind of work
through the system? Is it three to six months? Can you talk about what have you
seen historically that you kind of expect to play out here?
ERIC DANZIGER: I - I don't think it would be fair to answer. I don't know the
answer to that, I think each cycle - I mean, look, the reality is this is a - we
know it's cyclical. I don't know in each cycle if it's been the same period of
time or not the same period of time. And I gave you an example. One of our
markets is already almost through it all although I wouldn't try to forecast to
you for everyone else. But it just depends how long sellers take to realize that
they'd better take that offer when it comes in if it's 100,000 less than asking
in the example I gave you, we just don't know.
And so I'm sure on the fourth quarter we will have had - fourth quarter call
- we will have had more than one month. This only started in September and
again, just in fairness, happened in September. We see it continuing in October
and I just don't think it would be right to forecast this is going to stop in 30
days. It might. It might be 60. It might be 90. It might be a year or so. We'd
rather tell you it's not changing and then as soon as we see that it changes -
FOCUS
I'll give you just one more bit of color so you see that what we just mentioned
a month ago, I think Gary gave an example of this true impact that's happening
out there.
So in the case of one of our districts, we had a 33% increase in the number
of showings so customers got in the car. We are not lacking customers. Thirty
three percent increase in the number of showings a month over prior year, but
there were 22% fewer others because the people felt the pricing wasn't right and
then there's an infinitely number more still of rejections of the offers because
the sellers are not yet at peace so I really don't know is that a month, is it
three, we'll just keep you updated as we know, but I don't want to forecast
anything beyond what we know to be the facts today.
I think that it's just what it is.
JEETIL PATEL: Great. Thank you.
OPERATOR: Our next question comes from Derek Brown of Pacific Growth
Equities.
DEREK BROWN, ANALYST, PACIFIC GROWTH EQUITIES: Thank you. With respect to
your '05 - '06 guidance, sorry about that. You're pointing to an acceleration
FOCUS
in year over year growth and what you're seeing and what you're checking to see,
I guess, in this fourth quarter. My question is why do you have confidence that
the fourth quarter - that growth will accelerate on a year over year basis after
the fourth quarter? Is it agent additions, is it changes that you see in the
markets we're going to be going into? If you can help me understand that that
would be helpful.
GARY BEASLEY: Sure, Derek. As you know, we have never given 2006 guidance
yet. This is our first opportunity to talk to 2006. I think when you look at
what the metrics are and break it down, where we're comfortable is within those
individual pieces. We know that we can add agents at a rate - we feel very
confident we can at the level we did this year. We feel comfortable that
productivity is something that as we continue to improve our training and our
agents get more seasoning we can at least maintain that level and then the
average revenue per transaction we actually had declining a fair amount based on
what we see going on in the market.
So we think those are conservative. Remember, we're going to be in four to

ok at our core, we're looking at when you lo
more conservative growth than we have certainly seen historically in our
existing markets and then we're layering on some additional revenue drivers in
the new markets.
FOCUS
DEREK BROWN: And then just to clarify sort of the targets you laid out for
'06, you talked about 1,900-2,100 year end agents. I think it was $7,000 in
revenue per transaction with flat agent productivity?
GARY BEASLEY: Yes.
DEREK BROWN: Thank you.
GARY BEASLEY: Sure.
ERIC DANZIGER: Thanks, Derek.
OPERATOR: Our next question comes from Ben Schachter of UBS.
BEN SCHACHTER, ANALYST, UBS: Hey, guys. A few questions for you. The four to
six new markets, I was wondering if that's roughly in line with your original
expectations or where your expectations have been recently or has the slowdown
sort of caused you to pull back on new markets.
Also, on - if I do the math right, it looks like December productivity is

going to be probably the lowest level I've seen from the company. I'm wondering
if that's correct and based on that you're saying that the next year
FOCUS
productivities are going to be basically in line with this year but it looks
like the back half of this year the productivity really went down, so why should
it - why would the productivity sort of reaccelerate to where it was in the
first half of '05?
ERIC DANZIGER: Right. Let me start with the new markets. We'll let Gary jump
in. How are you doing.
BEN SCHACHTER: Good. How are you?
ERIC DANZIGER: Great. Well, we've never said how many markets we were going
to add, what we really said was this. I believe and we are certainly
demonstrating that this is a brand and a business which is highly portable, can
go almost anywhere. The degree that we would choose to grow would be one that we
would grow at a pace that we could do well, execute well, kind of pull off the
results that we had, although they were pleasantly surprising to us, do a good
job for employees, customers, shareholders to the extent that we didn't spend
too much money on a given year and whatnot and we wanted to learn across the
way.
So we've never adjusted numbers, we never had a fixed amount of markets we

would add in any given year, although I do believe I am starting to get to the
FOCUS
point where we can start to plan that growth of that 40 or 50 cities I talked
about and what years they would come, what chunks they would come.
So I would say the four to six is obviously more than zero to three, which is
what we said this year and it is a way in which we choose to accelerate the
growth in a manageable pace that's going to allow good results for everybody and
if for some reason we choose to do more than that, we will do more than that
because we feel good about it, we're ready to do it and it's the right thing to
do.
GARY BEASLEY: And Ben, on the productivity question, first of all I think I
would say it is difficult to really take one quarter of productivity and
necessarily translate beyond what is happening in this particular quarter. I
think at the onset of a market change one would surmise that the impact would be
a little more dramatic, that it would be over the course of several quarters or
a year.
And again, we're building our '06 forecast based on a low productivity
expectation for this year, so we're anticipating that and also, remember, we're
in kind of the - we have overall market headwind in that this is when
seasonality really starts to kick in anyway, so I would tend - I tend to believe
that exacerbates productivity swings because we are in the slower time of the
FOCUS
season.
ERIC DANZIGER: So, Ben, and the color I am going to add to that statement,
the color to that market that I was giving the example of earlier in addition to
some of that increase, we've been showing with fewer offers, there's an example
here in one market, saying (ph) one, it took 38 shows, so a customer, 38 average
homes to make an offer.
BEN SCHACHTER: Mm-hmm.
ERIC DANZIGER: And then, obviously, then you go back to the fewer offers even
accepted, so despite all that really what - our growth is fairly impressive, I
guess you could say, in spite of that headwind. And the fact is that there is
some time in the period where that is going to turn. We just don't know when and
if that's affecting productivity, obviously that goes away too.
So we're just saying more of the same, there are some seasonality issues
which come into play and you know of course four and one are the quarters which
are the worst in real estate, two and three would be better, that obviously
picks it up anyway. So we feel all these things are fairly conservative in the
way we put them in.

FOCUS
BEN SCHACHTER: OK, and just a quick follow up related to that and sort of
your internal road shows (ph). Just give us an update on agent retention rates
and sort of morale where we have - what effect would some of these lower
productivities have on morale with the agents.
ERIC DANZIGER: Well, we usually don't comment on too many things like that
but look, this particular last month has been kind of a rough one for us. We had
the lawsuit. The lawsuit is a distraction. People want to know what's going on
but more importantly, the result of the lawsuit required us to change the
expense reimbursement policy of the company and that went from an allowance type
issue, the way we were treating it before, to an actual expense that people have
to fill out.
Expense accounts account for every mile they went, which homes did you show,
it's a whole new discipline, cause for greater turnover in the month, but then
if you keep in mind, let's look at this company not on a week or a month or a
day for heaven's sake but for the three months preceding that we had successive
record low turnover. We introduced new expense policy, it was a shock to the
system so we had a spike in our turnover and it's just one of those things -
lead (ph) time, generally, though, what you try to do in a company is I use that
it factor thing at the beginning is populate the company with people who want to
be here. Who we want to be here, so in that process we're not at all concerned
FOCUS
about that and we're hitting the numbers in terms of overall employees we said
we'd have.
BEN SCHACHTER: Great. Thank you.
OPERATOR: Our next question comes from Barry Feirstein of Feirstein Capital.
BARRY FEIRSTEIN, ANALYST, FEIRSTEIN CAPITAL: Thank you. I'm just trying to
understand - you reduced, I believe, the fourth quarter revenues by about 20%
relative to consensus estimates and you talked about maybe a five percent
decline in the value of the transaction so can I therefore conclude that
transactions are down about 15% in the last month or so relative to what you've
been seeing? Or how much transactions now relative to what you expected in this
transition environment?
ERIC DANZIGER: That's pretty close.
Good math, Barry.
BARRY FEIRSTEIN: Thank you.

FOCUS
ERIC DANZIGER: Yeah, we obviously didn't expect what happened to us in
September, Barry, and I mean there is just no way we saw that transition market
coming. I really did think that things would happen faster when the market
starts to change and it didn't. So the effect that it's having on us is kind of
the same in October as it was in September and those are about the numbers you
cited.
BARRY FEIRSTEIN: Thank you.
ERIC DANZIGER: All right, Barry. Thanks.
OPERATOR: (Operator Instructions)
We'll take our next question from Patrick Stowe from Priority Capital.
PATRICK STOWE, ANALYST, PRIORITY CAPITAL: Hey, guys. Just trying to get a
better understanding of maybe what's going on in these markets. If you look
across your markets, does this transaction weakness, do you see it kind of
broadly across these markets or could there be something going on with maybe the
first time buyers, the investor buyers that might be more prone to use ZipRealty
as a broker.

FOCUS
GARY BEASLEY: Yeah. We don't think it's endemic to first time buyers at all.
In fact, if you look at something like month of inventory which is very simply
the average inventory in the month divided by the number of transactions in the
month. That went up 43% year over year if you compare September of this year
versus September of last year.
So what that speaks to is obviously, that's a rate end volume thing. That
means there's more - and absolute inventory went up - is up about 40%, as Eric
mentioned, so what you're seeing, I think, is broad-based accumulation of
inventory in markets and it doesn't appear that it's really shown up a lot of
this has shown up in the housing data because, as you know, housing data reports
closed transactions.
PATRICK STOWE: Right. There's a couple months lag there.
GARY BEASLEY: There is and so what we're seeing, at least in our market, is
this should translate into some reductions in closings if what we're
experiencing holds true across these markets.
PATRICK STOWE: Right, so your sense would be, if I take a census of competing
brokerages in your markets, that they would be seeing the exact same thing.

FOCUS
ERIC DANZIGER: I think so.
GARY BEASLEY: We would suspect.
ERIC DANZIGER: There is no evidence to suggest contrary.
PATRICK STOWE: OK.
And just kind of a housekeeping thing. When I go to calculate the

productivity numbers, I just take average agents by the ending agent count and
divide that into the closed transactions and this happened the last two
quarters. I get a different number.
GARY BEASLEY: That's because we calculate on the beginning agents.
PATRICK STOWE: OK.
GARY BEASLEY: If someone isn't with us at the beginning of the quarter it's
not likely that they'll close any business.
PATRICK STOWE: OK. So just Q3 closed transactions divided by beginning

agents.
FOCUS
GARY BEASLEY: Beginning agents.
PATRICK STOWE: I'm with you. All right. Thanks very much.
ERIC DANZIGER: Thank you, Patrick.
GARY BEASLEY: Thanks.
OPERATOR: Our next question comes from Kent Holden of Gagnon Securities.
KENT HOLDEN, ANALYST, GAGNON SECURITIES: Good evening. I was wondering if we

could talk a little bit about agent productivity and I was curious how many
agents did not have a transaction in the past quarter.
GARY BEASLEY: That's a competitive stat that we have been asked that before
but it's not something we're comfortable disclosing but what we can tell you is
we are hiring a lot of new agents and as I said, those people don't close any
business for typically at least a couple of months, often two or three months
...
KENT HOLDEN: Right. I understand that. I'm just wondering if there's 20 or

30% of your people that are doing the bulk of the business.
FOCUS
GARY BEASLEY: What I would say is it's not as skewed that way as a
traditional brokerage. It's much more broad-based. It's not the 80-20 principle.
We have more broad-based production than a typical brokerage by quite a bit.
KENT HOLDEN: OK. And then what was the agent turnover in the quarter?
GARY BEASLEY: That's not a statistic that we disclose.
KENT HOLDEN: OK. OK. Thank you.
ERIC DANZIGER: Bye, Kent.
OPERATOR: Our next question comes from Joe McDonna (ph) of Barrington
Partners.
UNIDENTIFIED AUDIENCE MEMBER: Hi, Eric and Gary.
ERIC DANZIGER: Hi, Joe, how are you?
UNIDENTIFIED AUDIENCE MEMBER: I'm good, thank you. How are you guys?

FOCUS
ERIC DANZIGER: Fantastic, thanks.
UNIDENTIFIED AUDIENCE MEMBER: I'm looking forward into 2006, Eric, I think on
some calls you've mentioned the company might be looking for acquisitions and
are you going to - can you see acquisitions happening with the cash that you
have on the balance sheet and perhaps less demand for capital because you're
more efficient at rolling into new markets?
And then second of all, any comment on the likelihood of ZipRealty being an
acquisition target.
ERIC DANZIGER: Let's do the first one first. Obviously there's a lot in
there. The principal business that this company is is the residential real
estate business and we are going to continue to grow at a healthy and exciting
rate that let's us do really well on that arena.
There are certainly opportunities for us which we always evaluate and it is

the company's job to evaluate opportunities as they incur and they exist on both
sides of the question you asked, by the way, to the extent that there are things
we want to do I think long term. I've always said to everyone that we will grow
this brand, what it does, its principal function nationally.

FOCUS
As that brand has a relationship with more and more people, that is the
principal place to go to for the home buying and selling, it might follow that
we would want to have a larger share of customer spend related to that
transaction, so there may be things that interest us as we go.
So I think what I would say to you, short term what we want to do is what we
do, more of better of. Period. That is the focus of everyone in this company and
we will evaluate opportunities as they come up, as we identify them as a
continual business.
In terms of being acquired, I obviously couldn't speak to that. I can tell

you there are no current discussions of substance and our job will always be to
do the right thing if approached in that regard.
UNIDENTIFIED AUDIENCE MEMBER: Thanks.
ERIC DANZIGER: Thanks, Joe. Take care.
UNIDENTIFIED AUDIENCE MEMBER: Thank you.
OPERATOR: Our next question comes from Frank Gristina at Avondale Partners.

FOCUS
FRANK GRISTINA, ANALYST, AVONDALE PARTNERS: Great. Thanks for taking my
question. I noticed that marketing per agent was down about 15% year over year
and I just wanted to figure out if this was some efficiency you guys are
gaining, so in other words you are getting the same number of car rides out of
less spend for agent or if this was more calculated given the fact that sellers
and buyers can't seem to meet on a price right now that you guys are refraining
from marketing as much as you have in the past per agent.
ERIC DANZIGER: Hey, Frank, how you doing?
FRANK GRISTINA: I'm doing well, thanks.
ERIC DANZIGER: Great. I'm going to just say yes and let Gary give you the
statistics because I want him to have fun with that one too. So yes, it's a good
efficiency thing, but he'll at the color to it.
GARY BEASLEY: It is a little of both, actually, Frank. It's an astute

question. We are getting some efficiencies out of our marketing and a lot of
that is through better lead allocation systems that we continue to develop where
if we could provide leads with the right number and kind of leads to the better
and more productive agents we don't need quite as many overall leads.

FOCUS
And then second, also, we did make a decision as we saw things that
disconnect happening in September, October, there is no need to really load up
the marketing pipeline as much because we do have plenty of people in cars that
are not converting at the rate we'd like to see so we want to be prudent about
that.
ERIC DANZIGER: You know what we're doing, Frank, as well is if you think
about again, the responsibility of this company is not to accept a bad market
situation or headwinds or any of that and just say, well, it is what it is so
what we want to do is do a better job of conforming our agents, arming them,
sending them into the battle with a quiver full of arrows and therefore what
we'd rather do is say why would we go out and hire - get more page (ph) leads,
let's work the customers who have already come to us.
So for instance, we have sent to every customer, or are sending, it would be
more appropriate to say, sort of some market data about the locations that
they're in. Here's some stuff you should. Here's some stuff your agents should
note to help you sell better. Here's something your customer should know so
rather than focus on more, let's do more better with them there that we've got.
That's the focus.

FOCUS
FRANK GRISTINA: OK. Thanks, guys.
ERIC DANZIGER: OK, Frank.
GARY BEASLEY: Thanks, Frank.
OPERATOR: At this time we have no further questions. I would like to turn the
call back over to Mr. Eric Danziger for any closing remarks or any additional
comments.
ERIC DANZIGER: I thank you all for calling in and listening in and your
support for the company. We're very excited about as we always have been, the
premise of this company, the opportunity of this company and the execution that
does apply today and will continue to get better. So thanks very much. We'll
talk to you next quarter. Thanks, all.
OPERATOR: Thank you everyone for your participation in today's conference

call. At this time, you may disconnect.

such changes.
FOCUS
be realized.

DECISIONS.]
FOCUS

August 3, 2005 Wednesday
TRANSCRIPT: 080305ag.781
LENGTH: 6811 words
BODY:
OPERATOR: Good day everyone and welcome to today's ZipRealty Incorporated

second quarter 2005 earnings conference call. At this time, all participants
have been placed in a listen-only mode, and the floor will be open later for
your questions following the presentation. Also, as a reminder today's call is
being recorded. And now, it's my pleasure to turn the floor over to your host,
Amanda Mullin. Ms. Mullin, please go ahead.
FOCUS
AMANDA MULLIN, CORPORATE RELATIONS, ZIPREALTY : Thank you. Good afternoon
and thank you for joining us today to discuss ZipRealty 's second quarter
results. With me today on the call is Eric Danziger, President and CEO and Gary
Beasley, Executive Vice President and Chief Financial Officer.
Please note that earlier today the company issued its press release
describing its results for second quarter 2005 and giving guidance for the
remainder of the year. A copy of that release can be viewed on the company's Web
site at www.ziprealty.com.
Actual results may differ materially from expectations, plans, and prospects
contemplated in these forward-looking statements and are subject are to risks
and uncertainties including those described in the company's Form 10-Q, for its
first quarter 2005 and other filings with the Securities and Exchange
Commission, copies of which can also be viewed on the company's Web site.

FOCUS
ERIC DANZIGER, PRESIDENT AND CEO, ZIPREALTY: Great. Thank you, Amanda. Let's
start by reviewing our performance during the quarter. After that, Gary will
cover the financial results in more detail and then I'll come back with an
update on our growth initiatives, and we'll conclude with Q&A.
We're very pleased with our record second quarter results. During the
quarter, we closed 3,375 transactions representing $1.2 billion in real estate
sold. Revenue of $25.8 million was 58% up over last year, and at the high end of
our target range of 25 to 26 million. This strong revenue performance, coupled
with lower expenses as a percentage of revenue helped drive pro forma earnings
per share of $0.12, which was also at the top of our target range. Our pro forma
EPS excludes the impact of a non reoccurring charge of $4.1 million associated
with the settlement in principal of a threatened class action lawsuit.
Let me take just a moment to share our thoughts with you on this matter. We
agreed in principal to settle the lawsuit which as we previously announced deals
with expense allowances as they relate to our California agents. Note that while
our original policy was reviewed by outside counsel, we've reexamined it and
concluded that it should be modified. You know, around here, we've always worked
on creating a company which offered our employees and customers, a new,
innovative and revolutionary way of approaching real estate, doing things not
just a little differently, but very different.
FOCUS
The very foundation of this unique and customer centric business model is
built upon embracing our agents as employees, rather than as independent
contractors. And as part of that effort, provides state of the art technology,
leads, healthcare benefits, a 401(k) plan, and stock options. Also, I believe
that people want to be apart of something special, not just for a paycheck, but
by making a difference, to make matter. Now note that as part of the settlement
process, a formal complaint will be filed, and we expect that to occur
imminently.
Back to the quarter. We consistently said that our goal is to drive revenue
growth and operating leverage, and I think that we've done a terrific job of
that both, year-to-date and for the second quarter. In large measure, these
results stem from our focus on hiring more and better agents, providing more and
better training, and driving improved productivity. And I'd like to just address
these briefly.
t to agent count, we ended the quarter with 1,235 agents, which isup over 25% fr
om the number of agents we had at the beginning of this quarter.
It also represents a 72% increase in Zip agents, relative to the same time last
year. We're hiring more. We're hiring better. We are continuing to implement
initiatives designed to decentralize the recruiting and training processes.
Today, we have completed the hiring of nine field trainers. Overall, or
FOCUS
transition to field offices is about two-thirds complete. And we believe that
over the long-term field training will translate into enhanced performance,
particularly since we will be able to scale hiring and training in a more cost
effective manner, and reinvest in programs that provide the high levels of
customer service that this brand is known for.
Turning to productivity, we're extremely pleased with the progress we made in

Q2. We showed a 34% improvement sequentially. The progression of our systems,
our processes, our people, the training, lead allocation all of the things that
we do to help our people succeed and be productive, drive the success of this
company.
Now let me give you a couple of examples. The first relates to how we manage
our leads, the improvements that we've made in the back end lead allocation
system, as an example, have enabled us to better distribute and coordinate
incoming leads to our agent, which in turn optimizes conversion, customer
conversion.
Another example would be the full roll out of the team leader program, which
is designed to mentor and sort of culturalize new agents, while providing a
career path for our more experienced agents. Last but not least, with the recent
launch of significant tools on our Web site, the time is right, right now to
FOCUS
increase our focus on growing our listings business. So clearly, the
decentralization process coupled with the key initiatives mentioned above, have
positively impacted our results, and the retention of our people. Turnover this
quarter was substantially below Q1, and ranked among the best in this company's
history.
This is the stuff that makes this brand successful, the constant evolution of
our systems, processes and our people. Over the long run, we think that
initiatives such as these enable us to build upon the record results that we
just posted.
Let me turn it over to Gary, now, so he can review our financial results in
greater detail and I'll come back.
GARY BEASLEY, EXECUTIVE VICE PRESIDENT AND CFO, ZIPREALTY: Thanks, Eric. The
company reported recorded revenues of $25.8 million in the second quarter. These
results represent an increase of 58% over the second quarter of 2004, and
sequential growth of 45%.
In terms of profitability pro forma net income for the second quarter, which
excludes the one time charge associated with the lawsuit settlement was $3.1
million, up from net income or $1.2 million in the year ago period. Pro forma
FOCUS
EPS of $0.12 was at the high end of our previously announced guidance,
benefiting from operational efficiencies, as well as the cost effective
management of leads.
Given the non reoccurring nature of the law suit settlement, we feel that pro
forma earnings, excluding the impact of this extraordinary item, provides
helpful insight into our operating performance for the quarter.
We ended the quarter with 1235 agents, up 252 net from the previous quarter.
As Eric indicated, based on our success in recruiting and retention of our Zip
agents, we believe it is now more realistic to project we will end the year with
an agent count of between 1300 and 1400 agents. Please keep in mind that while
we are increasing our targeted number of Zip agents for year end, this will not
necessarily translate into higher revenues than previously estimated, given the
ramp up time associated with new agents, and the time lag between signed
contracts, and closings. We believe that the real payoff for our headcount
growth in the second half of this year will be in 2006 and beyond.
As expected, agent productivity showed solid improvement in the second

quarter, coming in at 1.14 transactions per agent, per month, approximately 17%
below last year, but a significant improvement for the year-over-year variance
experienced in the first quarter of 2005. Keep in mind that our productivity
FOCUS
this year, has been influenced partly by market conditions, and by an influx of
new real estate agents competing for deals. We are pleased to report good
progress in the second quarter, as we have closed approximately half the
productivity gap of last year. Our goal is to continue to narrow this gap over
the remainder of the year, with the implementation of numerous field initiatives
currently in the works. All of that said, we're still well ahead of the industry
average, and are very pleased with that.
Average net revenue per transaction for Q2 increased to $7.475 representing a

3% gain over last year's second quarter. We expect this figure to remain
relatively flat for the balance of the year.
Moving to the expense side of the P&L, gross margins in the second quarter,
were 46.3%. Flat to last year, and up almost 300 basis points from the
seasonally impacted first quarter of 2005. Note that we are in the process of
making some modifications to our compensation and expense reimbursement program,
as a result of the lawsuit settlement. That being said, we remain comfortable
with our ability to deliver gross margins inline with our 45 to 46% target.
Product development was $610,000 in the quarter, or 2.4% of sales, versus

$549,000 or 3.4% of sales in the second quarter of 2004. As a percentage of
revenue, G&A declined to 21.2% of revenues, versus 22.1% in the second quarter
FOCUS
of 2004, despite the inclusion, this quarter, of certain legal costs, related to
the settlement and costs related to operating as a public company, including
substantially higher than expected Sarbanes-Oxley compliance costs.
Marketing and business development represented $3.3 million or 12.8% of

revenues, versus $2.2 million or 13.5% of revenues a year ago. Despite the
impact of some of these costs, our pro forma operating profit margin of
approximately 10% for the quarter, represents a 270 basis point improvement over
last year. And our pro forma pretax net income margin increased to 12.4% from
7.3% last year. This progress demonstrates the powerful operating leverage
inherent in our model. As we've seen previously our long-term goal is to realize
pre tax profit margins in the 15 to 20% range and an after tax margins of 10 to
12%.
Turning to the third quarter, we expect revenues between 27 and $29 million,
and earnings per share between $0.12 and $0.14. For the full year we expect
revenues in the range of 92 to $102 million, consistent with our previous
guidance. We continue to expect pro forma net income per diluted share of $0.38
to $0.42, which excludes the one time charge associated with the lawsuit
settlement. This guidance assume fully diluted shares of approximately 26.1
million for the year.

FOCUS
With that, I'd like to turn the call back over to Eric for some closing
thoughts.
ERIC DANZIGER: Good thanks, Gary. Well we're extremely pleased with our
operating performance, and have never been more optimistic about the company's
prospects as we move into the second half of the year. Let me tell you about our
achievements on the customer acquisition front.
You know, we've been acquiring leads here, online, since 1999 and believe
that it is a truly a core competency that provides us with a tremendous
competitive advantage. This quarter, we generated a record number of leads at a
much lower cost than anticipated. As a consequence, marketing and business
development costs were 12.8% of revenues which is a record low percentage. Now
while the momentum continues as we enter the back half of the year, it's also
important to remember, that leads are seasonally priced for a variety of
reasons. So we will target marketing and VD costs at around 14% for the year. We
also continue to work on optimizing our Web site, so that we are best positioned
to maximize conversion of clients.
During the second quarter, we focused on the natural search arena, which
represents a major opportunity for us to drive additional traffic to our site
with minimal cost, viral marketing, including our refer a friend program,
FOCUS
continues to generate encouraging results. All of these initiatives have
contributed to the record leads and Web site traffic for ZipRealty this last
quarter. While this continuing traffic is encouraging, please do keep in mind
that consumers tend to often begin researching real estate well in advance of
transacting. So many of the customers coming to us today will actually buy or
sell a home in 2006, and perhaps beyond.
Now let me remind you of our new market strategy. Early in 2005, we said we
would enter the Las Vegas market, mid year. We did add Vegas on May second,
earlier than planned. With just over 90 days now under our belt, Las Vegas is
tracking ahead of plan on all key fronts, agent headcount, transactions, revenue
per transactions, leads, and most importantly ramping to profitability.
Next, we said we would enter the Houston market. I'm excited to tell you that
Houston is also off to a terrific start as we have taken the learning from the
Las Vegas launch and applied it to the Houston launch. Houston is the largest
city in Texas, and the fourth largest nationally. We're very, very excited about
the opportunity to expand our brand presence.
On the heels of this initial success I'm happy to announce today our planned
entry into the Miami market during the fourth quarter of this year. We believe
that this city size and its compelling market characteristics, make it a great
FOCUS
fit for our company. It's a great opportunity, yes, but also a spring board, for
a longer term, more diversified presence in the rest of the state of Florida,
the fourth largest state and one of the fastest growing.
Now just a remind you, we have previously said that we thought that each
market would cost between 500,000 and $1 million to launch, achieving break even
results at the district level in roughly 12 to 18 months. Well we're certainly
tracking much better than that which gives us great encouragement with respect
to our new market strategy.
As we successful expand our presence in both new and existing markets, we

remain confident in our future growth. Las Vegas and Houston represent a big
step forward, and we are now more certain than ever that our brand is highly
portable. We also have quite a long run way with our current average market
share, and existing markets being at roughly 0.5%. Both of these factors really
illustrate our potential. And we're committed, as I've said, to drive strong
revenue, and profit gains over the long haul.
With respect to the broader market outlook listen, we could ask all of the
time what happens to our business when the market cools. Well the very nature of
a softer market would imply fewer realtors, fewer multiple offers and greater
available inventory. As about 80% of our transactions are currently on the buy
FOCUS
side, we believe such trends would actually play to the strength of this
company. We also believe that the importance of the rebate would increase in a
cooler real estate environment. This is really, really key to understanding our
company. Let me give you an example to illustrate this point.
We've talked to you a bit in the past about the Bay Area as an example, which
is clearly a sellers market right now. Well when there are multiple offers on a
home, that means that the chances of getting anyone offer accepted is pretty
low. If 12 offers are extended on the home, then there's only an 8% change for
one of those offers to be accepted. However, if there's only two offers on a
house, obviously the chances of acceptance increase to 50% and so on. Therefore,
as certain of our markets return to equilibrium we believe we will go back to
being a winner in the larger percentage of the offers and make our agents more
efficient.
arkets in history.We're experiencing record growth despite the fact the model ru
ns cross current
to these market conditions, hence, we sure do like our chances as markets move
towards equilibrium over time.
To wrap things up, we remain confident that our model will generate
accelerating levels of free cash flow over the long run with very small
FOCUS
capital requirements. Accordingly, we will continue to build balance sheet
strength, which we can use to invest in our core business, evaluate acquisitions
or otherwise create value. We are entering into an exciting period as a company.
Clearly, we've come a long, long way, but we really do think we are just playing
in one.
With that, I'd like to thank you all very much for listening this afternoon
and open the call to Q&A.
OPERATOR: Thank you. (Operator Instructions)
And with Deutsche Bank, we have Jeetil Patel.

JEETIL PATEL, ANALYST, DEUTSCHE BANK: Yes, a couple of questions. Marketing
expenses looked to be very efficient. I was just trying to figure out what
really drove that? Was the ad rate environment better than you had anticipated?
You just got enough leads for your group to work with. What really drove the
improvement there? That I obviously expect you - it sounds like you're going to
reinvest there, but, you know, just trying to figure out Q2.
Second, the field trainers that you've hired, the nine can you talk about,
you know, how fast do you think it starts to impact sales force productivity?
FOCUS
And, you know, how much of a delta does it have in terms of, you know, without a
field trainer, versus having a field trainer, in terms of bringing in the right
folks, and also closing more business out there. Then I have a quick follow.
ERIC DANZIGER: Great. How, hi, Jeetil, how are you doing?
JEETIL PATEL: Good.
ERIC DANZIGER: I'll answer the second one first, and then I'll let Gary
answer the first one. So the field training, you know what we did, as you'll
recall that, you know, a year ago, three years ago, all training was done here.
And so we brought all agents into here. And they were given a weak full of, you
know, boot camp and then sent off. And what we realized was not only was
recruiting better done in the field, so we could network and get close to people
but we could give them a faster on boarding, but then an ongoing train. So that
two weeks after their initial training they can get a refresher on something.
And three weeks later, they could get some craft education. And five weeks
later, they can get sales.
So, you know, it's a fairly new process and we're not even complete yet in
the whole field office thing, as I mentioned. I'm a little disappointed,
candidly that I thought we'd be complete by now, and we're only about three
FOCUS
quarters complete with that field roll out. So while I can't put a number to it,
I can tell you that it's clear to us, that not only is it a cost efficiency, but
we didn't do it for that reason. We did it as a way to help our people become
more successful faster, give them all of the training they need, immediately
when they need it, and so they can become, efficient, productive, which benefits
them. It also helps retention PS because if they can get a deal done faster and
all of that it also helps the company. So I won't quantify for you, but clearly
it's kind of in the area of it's not - we're not looking at it is it a net cost,
net savings? It's all about making them more effective and efficient which I
think clearly it will do.
Gary, go ahead.
GARY BEASLEY: Yes, on the lead side, Jeetil, I guess a couple of things to
point out. Our direct to site traffic continued to be very strong about 30% of
our leads. We did increase paid search a bit this quarter to about 13%, and if
you remember before, we were more like 10 or 11%. But that was because we're
finding ways to make those leads much - really work harder for us.
Our cost per click went up modestly but our conversion of those clicks into
leaders went up dramatically, so our cost per lead actually went down fairly
materially in the paid search segment, which we're going to continue to try to
FOCUS
take advantage of.
JEETIL PATEL: Just a quick follow up you said 12 to 18 months on break even
on a new market, can you characterize, you know, whether Vegas is closer to that
12 month range or sub 12 month? Can you just give us a framework of how things
are progressing there? And second, if you look at the change in kind of
beginning year headcount, kind of agent based this year based on your 13 to 1400
agents. It looks like you're going to grow the agent base, maybe roughly 100 to
105% or so. You know, kind of how - or it kind of grew 105%, how do you expect
kind of the productivity to kind of, you know, ramp - do you think that
productivity will ramp from that number? Or is that basically kind of how we
should assume the kind of transaction rates flow over time based on agent count?
ERIC DANZIGER: Well let me give you the new markets question first.
JEETIL PATEL: Yes.
ERIC DANZIGER: And I'll sound like a lawyer, thank God, I'm not. But look,
you know, every market is going to be different. As you know, Houston was the
first one we said 500,000 to a million, 12 to 18 months. Here's what I'll tell
you. We are, as I said on the prepared remarks, you know, doing much better on
all key fronts.

FOCUS
I would say to you now that it's our belief that Vegas will achieve
profitability in the fourth quarter of this year. That, you know, we started it
in what, May, so you can imagine the number of months. What I don't want to -
and I said, that Houston is tracking very similar to Vegas. So obviously that is
very exciting, because not only is it towards the lower end, it's below the
lower end.
Having said that, here's the lawyer speak, that I think if I were a lawyer
I'd say. I also don't want to promise you that that would be the case, because
we don't know. You know, we've done two. We're going to now do Miami. I don't
know. I'd hate to characterize this as something that I can assure you but it
obviously is very appealing to us that we've demonstrated here, and only inning
one. Gosh, in the market expansion world it's batter one, not even inning one.
So we're just getting up to the plate and to have those kinds of results and
we're hugely encouraged by our opportunities.
So I think you can look for Houston profitability in Q4, which would put it
at roughly - I'm sorry Vegas, which I think which puts it at what seven months?
I don't have a calculator, whatever, something like that.
Now to the second question, which I forget because I babbled for so long I
forgot the question, but Gary probably remembers it.
FOCUS
GARY BEASLEY: Well I think your question was about agent count growth Jeetil
and how that relates to, you know, productivity over the year.
JEETIL PATEL: Exactly. So you grew agents about 100% in '04, and transaction
growth of about 60%. You know, how do you expect, call it the 50% improvement in
agent count, based on the mid point of 13 to 1400 agents, to kind of play out in
terms of transactions, let's say going forward, long term. I mean assume there's
some attrition in that number. But should those pretty much add up or match up
at some point?
GARY BEASLEY: Are you - I guess I'm not quite following the gist of your
question.
JEETIL PATEL: How long does the agent productivity take to catch up with your
agent growth, how's that?
GARY BEASLEY: I got you. Well clearly, that's what we're endeavoring to do.
What we've said is we're trying to close the productivity gap with last year,
between now and the end of the year. And then from then on we can address when
we give 2006 guidance. But clearly, what we're trying to do now is continue the
moment we have started in Q2. And over the course of the year, continue to move
in the right direction.
FOCUS
JEETIL PATEL: OK. Thanks.
GARY BEASLEY: Yes.
OPERATOR: Thank you. And our next question comes from Derek Brown with
Pacific Growth Equity.
DEREK BROWN, ANALYST, PACIFIC GROWTH EQUITY: Hi. Two questions, and they both
relate to growth, which is obviously a good thing. The questions are in terms of
revenue growth that you guys have anticipated for the back half of the year, how
do you think about it in terms of volume versus pricing? Since obviously prices
have been escalating so dramatically in the marketplace.
The other question is at the midpoint of your revenue guidance for Q3, it
basically points to an acceleration in the year-to-year growth rate that you've
seen in revenue. And basically, I'm wondering, what gives you confidence that
there is an acceleration kind of embedded in the business.
ERIC DANZIGER: Hey, Derek, how are you doing?
DEREK BROWN: I'm doing well. How are you?

FOCUS
ERIC DANZIGER: Great. Good, thanks. Hey, let's take the first one first this
time, just so I throw you guys off keel a little bit on which question gets
answered in what order.
The revenue growth - the elements of, you know, revenue per transaction or
number of deals or so on, you know, so flying up to 50,000 feet for a moment,
it's a why this company is diversified. It's why before we ever added a new
market what we wanted to do was become successful and profitable in a Dallas,
Texas market, not just depend on what a California market would do, as an
example.
So our diversification in fact, is going quite the opposite way. It's going
out of California, obviously, throughout all kinds of different market
scenarios. So frankly what matters is you kind of build this model is about our
ability to perform transactions. And when you do that at a 0.5% of market share,
and existing markets you're in, and you're all ready kind of growing at this
level, that's very encouraging. So really our - we don't sit here and say let's
go get high end homes as an example to help RAR.
And as I've mentioned before, we start to get more high end homes not just
because the brands awareness is spreading. People hearing about it say hey, why
would I not do that? And so on. So a lot of that comes to us. A lot of that
FOCUS
comes to us. A lot of it is kind of in hotel vernacular it's nice to have some
five star hotels, it's nice to have some four star hotels and all of that sort
of stuff, but the general mix - the general thrust of the business, although
revenue per transaction and the pricing is one element, and there's just one of
three revenue drivers, the other being, of course, agent headcount and the
productivity.
So I would say that, you know, a well run company, hopefully is focusing on
all three of those things because they all matter, but we don't focus on one and
say let's go build our business model around revenue. I choose to say, by the
way, that I really like this diversification aspect of the company. I really
like that the company is successful and growing substantially in lower price
homes. And frankly, that's also - I mean gosh our value proposition is huge to -
in those kinds of markets.
Sorry for the long winded answer. It's more about let's do what we do around
here well, and we can't control pricing, but we can control those other two. We
can control the number of agents, the quality of those agents, the training of
the agents, the efficiency of the agents, and how many deals they do by the
system leadership and management. So, you know, what, we work around here on
things we can't control.

FOCUS
GARY BEASLEY: Yes, two other add-ons to that, Derek, related to some of those
questions. The growth rate in revenue Q3, versus Q2 to Q3 this year versus last
year is pretty similar. Last year we grew about 8%. The Q2 to Q3 growth, I
think, in the midpoint of our range is between 8.5- and 9%, I think it's 8.7%,
so it's pretty consistent. And in terms of pricing growth between now and the
end of the year, from our prepared remarks we said flat is what we're projecting
internally, so we're not looking really for any pricing growth between now and
the end of the year.
DEREK BROWN: Great, thank you.
ERIC DANZIGER: Thanks, Derek.
OPERATOR: (Operator Instructions) And next from UBS, we have Ben Schachter.
BEN SCHACHTER, ANALYST, UBS: Hey, guys. How are you doing?
GARY BEASLEY: Hey, Dan.
ERIC DANZIGER: Dan, doing great.

FOCUS
BEN SCHACHTER: I've got a couple of questions for you, Eric, and then also a
couple more after that for Gary, they should be quick. But Eric, you talked
about increasing the focus on lifting, I was wondering if you could talk about
how that might effect the model and what gives you confidence that you can do
that? And then the second question, admittedly, it's probably pretty early, but
given the positive trends you're talking about, in terms of the new markets,
could you give us an idea of how you're thinking about potential new markets for
'06? You probably won't give it to me, but I'm going to ask anyway, if you could
talk about the numbers of new markets you may be entering in '06? And then after
that I'll follow up with a couple of quick questions for Gary.
ERIC DANZIGER: Well there's very little chance I'll answer the last one,
you're right about that. But I'll answer your 50,000 foot question.
So the first part about listings, you'll recall that especially for guys that
know the company very well, the reason that we were at an 80/20 mix, was largely
because we decided that was in the company's best interest to focus. You know,
I'll give you that statistic, I think I said last time, and if so I apologize.
But this isn't - and I may be off a little bit. But generally we -and I can't
even site the source for you. Pat might be able to remind me - where the number
one complaint that consumers had in real estate - there are several, but one of
them is responsiveness. And, generally, the average responsive time, which I
FOCUS
know is going to surprise you, perhaps, is 4.5 days for a customer to get a
response from a real estate agent, either in California or the United States. So
it's from Realtor.com.
And, by the way, PS, 50% of people who make an inquiry never get a response,
so, point being, what we want to do here is focus on people, process, systems,
to assure that that would never happen in this company. Well, to do that, the
last thing I want our agents to do is run out and make listening presentations
looking for their best deal as opposed to being a very responsive company.
So we kind of say we're not going to be in the listings business. Now, in the
last three months, as we've become pretty good at things we do, just as an
overall philosophy, Ben, you know that I believe if you don't do something well,
don't do a whole lot more of it. So what we wanted to do is what we do well. So
let's do listings when we're ready to do it well. Let's arm our agents with
great collateral. Let's add some features for our customers when they come to
the Web site, which was largely buyer oriented.
Well, now, for instance, if you went our on our Web site, today, Ben, which
might be tough from Europe, but if you went on it today and you went under the
seller's section, you can get a complete CMA online. So you can put in the
address you want to sell, all the houses that have sold in the area, all that
FOCUS
kind of stuff. Well, that's an incredible seller's tool. Well, we didn't have
that before. We didn't have the kind of collateral that I wanted this brand to
be represented to out there to millions of customers. I didn't want our people
to go out there.
So we're now beginning to see it is time for the company to start working on
that, because when we do something, we'll do it well. So we are improving our
Web site, we're improving our collateral. Part of the training that we're
talking about is for better listing presentation. We have listing experts in our
markets as an example, in most of them, those kinds of things that better
prepare us. We have tested some of these new programs in some of our markets,
just in the last 30 to 60 days, and are hugely encouraged with the growth that
o here, do what we do,rea. So, again, what we like to d
think about it, execute it well.
This is a real estate operating company, so for all those reasons, I can say
that our listings business is growing, and as we roll out more of these tools
and programs, it's going to grow more.
Now, the same kind of thing applies to the new market. I'm not going to tell
you what we're doing for '06, nor how many markets, or all that. We're going to
give you 2006 guidance when we sort of have it rolled out, but, as you know,
FOCUS
we're very thoughtful about everything we've done, so we have kind of figured
around strategies, what's the right thing to do, what did we learn from the two
this year, that Miami is coming aboard, where are good efficiencies and so on.
So we are thoughtful and have completed, kind of, an analysis of the things
that we could do, may want to do, but I'm a little bit early in sharing what
that translates to into numbers with you.
BEN SCHACHTER: Okay, and, Gary, possibly related to the question about
listings, was there any movement in Q2 on the overall commission rate that you
guys are able to get, and do you see that moving much going forward? And then
also, on the G&A, I apologize if you said this already, but I saw the bump up
and I heard you say it was related to Sarbanes-Oxley. Is that the run rate we
should be thinking about going forward?
GARY BEASLEY: Yes, the question on the commission rates, we haven't seen any
commission erosion in our markets at all, and we haven't for some time, so we're
not anticipating seeing that on a go forward basis. In terms of the
Sarbanes-Oxley costs in the G&A, I noticed you called on a little bit late, but
yes, I think we're expecting those costs to continue. It's been baked in this
quarter - through the balance of the year. Because, as you know, the way the
process works, there's some front-end loading to this, and then once the
FOCUS
company becomes fully compliant, a lot of the consultants and things you have to
employ to get through all the procedure documentations, things like that, goes
away. So, yes, I would say you should anticipate the current run rate going for
the next couple of quarters.
BEN SCHACHTER: Okay, thanks.
ERIC DANZIGER: See you, Ben.
GARY BEASLEY: Thanks, Ben.
OPERATOR: Our next question comes from Marc Anderson (ph) with Axial Capital.
MARC ANDERSON, ANALYST, AXIAL CAPITAL: Yes, I was just trying to understand,
if your business works best in what you call a buyer's market, why are you
targeting the highest and hottest real estate markets in the company for your
next growth initiatives?
ERIC DANZIGER: Well, look, here is what we know. In terms of the growth
initiatives, what we look to is, some day, it would be great to be everywhere
where consumers want us, an alternatives. There aren't many alternatives to the
way real estate is done in any market, right? So you have brand A, B, C, D,

FOCUS
who the principal difference is the color lasers that the company has.
But we're an alternative model, and you've heard me say before we are what
Amazon is to the books business. So the alternative model is appealing to
everybody. Take a look at Vegas. Vegas, one of the hottest markets, has been for
a couple of years, and we're accelerating beyond our expectations. So I think
that when you are a company that does things like everybody else, with maybe a
little bit different, your question or concern sort of mattes more, like how are
you going to make headway in a market where you're just like everybody else but
with a different name and one different kind of niche.
We are vastly different, and to that extent, we're a very appealing

alternative for consumers in any market, because a rebate is good for you if you
have a $5 million home or a $150,000 home. The fact that you can access the
kinds of data and information tools on our site don't matter what kind of market
you're in.
So we really don't think that's as applicable as - the metrics of the market,

how many deals were done, do people have computers? Those sorts of things are
greatly more of a concern to us than is it a hot market today?

FOCUS
GARY BEASLEY: There are some advantages, too, when you look at Miami. A lot
of investor activity. We've seen in some of our markets, our models very
attractive for investors, because they look at the properties from abroad or
wherever. So that definitely helps us in Miami. And it's just such a huge
market. There's plenty to go around, even if there are some inventory
constraints.
MARC ANDERSON: Yes, but for people who are worried about your company and a
potential downturn, it sort of flies in the face of an earlier comment, that you
perform well in a buyer's market if your growth opportunities in an up market is
the hot markets. Do you understand where I'm headed with this?
ERIC DANZIGER: Yes, but, again, you have to go back to some kind of macro
stuff on this, because you're talking about $60 billion a year in real estate
commissions. There's 7-point-something million homes this year, 14 million
sides. Our customer satisfaction is 95%. So building a business in a competitive
environment, if you do the right things and you have a valuable model, good
people, great service, you know what you're going to do well. So the point is,
even in a cooling market, suppose it's 6 million transactions, for heaven's
sakes, instead of 7 million. The market is so huge, with no product alternatives
of substance, it doesn't really make us afraid. Because what we do is a lot of
business where the people say I love doing business the way you do business.
FOCUS
I can tell you how many times I'm asked to conferences. When are you coming
to this place, when are you coming to this place, when are you coming to this
place? So, again, for us, it's more of a macro about this is a product which is
being embraced by employees, customers, and I think it's portable. We're proving
that, and it's successful at every market you're in, and therefore it's a little
less important to us about buyer's market, seller's market. Because the reality
is, buying the home, or a better home, is always going to be fairly significant
to the American consumer. So, a better way to do it is always going to be
valuable.
MARC ANDERSON: Okay, thank you.
ERIC DANZIGER: Okay, thanks.
OPERATOR: And our next question comes from Phyllis Lamoreaux (ph) with
Lamoreaux Partners (ph).
UNIDENTIFIED AUDIENCE MEMBER: Actually, it's Wendy at Lamoreaux Partners, and

my questions were asked and answered with the questions from Ben at UBS. So,
congratulations on your quarter. It's been fun to watch your progress.

FOCUS
ERIC DANZIGER: Okay, thanks, Wendy.
OPERATOR: Well, that's all the time we have for questions. At this time, I
would like to turn the conference back over to our panel for any additional or
closing remarks.
ERIC DANZIGER: We don't at all. We certainly appreciate everyone listening

today and for your time in asking some questions and the support of the company,
and we're excited about what's going on in he company. We'll look forward to
talking to you next quarter. Thanks, all.
OPERATOR: So that does conclude today's conference call. Thank you everyone
for your participation.
[CCBN reserves the right to make changes to documents, content, or other

information on this web site without obligation to notify any person of such
changes.
involve risks and uncertainties. Actual results may differ materially from
FOCUS
those stated in any forward-looking statement based on a number of important
factors and risks, which are more specifically identified in the companies' most
be realized.

WAY DOES CCBN ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS
MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT
TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL
ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR
OTHER DECISIONS. Copyright 2005, CCBN, Inc. All Rights Reserved.]


May 3, 2005 Tuesday
TRANSCRIPT: 050305as.776
LENGTH: 7312 words
BODY:
OPERATOR: Good morning and welcome to the ZipRealty Incorporated first

quarter 2005 earnings conference call.

FOCUS
It is now my pleasure to turn the floor over to your host, Mr. Tom Ryan.
Please go ahead sir.
TOM RYAN, INVESTOR RELATIONS, ZIPREALTY INC.: Good afternoon and thank you
for joining us today to discuss ZipRealty 's first quarter results. With me on
the call today is Eric Danziger, President and CEO, and Gary Beasley, Executive
Vice President and Chief Financial Officer.
contemplated in these forward-looking statements based on many factors,
including the risks identified in our Form 10-K fiscal year 2004.
ERIC DANZIGER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, ZIPREALTY, INC.: Great.
Thanks Tom. Well, let me start by reviewing the performance during the quarter.
After that, Gary will come back and cover the financial results, and then I'll
FOCUS
conclude with an update on how we're doing generally and the growth initiatives,
and then we'll conclude with Q&A.
We're really pleased with our first quarter results. During the quarter, we
closed 2,343 transactions representing $832 million in real estate sold. Our
revenue was 17.8 million, was up 63% year-over-year, and at the high end of our
target range, which was 17 to 18 million.
This strong revenue performance, paired with better than expected

flow-through, led to earnings per share of $0.03, better than our target range
of break even to $0.02.
As you know, the seasonal - I'm sorry, seasonally, the first quarter is the
slowest of the year, hence we're particularly pleased with these results.
As always, our goals are to drive significant revenue growth and operating
leverage while maintaining solid productivity. We strive to do this while adding
to our growing number of Zip agents and during the quarter, we believe we made
progress on all of these fronts.
With respect to agent count, we ended the quarter with 983 agents
representing 69 net additions.
FOCUS
Although we were focused on an improved filtering process this past quarter
with regard to new agent recruitment, we certainly also want to accelerate this
ramp.
You may recall that on our last quarterly call, I told you about some of the
process changes we were implementing in the recruiting and training area.
Those evolutions and our transition to decentralize recruiting and training

is in process, although not complete. We do have 15 recruiters in the local
field offices and we have hired 8 field trainers, each of who have training
responsibility for 2 districts. This transition for these teams to recruit and
train fully in the field is about 30% complete.
We expect all recruiting and training teams to be fully up and running by the
end of the second quarter.
In addition to this important step, I have hired a VP of People and Staffing.

The focus of this position will be to augment the tools and effectiveness of the
recruiting team to further support these desired results, in addition to helping
us continue to refine our selection criteria as well as enhance our retention
programs.

FOCUS
Although we've done an enormous amount in this area to date, it's obviously
that I feel this is one of our principal drivers of the business and with all of
the growth objectives in mind, it requires an elevated emphasis.
Having said that, you should know this. Even though we are confidently
refining our recruiting efforts, as of yesterday, our agent count totaled 1,103
as we have added 120 net agents since April 1st.
Hence, we're well on track to the yearend with 1,200 to 1,300 agents as we
have previously stated. The extraordinary emphasis on recruiting is simply
reflective of our intent to be certain that this important area constantly
achieves excellence in execution.
Now turning to productivity, we remain of course committed to significantly
outperforming the industry average.
To that end, we have launched several initiatives as well, focused on driving

productivity in the coming months.
First, during the recent quarter, we made significant refinements in our lead
generation processes, which should enhance our ability to deliver greater
quality and quantity of leads to our agents at a more favorable cost to the
FOCUS
company. We expect to continue to make gains in this area throughout the
remainder of the year.
Second, we have significantly enhanced our lead distribution system, allowing

us to better allocate our leads to our top performing local agents. This
practice optimizes their sales production.
Third, we have undertaken initiative to increase our listings, which in the

markets we serve, converted very high rates.
Finally, we've introduced a new team leader concept company-wide, which

provides formal mentorship of new agents and real-time agent training and
support.
All these efforts and more are in the very early stages of introduction and
development and are expected to result in higher transaction volume, lower
costs, greater productivity.
I'll now turn it over to Gary. He can run through the financial results
before I come back on.

FOCUS
GARY BEASLEY, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
ZIPREALTY, INC.: Thanks Eric. The first quarter saw record revenues of $17.8
million. These results represent an increase of 63% over the first quarter of
2004. It was good to end the quarter on a high note with a very strong March
giving us solid momentum going into the second quarter.
In terms of profitability, net income for the first quarter was $662,000, up
from a net loss in the year ago period, benefiting from operational efficiencies
as well as our ability to manage leads efficiently.
We ended the quarter with 983 agents, up 69 net from the prior quarter.
Following a very active recruiting period in April, our head count currently
stands at 1,103 agents, which is right on track.
Agent productivity of 0.9 was generally in line with expectations reflecting

the seasonal dynamics of the first quarter. We would also note that a couple of
our districts experienced an abundance of buyers relative to available
inventory, which resulted in a more pronounced supply/demand imbalance than we
have seen for some time.
These market conditions tend to result in downward pressure on productivity,

but upward pressure on pricing.
FOCUS
A telling example of these market forces at work is here in the San Francisco
Bay area. According to our data, comparing Q1 of this year to last year, average
inventory levels were down about 25%. The number of transactions went down
approximately 10% and median home prices increased 19%.
However, the data suggests an encouraging trend with respect to inventories

when looked at on a monthly basis, with the inventory deficit relative to last
year reducing from 29% in January to 25% in February to 20% in March.
Company-wide, the average net revenue per transaction increased to $7,391

representing an 11% gain over the year-ago period. This was driven in part by an
increase in our average sales price from about $332,500 in Q1 of last year to
approximately $355,000 in Q1 of 2005.
It was also driven by a 5 percentage point reduction in our buy side rebates
which was implemented after the first quarter of last year.
Moving to the expense side of the P&L, gross margins of 44% was flat versus
the year-ago period. Note that payroll taxes tend to be front-end loaded for the
year, so we expect to see higher gross margins over the remaining quarters. We
remain comfortable with our 45 to 46% target for 2005.

FOCUS
Product development represented 3.3% of sales, down from 4.1% of sales in the
first quarter of 2004. G&A declined to 23.8% of revenues versus 25.6% in the
first quarter of 2004, despite the inclusion this quarter of public company
expenses. Stock-based compensation represented 0.2% of revenues, a decline from
0.3% a year ago.
Marketing and business development represented 15.7% of revenues versus 15.2%

a year ago. This is consistent with our objective of maintaining this item in
the 14 to 16% range. We were pleased with our ability to acquire leads
efficiently during the quarter while continuing to increase our direct-to-site
traffic and decrease our reliance on paid search.
Despite the fact that we view Q1 as a quarter of investment, in aggregate, we

realized approximately 230 basis points of improvement in operating expenses,
demonstrating our ability to efficiently scale the business.
Net income for the quarter was $662,000, yielding earnings per share of
$0.03, beating our target range of break even to $0.02. This compares to a loss
of $0.19 for the first quarter of 2004.
As we mentioned on our last earnings call, our principal objective during the
first quarter was to put all of the pieces in place for the spring buying
FOCUS
season, which is really when we start to make our money.
It's during the first quarter that we invest in people, training, customer
acquisition and our system with the objective of setting us up for success in
the balance of the year, and we believe we've effectively balanced profitability
and investment during the three-month period.
Looking out to the remainder of 2005, we expect ongoing leverage as the

company scales and ads agents, and also as we continue to recognize efficiencies
from the centralized infrastructure we've put into place.
We reiterate that over the long-term, our goal is to realize pretax margins
in the 15 to 20% range and an after-tax margin of 10 to 12%.
Turning now to the balance sheet, we ended the quarter with 82.9 million in
cash. Capital expenditures during the quarter were $518,000 and we remain
comfortable with our $2 million CapEx expectation for the year. We have no
long-term debt, inventory costs or material accounts receivable exposure.
For the second quarter, we expect revenues between 25 and $26 million, with
earnings per share between 10 and $0.12. The mid-point of this targeted revenue
range represents a nearly 60% increase over the year ago period and a 43%
FOCUS
sequential up-tick. For the full year, we reiterate our revenue guidance of 97
million to $102 million.
However, we are raising our EPS guidance to a range of 38 to $0.42 to reflect

the better than expected results in Q1. This guidance assumes fully diluted
shares of approximately 26.1 million for the year.
Please note that as we reviewed in our last earnings call, our guidance is
untaxed due to the fact that we have accumulated roughly 46 million of federal
operating loss carried forward.
At some point in the future, we will recognize our deferred tax asset and
from that time forward, we will incorporate an income tax expense line item of
roughly 40%, despite the fact that cash taxes will still be minimal for some
time thereafter.
As Eric mentioned, we are on track to end the year with between 1,200 and
1,300 agents. While our previous guidance was predicated upon flat average net
revenue per transaction, we now anticipate that average net revenue per
transaction will slightly increase in 2005 versus 2004.

FOCUS
However, we expect that the remainder of 2005 will yield average net revenue
per transaction, and is lower than that of the first quarter due to a mixed
shift towards markets with lower home prices.
We expect closed transactions per agent per month to be within our stated
targeted range of 1.1 to 1.2 for 2005, perhaps with a slight bias towards 1.1 as
inventory remains particularly tight in a few markets.
Market conditions notwithstanding, we have undertaken a number of new

initiatives designed to drive higher productivity, which Eric will elaborate on
momentarily.
Note that we believe that our agent productivity remains significantly higher
than the industry average.
With that, I would like to turn the call back over to Eric for some closing
thoughts.
ERIC DANZIGER: Well, when you say momentarily, you sort of mean that, don't
you Gary? Okay. Well, we're extremely pleased with the results and the
underlying momentum in our business as we enter the seasonally-strong spring and
summer selling season.
FOCUS
We continue to deliver strong revenue and earnings gains while increasing the
value we create for customers.
Let me just take a minute to remind you of ZipRealty's overall strategy and
how we are positioned in the marketplace.
As I've stated in the past, residential real estate brokerage represents a

$60 billion market. We continue to gain market share in the industry by offering
an alternative as unique in the real estate industry as Amazon offered in the
book industry.
Like Amazon, we simply want to provide another way for consumers to buy or
sell their home, much like Amazon did in the book industry. These gains that we
have come as a result of the fact that we are an operating company focused on
higher productivity and profitability through day-to-day management of the
business, of the employee workforce.
Our brand is centered on providing our clients the superior information and
tools and great savings, and as I said, excellent customer service.
And while we have achieved significant results to date, we have a long way to
go, and this company will continue to evolve, next month, next quarter, next
FOCUS
year. We continually listen and look for new and better ways to operate this
business.
To that end, we have introduced numerous initiatives in recent months. First,

in the field, we are transitioning from the executive suites we have had to
small offices for the purpose of creating recruiting and training centers in the
local market. These are not offices or agents. They will continue to work as
they always have out of their homes.
But rather, these offices will house the local management team and training
support efforts. This allows us to scale our hiring and training in a much more
cost-effective manner.
Specifically, once we've completed this transition, we will have expanded our
new agent on board in capacity by over 200%.
We will also be able to significantly increase the quality and quantity of

training that each agent receives at the field level, which we believe not only
will improve customer service even more, but productivity as well.
On the customer acquisition front, we have begun several important

initiatives that also should pay dividends on a go-forward basis.
FOCUS
Currently, we have record levels of Web site activity and registrations. We
want to make sure that we take full advantage of this traffic by capturing as
many of these clients as we can, so we have engaged a number of outside firms to
help us optimize our Web site.
As part of this program, we're looking at every single major Web page,
examining every major drop-off point and optimizing the page designs to maximize
click through and conversion. We have already started to see significant
increases in our click to lead ratios as a result of these efforts.
Second, in the upcoming quarter, we expect to make significant enrolls in the

natural search arena which will drive additional traffic to our site with
minimal cost.
Third, we have seen an increase in viral marketing. We've helped create and
nurture this by launching in April of our own viral marketing tools including
things like send a listing to a friend, or refer a friend.
Early returns of these have been very encouraging as well. We can also see
the increase in our viral presence through the increase of clients who come
directly to our site. That is up 118% versus Q1 of 2004.

FOCUS
Lastly, we have instituted significant improvement in our backend lead
allocation system, which allows us to better distribute and coordinate incoming
leads with our top performing local agents.
We believe that these industry-leading systems to acquire, manage and

allocate leads to our agents is a core competency which will continue to drive
agent productivity well in excess of the industry averages.
Another important part of our business that we are addressing is listings.

For the first time ever, we are rolling out unique tools for prospective sellers
that allow them to create a high quality, comparative market analysis or CMA on
their own at their convenience.
Now, unlike other tools, where you enter an address and get a price, we
provide consumers with all of the comparable homes currently for sale, as well
as recent home sales, so that they are empowered to create their own market
evaluation tailored to their specific needs.
We expect additional results and increased demand for the listings and will
be a tool that is extremely viral as people tell their friends and neighbors
about it as an example.

FOCUS
And finally, we have begun implementing that team leader program company-wide
I spoke of.
The team leader's primary responsibility is to assimilate new agents, provide

just in time support, and maintain a localized port network for the 10 or 15
agents on his or her team.
Organizationally, this initiative is designed to help our rookie agents

become more productive quicker and obviously stay with us because of the initial
success. All right.
Turning now to market expansion. We're pleased that yesterday we did indeed
announce that Las Vegas is our newest market. This announcement came well ahead
of the infernal June 1st target. We soft-launched Las Vegas on our Web site on
April 3rd, and are already seeing significant consumer activity.
As in the official launch, we had 17 agents in place and our recruiting
efforts now under way are being well-received. We expect the consumer adoption
will increase significantly as consumer awareness of our brand benefits build.
We will reiterate again that on average, we expect to spend between 500,000

and $1 million to launch a new market before achieving break-even results at
FOCUS
the district level in roughly 12 to 18 months.
Today I'm also pleased to announce our planned entry into the Houston market
during the third quarter of this year. Houston is among the 10 largest
metropolitan areas in the country, and has experienced population growth of over
25% in the last decade.
The Houston market is strong as evidenced by a 4.1% increase in total

property sales during the first quarter of 2005.
We're real excited about the opportunity to extend our customer centric model
beyond Dallas and Fort Worth, as the state of Texas is projected to rank among
the top 5 fastest-growing states in the country in the next 30 years.
In addition to Houston, we're excited to share with you our intent to indeed
open a third new market before the end of this year.
If you recall, on our last call, we said we would open 2 to 3 markets during
2005, and we're pleased to come in at the high end of that expectation. Although
we're not going to discuss the specifics of that, we'll have more to say on the
next call.

FOCUS
Please, just a couple of more points before Q&A.
First, our model is very different from many of the on-line residential real
estate players that we are often compared to.
In fact, we do not sell leads or aggregate eyeballs to sell advertising. We

simply operate a brokerage business with an entirely different model than most
of our competitors.
Who we are, what we are and what we do has resulted in ZipRealty being named
by Real Trends as one of the top 40 brokerages in the nation for 2004, which is
up from spot 73 just a year ago.
And as exciting, Business Week has just recently included our company in the
Business Week Web Point . Second, we have a huge runway ahead of us.
ZipRealty on average has less than one-half of one percent share in our
existing markets and we see tremendous opportunity to leverage our brand
strength to drive strong revenues and profits, and our numbers would certainly
suggest that is the case.

FOCUS
Third, as a fast-growing business capable of launching in new markets
relatively quickly and with very little capital, we believe we are less
effective by interest moves or other economic gyrations and some of our brokers
here. That's not to say, we're immune, but we are fully capable of posting
significant growth rates despite most macro forces.
Everywhere I look, I see articles counting, hot real estate markets, record
numbers. Well, let me that as a company, we're actually looking forward to the
day when the headlines read that the real estate market is an equilibrium or, in
fact, softens. Right now, 80% of our customers are buyers. The significant
number of those are first-time buyers.
In certain markets, these buyers have to compete in multiple offer

situations, many of which we win, but we also loose some. But, we have
significant demand in the form of buyers. When there is more supply, we're able
to more fulfill on more of that demand.
And my last point is, and one of the main reasons I believe, of course, we're
an interesting company, is within our business model, it allows us to generate
solid levels of pre-cash flow over the long run with very small capital
requirements.

FOCUS
That, of course, almost assures that we'll continue to build balance sheet
strength, which we could use to invest in our core business, evaluate
acquisitions, or create value and other ways, should we feel the need.
So, combined with the outlook that we've spoken about today, we believe our
prospects are very bright, as we move through the remainder of 2005 and beyond.
With all of that, I'd like to thank you very much for listening in and open the
call to Q & A. So, Amber, if we can invite everyone in?
OPERATOR: Certainly.
We'll go first to Ben Schacter of UBS.
BEN SCHACTER, ANALYST, UBS: Hey, guys. Sounds like you're making some fairly
significant changes here to decentralize and move some of the training and
recruiting out to the field. I'm just wondering, why now, why you're trying to
do that, and also, how that will be reflected in the model in terms of some of
the costs.

FOCUS
ERIC DANZIGER: Okay. First of all...
BEN SCHACTER: wasn't sureabout that.
ERIC DANZIGER: Yes, it is in the guidance and if you think about what we've
done up to this -- Oh, hello Ben, how are you by the way.
BEN SCHACTER: Good. How are you?
ERIC DANZIGER: Good. You know if you think about what we've done up to this
point, you recall a couple of things: Last year we had seven or eight recruiters
all based here in Emeryville, and every single person we hired, you'll recall
the numbers rose significant last year, we brought to Emeryville. So, we paid
for them to come here. We trained them for five days, hotels and all that stuff.
So, in addition to wanting to include the numbers of people we could recruit,
which we've decided mid last year to push that out to the field, and it's been
in evolution to put one recruiter in each field -- in each field district.
Now, over time, we said, somewhat from a cost perspective, to not have to fly
everybody here, but more from an immediate on-boarding, training, filter a
better person, get them in, get them trained, faster, better, and get them

FOCUS
more productive faster, it should occur in the field.
So, first of all, all the expenses have always been in our guidance because
this has been a plan that we've thought about for more than now, it was last
year that we sort of thought about the evolution and budgeted it. And, I think
it's going to be meaningful.
We're a little slow in rolling it out fully, that's why I said we're only 30%
there. It's tough for people to recruit and get their onboard training in the
field when they aren't in the new offices. If you're working in the executive
suite, you can't do it. If you're in an office that has offices for the four
managers in the training room, you can do it.
So, the rest of it is expected to be accomplished before the end of this

quarter, during this quarter, we hope that's the case and I think we'll see
deficiency from it.
GARY BEASLEY: Yes, another part of that, the logic, Ben, was to create the
localized training centers so we could deliver ongoing training to all of our
agents.

FOCUS
So, this is, falls to, it promotes them deficiencies on the onboarding but
also to allow a regular program of delivery of training to existing agents and
that's obviously one of the initiatives that we put in place to help to drive
productivity.
BEN SCHACTER: Okay. And quick follow-up. When you talk about the seller tools
you were putting into place
GARY BEASLEY: Yes.
BEN SCHACTER: What are you going to do with the people who are selling in
markets that you are not currently services. Are you going to -- what are you
going to do with those leads?
GARY BEASLEY: Yes. Right now, Ben, what we're doing when you go to our
website. If you go to a market that is not a ZipRealty market, we'll just refer
that out to some of our partners in those other markets. We're not going to let
that drive where we're opening business, necessarily, but we'll --
BEN SCHACTER: So, in terms, will you generate revenue from that.
FOCUS
GARY BEASLEY: Yes. We'll generate a small amount of revenue from that, but
that's not a core business of ours.
BEN SCHACTER: Thank you.
ERIC DANZIGER: Thanks, Ben. So, we must have been pretty complete in that
long...prepared.
OPERATOR:
We have a follow-up from Ben Schacter .
BEN SCHACTER: All right. If no one else is gonna ask questions, I'll keep you
guys on the phone all afternoon.
ERIC DANZIGER: Gee, thanks, Ben.
BEN SCHACTER: Just kidding. What can we expect in terms of revenue

contributions from Las Vegas and also the same question for Houston.

FOCUS
GARY BEASLEY: Well, Ben, I would say this builds into our guidance. So, we've
always said two to three markets this year that's been baked into our guidance
and we're on track with what we've been saying.
So, we're not going to get so granular right now to talk about revenue
contribution but there's really no change in that from what we have always
talked about. Now, that being said, as we get a little more further a long, with
Las Vegas and Houston and some of our other markets, we will talk a little bit
more specifically because I know everyone wants to understand what the unit
economics look like for new market.
BEN SCHACTER: Okay. Thanks.
GARY BEASLEY: Yes.
OPERATOR: Our next question comes from Mark Nicholson (ph) of Segamore Hill
Capital Management.
MARK NICHOLSON, ANALYST, SEGAMORE HILL CAPITAL MANAGEMENT: Hi guys. Thanks

for taking my questions. As my first question is, just in terms of the
regulatory environment, I've noticed there's been a few other Departments of
Justice has been like a few cases like Kentucky, Texas, and Oklahoma. where
FOCUS
they seem to be priding for you guys.
I just kind of wanted to hear your insights on that and just maybe if you
could just comment on -- I guess it - kind of sounds like, kind of the
traditional aide and try to prevent you guys from representing sellers or I
don't know if that -- is that something that you see at all or is that kind of
--
ERIC DANZIGER: No. Let me answer your first one first, Mark. Thanks for
asking the question. Number one, let's talk about the department of justice ,
I'm glad you asked that. We're obviously very pleased to see them look at these
things. There are three parts of the deal (inaudible).
One is the eval policy, one is rebates, such as what's going on in the state
of Kentucky, and then one is a limited service issue, which is Oklahoma City.
Two of those we are very pleased that is going on likely results and positive
for us. They're certainly positive for consumers, which certainly matters.
One's in neutral because we're not a limited service broker, so we really

have no interest in -- we don't have a cat in this cape.

FOCUS
So, let me just say that department of justice looking into an issue, which
requires an objective party looking into for consumer's part and competitive
part. It is something that we welcome.
Some a third party objective, not somebody who wrote the rules, somebody has
to comply by the rules so look into what's going on. So we're pleased that
they've been in it and we -- and they have expanded that from the original look
at the val policy to, for instance, the rebate issue, and we don't know how that
will resolve, of course, because we're not them, we're just certainly pleased
their in it. I'm not sure what your second question was but if you keep in mind
how we have played, in this sandbox, is we're a real estate company.
We're an operating real estate company, which is a little different than a

franchise model, what not, but we're realtors. You know, our company is
populated with 1103 realtors. Our realtors are interested in doing things for
customers, making money, and so on.
So, for instance, in our model, we have never provided a distance center or
another realtor from another brand, to work with us on either a selling side or
buy side because any discount has always come from our side, and we provide
other real estate person a full cove broke . So, hopefully, if not just because
it's the right thing, to do the right thing for consumers, a realtor would do
FOCUS
it because there's no disincentive to do business with us. So, there are really
no issue with us being out there as part of the community.
And by the way, you can't stop a real estate company from getting a listing
by the way. Their listing is in the hands of the consumer and it's up to you to
present to them why you're the right company to stick your sign in their yard
and represent them on the sale side because you're going to expose them to the
complete MLS, I presume, which is a good thing to do. You're going to hold open
houses; you're going for their best interest.
MARK NICHOLSON: Right.
ERIC DANZIGER: So, I don't see a block off.
MARK NICHOLSON: Right. It's actually cause it- it's in an article- I mean it
might have been just one local market in Tulsa- an article in Money Magazine.
And it just basically seemed to imply that, that if a discount broker was -- if
they were given a listing, that traditional brokers just wouldn't show it.
ERIC DANZIGER: Yes. Two things, that's that the Oklahoma thing I talked about
and two is a discount broker is not what we are by the way. And that's that
limited service issue where the claim is somebody get you here that's going to
FOCUS
drive by the house every four days, representing me. I'm just using that
illustratively, of course. Should not be compensated in the same level blah,
blah, blah. That's very different from what we are.
We are a full service brokerage, and our financial model has to do with our
efficiencies so, it really is a very, very different thing. For a realtor at a
full service brokerage, to block us out of showing their houses in example, is a
huge disservice to their customer, morally wrong, ethically wrong, just plain
wrong and it's because we're full service. So, it's very different discussion,
Mark.
MARK NICHOLSON: Okay. And then just on, did you -- I might have missed it --
but did you guys say how many agents you hired, that you added this quarter?
ERIC DANZIGER: Yes, we said in the first quarter, we net added 69 agents, and
then since April 1, we net added 120.
MARK NICHOLSON: I don't know if you did it in the past, did you disclose the
gross number of agents you added?
ERIC DANZIGER: We don't. We just sort of talked about it in terms of net

because it really is the only germane number for this business, this industry.
FOCUS
MARK NICHOLSON: Okay. So, you've never disclosed --
ERIC DANZIGER: Nope.
MARK NICHOLSON: Andthen just in terms - how do you guys measure the
productivity? Is that like -you know- the basis-every month or every week or
just like what's kind of the denominator?
GARY BEASLEY: It's the total number of closed transactions in the quarter
divided by the number of by the beginning agent count. And then you turn that
into a monthly figure by dividing that by three.
MARK NICHOLSON: Okay.
GARY BEASLEY: That's it ?
MARK NICHOLSON: Yes.
GARY BEASLEY: All right.
MARK NICHOLSON: I think that's it for me. Thank you guys.

FOCUS
GARY BEASLEY: Thanks very much.
OPERATOR:
Our next question comes from Derrick Brown of Pacific Gross Equities.
DERRICK BROWN, ANALYST, PACIFIC GROSS EQUITIES: Hi. Thank you. Different
questions, first relates to productivity and just kind of a follow-up. Is it
reasonable to look at Q1 as kind of the trough in agent productivity, just given
the cycle of the hiring that you guys have done? Also, you're obviously pretty
focused on growing the agents now but have also changed what you're looking for
and I'm wondering if you could kind of delve into what the parameters of the
ideal agents are today and what they were maybe a year ago. So, kind of how your
evolutions has changed what you're looking for and what the kind of, the hit
ratio is out there in terms of people that actually have the attributes you're
looking for. And then I guess (inaudible) any changes that you guys are noticing
on the competitive landscape.
ERIC DANZIGER: Well, Derrick , how are you dong?

FOCUS
DERRICK BROWN: Doing well. Thanks.
ERIC DANZIGER: Great. With all those questions and the way I give long
answers, we'll be here till dinnertime but let me take one of them and then Gary
will answer the first one. Let me take the middle one which is the profile of
the agent. Look. That's something that we are continually involved. Our profile
is different now than to last year, and frankly it's different than 6 months ago
and it's something that I expect our newbie ps staffing to work on specifically
as well for our future, kind of identifying the perfect Zipenstein , let's say
for lack of a better work .
And I think what I say to you because it's such a different model, this kind
of goes to that churn thing as well by the way, is a company is known by the
hirers and the fires that it has. In other words, we bring a lot of people in
but some churn is good churn as we say around here, because we're trying to find
some right people to fit our company truly customer service-oriented people,
technology-oriented people, responsive-oriented people.
I don't know if you've read the studies lately about the average
responsiveness from the real estate industry is pathetic, it's horrible. Well,
that doesn't work for us, and so our management system doesn't allow that to
happen and a lot of stuff.
FOCUS
So, it's a long windup, Derrick , to say that what our safety is, we're
continuing to refine it and what we are finding is that generally speaking, sort
of a sweet spot for us tends to be newly licensed, or more in the one, two-year
license range. So, they've got some craft understanding and they've been
licensed. They from another background, selling software as an example, and even
better in a corporate environment.
So, as we profile, we look for those kinds of people and then present to them
opportunities to make a lot of money. Part 2 of the recruiting, going out to the
field, and what we'll continue to evolve with this addition of resources we're
putting, think about -- you know currently because you got to have a license to
work in real estate, you're sort of limited to fishing in the pond where license
real estate people swim. Well, maybe we've got to go out to colleges and present
why it's okay to work in real estate industry.
It's a great career, and a great money making opportunity and here's a
company the system which would allow you to be hugely successful with great
management career opportunities. So, I think again, the profile has changed from
a year and a half ago, we wanted it, give us all the experienced realtors you
can, to sort of the sweet spot that I just described and I believe we'll evolve
even further in the next year or so. Did that answer that piece of the question?

FOCUS
DERRICK BROWN: Yes.
ERIC DANZIGER: Okay. So, Gary will talk about the first piece.
GARY BEASLEY: Yes, Derrick . I think it's safe to assume that Q1 should be a
trough in terms of productivity. Our guidance -- we spoke to our guidance of
being 1.1 or a bit more for that so, we expect a nice sequential up tick in
Q2-on seasonality.
DERRICK BROWN: Okay. Thank you.
GARY BEASLEY: Yes.
OPERATOR:
We'll go next to Don Matthews of Payton (inaudible)
DON MATTHEWS, ANALYST, PAYTON: Hi. Thanks for taking my call. I had heard you
say on several different occasions that you're business is less interest rate
sensitive than typical residential real estate brokerage. I was wondering if
FOCUS
you could explain that for me?
ERIC DANZIGER: Well, two things. What we've said is we've shown charts that
show real estate in a high interest environment, not so much (inaudible), so
what we've talked about is that over what is it, Gary, 23rd a year since 1973
that the average price has gone up? I mean, what's the fact here, that interest
rates have not really materially affected real estate, the industry.
GARY BEASLEY: Yes. Well, real estate pricing has increased every year since
1970, and while the transaction, the volume of transaction does flux some and in
during some high interest spikes could be affected dramatically. There are a lot
of years where there's actually been sort of a correlation that you would not
expect between interest rates and volume of transactions. So, there's certainly
not a perfect correlation.
I think what we like to say internally is interest rates tend to really

influence the refine market a lot more than the primary home market. Usually
people are buying homes or selling homes because of life changes, they want to
expand or contract, they want to move to a better school district, etc. So, we
feel that certainly the kind of interest rate environment we're in is obviously
a low rate environment. There's probably still quite a way it could go, upward
and not have a dramatic effect in our view on the volume of home.
FOCUS
DON MATTHEWS: Or the prices.
GARY BEASLEY: Right. Or the prices, I think what have gone on record and said
is well, we're not prognosticators, we do not expect there to be continued
growth on the order of 15 or 20% in pricing, which we've seen in some of our
markets. Over the long term, residential real estate tends to appreciate 5 to 7%
and we've been in a period of rapid price growth and overtime, that's going to
moderate in the market.
ERIC DANZIGER: Don, so you think about what we've called the great American
dream. Of course, we didn't come up with that phrase but that's how we talk
about the decision to buy a house. You know, I mean, it's funny, I bought a home
-- I'm sure many of you on the phone did -- when interest rates were 19% because
my kids wanted to be in a home instead of an apartment, those sorts of things.
So the fact that interest rates today are 5, 6, 7, whatever, is certainly not
a de-motivation for immigrants who come into the country and say I want to buy a
home, or people who get married that want a home or have kids, so there really
is not a direct correlation to that. But I didn't mean that as a our company
statistic, it's a real estate's statistic.

FOCUS
DON MATTHEWS: I see. Okay. Thank you.
ERIC DANZIGER: Yes, and I think we'll take one more question and sign off.
Yes?
OPERATOR: And our final question will be from Philip Lamaru (ph) of Lamaru
Investments.
PHILIP LAMARU, ANALYST, LAMARU INVESTMENTS: Well, congratulations guys on the

great execution. I just couldn't sit here quietly with nobody asking questions.
So, congratulations on the execution and I know that the focus is clearly single
family residential. I've heard rumors that there might be a multiple unit
project that you're working on and I didn't know if you were representing buyers
or sellers and is this just a one of a kind thing or would it be likely that
apartment buildings and other things might be part of the charter, and then some
point would you expect to be in commercial as well and will you stick just to
residential?
ERIC DANZIGER: Well, hi Phil , and thank you for asking the question. I guess
what our safety is; our core business today is residential homes. And that is
kind of evolving, and it's kind of one of the exciting things about our growth
opportunities. We represent buyers and sellers for their homes, and a few
FOCUS
times that has been a delightful experience in terms of the upper - we sold a
7.7-million-dollar home. We represented a buyer who bought a 7.7-million-dollar
home. That once was an outliner, now, all of a sudden, there's a significant not
- no let me take that back and not say significant.
There's a growing number of larger price homes that are part of our
portfolio, just because our business proposition works for everyone. Now, there
have been lots of discussions around, where do we want to take the natural
evolution and two comments I want to make, there was an article not long ago, I
can't remember who that said 20% of the numbers of homes that are bought today
are bought as second homes or investment homes. So, certainly that whole
business is something we want to attach to what we do, and in fact, do attach to
what we do. So, we have people in our markets who got 1031 exchanges and all
those sorts of things that are helpful.
We have indeed done a few multi-unit transactions and so I've stop there now
and say though that to the extent we wanted to springboard into that as a major
core business, multi-homes, commercial or whatever, we would go about it in
terms of a thoughtful develop of business plan added on not just do it because
t came up because as you know, we want to do things well and profitably.

FOCUS
So, some of those discussions are going on now, Phil , internally with regard
to the natural extensions of the brand, in certain markets and how would we do
it, how do we want to do it, if confronted with a builder who wants to do 40
sites, that kind of things. So, we're having those discussions now. So, I would
only say to you that it's probably another growth opportunity for us to add on
what we do, not principle to what we do.
PHILIP LAMARU: Great. Congratulations.
ERIC DANZIGER: Thanks, Phil. I appreciate it. All right. I think that
probably is a wrap for today. We're very grateful and appreciative of everyone
taking time to not only follow the company and join us today for the call to
hear what's up and we'll look forward to staying in touch with you. Thanks for
calling in.
OPERATOR: That concludes conference call. You may disconnect at this time.

changes.

FOCUS
be realized.


FOCUS

February 10, 2005 Thursday
TRANSCRIPT: 021005au.790
LENGTH: 5016 words
BODY:
OPERATOR: Good day and welcome to the ZipRealty, Inc. fourth-quarter 2004
earnings conference call. Today's call is being recorded. At this time, all
for your questions following the presentation.

FOCUS
It is now my pleasure to turn the floor over to your host, Mr. Tom Ryan.
TOM RYAN, IR, ZIPREALTY, INC.: Thank you very much. Good afternoon, and
thank you for joining us today to discuss ZipRealty 's fourth-quarter results.
With me on the call today is Eric Danziger, President and CEO; and Gary Beasley,
CFO.
Before we begin, I would like to note that during the course of this call,
various remarks that are made about future expectations, plans and prospects for
the Company constitute forward-looking statements for the purposes of the Safe
Harbor provision under the Private Securities Litigation Reform Act of 1995.
contemplated in these forward-looking statements, as a result of various
factors, including those discussed in the Company's amended registration
statement filed on November 8, 2004.
ERIC DANZIGER, PRESIDENT, CEO, ZIPREALTY, INC.: Great. Thanks, Tom. I'd like
to begin by welcoming everyone to our first earnings call as a public company.
We are very proud of our results, and we believe that they are a testament not
FOCUS
only to the strength of our business model, but reflect the infrastructure
investments and growth initiatives we have directed over the past few years.
Before we get into a detailed discussion of the numbers, I would like to take
a moment to explain just who we are, for those of you new to ZipRealty.
ZipRealty was founded in 1999, and is a full-service residential real estate
brokerage firm. We use the Internet, proprietary technology, a management
system, and informed employee agents to provide all buyers and sellers with
information, service and value. Our solution includes a sophisticated website
that empowers home buyers and sellers with direct access to Multiple Listing
Services or MLSs, as well as personalized information relevant to making a home
purchase or sale. The MLS listings, which traditionally have not always been
available in a comprehensive fashion to consumers, aggregate all current
MLS-listed properties for sale in a given market. They list prices and other
details relevant to this buy-or-sell decision.
The power of our front-end system, which includes very rich customer data
such as mapping, sold data, school data and much more, combined with
sophisticated customer relationship management tools, enable our clients and our
agents to be more efficient than they would be in a typical traditional
environment. This enables ZipRealty to be a low-cost alternative to traditional
brokerage firms by about 100 basis points, on average.
FOCUS
With this cost advantage and this incredible information, we are in a
position to attract a steady stream of potential agents, which is a key driver
of our financial performance. Once they are hired and trained, they focus on
what is really important -- which is, to us, the customer. In fact, our agents'
single goal is to make the customer experience a good one, whereas in some of
our competitors' case, they may compromise that experience because of the
jiggling between current transaction activities and the need for that agent to
generate future leads. That's something our agents don't have to do. Again,
through our website, we provide all the leads our agents need, so they can focus
on the transaction and the customers at hand. I think that creates a great
brand, and ultimately, we believe, creates a lot of repeat and referral business
-- very, very valuable ROI opportunity.
We currently have operations in 12 major metropolitan areas. Each agent is

licensed in their local market, and is a member of the National Association of
Realtors. Unlike what is typical in the industry, ZipAgents are employees,
afforded healthcare, long-term incentive compensation -- which is another
competitive advantage, by the way -- in addition to leads, technology,
management support. So as we sit here today, we feel very confident that we have
the right business model, at the right time, for the right industry.

FOCUS
At year end, we had 914 full-time licensed agents. We closed 8,500
transactions in 2004, representing $3 billion in real estate. So our revenue was
$62.3 million, up 84 percent from 33.8 million in 2003, and we recorded net
income of 3.2 million, compared to a net loss of 4.6 million in 2003.
With that as the initial backdrop, I would like now to turn it over to Gary
so he can run through our financial results in a bit more detail.
GARY BEASLEY, EVP, CFO, ZIPREALTY, INC.: Thanks, Eric. Net revenues in the
fourth quarter of fiscal 2004 were 17.5 million, an 89 percent increase from 9.3
million in the fourth quarter of 2003. In terms of profitability, net income for
the fourth quarter was approximately $900,000, compared to approximately 200,000
last Q4. Our substantial revenue growth was driven both by increased transaction
he quarter, transaction volume increased 67 percent, with 2,337 transactions clo
sed during
the three months, compared to 1,402 in the same period in 2003. This gain was
driven by the ongoing addition of ZipAgents, as we ended 2004 with 914, up from
782 agents at the end of the third quarter, and up from 440 at the end of last
year. Average net revenue per transaction increased to $7,308 in Q4, up 13
percent from the same period last year.

FOCUS
In terms of agent productivity, another key driver of our business, closed
transactions per agent per month was approximately 1.2 for the full year 2004,
compared to 1.3 a year ago. 2004's productivity was approximately 50 percent
higher than the industry average of approximately 0.8, a testament to the power
of our model. The method of calculating these numbers is described in the
amended registration statement mentioned earlier.
It should be noted that we include all agents in our agent productivity

calculation, including those who have just joined the Company and are in their
initial ramp-up period. As a consequence, our 2004 average productivity was
influenced in part by our aggressive hiring program during the year, which
brought lots of new ZipAgents into the fold.
For the year, average net revenue per transaction was $7,147, representing an
18 percent increase over the prior period. This gain was driven in part by
overall price depreciation in the residential real estate market, as well as
ZipRealty's success in increasing its market penetration of high-end homes.
I would like to note that our revenue per transaction has also benefited from
our strategy to reduce consumer rebates to 20 percent of our commission in early
2004, from what was as high as 33.3 percent back in 2002. As evidenced by the
steadily growing demand for our services, we found that lowering the rebate
FOCUS
did not result in material push-back from our customers, as we felt were largely
competing against ourselves in this area. As you may know, other real estate
firms typically do not offer buy-side rebates. While there may be an opportunity
at some point down the line to further modify the rebate, as we build our brands
and compete on service, we have no plans to modify the rebate level in the near
future.
Moving to the expense side of the P&L, our cost of revenues in Q4 was $9.5
million or 54 percent of revenues, versus 5.2 million or 56.2 percent of
revenues for the same period a year ago. We expect gross margins to remain in
this 45 to 46 percent range on a going-forward basis.
Aggregated as a whole, operating expenses were 7.5 million in the fourth

quarter. For the year, operating expenses as a percentage of revenues improved
by 700 basis points, from 48 percent in 2003 to 41 percent in 2004, a testament
to the operating leverage in our model. This improvement occurred despite
incremental costs related to operating as a public company. Our expenses reflect
increased investment in marketing and advertising, related to increased lead
generation required to support the number of agents added to the team during the
second half of the year.

FOCUS
ZipRealty's operating income was approximately $600,000 in the fourth
quarter, compared to approximately $100,000 in the fourth quarter of 2003. We
expect ongoing operating leverage as the Company scales and adds agents and
also, as we continue to recognize efficiencies from the centralized
infrastructure we put in place. Over the long term, our goal is to realize
pretax margins in the 15 to 20 percent range, and an after-tax margin of 10 to
12 percent.
On a GAAP basis, earnings per diluted share were 1 cent, compared to 0 for
the fourth quarters of 2004 and 2003, respectively. More importantly, pro forma
diluted net income per share was 4 cents, compared with 1 cent for the same
period, and we are very pleased with this result. Pro forma net income per share
calculations are included, as they reflect our post-IPO capitalization
structure, and as such, give effect to the conversion that occurred upon the IPO
of all of the Company's convertible preferred stock into common. Note that for
2005 and beyond, there is no need to report pro forma figures in this area, as
stence of the preferred stock went awaywhen we went public.
Turning to the balance sheet, we ended the quarter with 83.5 million in cash.
We have no long-term debt, inventory costs or material accounts receivable
exposure.

FOCUS
As far as guidance, based on our current outlook, we expect revenues for the
seasonally slow first quarter of 2005 to range between $17 and $18 million. In
addition, we estimate that earnings per share will range from breakeven to 2
cents. This compares to a slight loss during the same period a year ago.
We budgeted half of our CapEx for the year -- or about $1 million -- in Q1,
principally to increase our server capacity and also to outfit our localized
agent training facilities to support our move from centralized to field
training.
In providing Q1 guidance, we note that a portion of our anticipated January

revenue actually closed in the month of December, which contributed to our
stronger-than-anticipated Q4. Additionally, our Q1 results will be seasonally
impacted by particularly tight inventory, as well as unusually poor weather in
certain of our markets, which we believe kept many people indoors and not
looking at homes.
Despite seasonal challenges, however, we still anticipate showing

approximately 60 percent topline growth in Q1 versus last year. This
year-over-year growth is consistent with our 2005 expected revenue objective.

FOCUS
One final comment on Q1, for those of you who are unfamiliar with our
business and its dynamics. While our goal is to post a modest profit this year,
versus the small loss we showed last Q1, the principal objective for us in the
first quarter is to make sure we are putting all of the pieces in place for the
spring buying season, which is really when we start to make our money. It's
during this first quarter when we invest in people, training, customer
acquisition and our systems, with the objective of setting us up for success in
the balance of the calendar year.
For the full year 2005, we expect revenues to range between $97 million and
$102 million. We anticipate reporting earnings per share in the range of 36
cents to 40 cents for the full year. Finally, our CapEx for the year is expected
to be approximately $2 million.
Please note that our guidance is untaxed (ph), due to the fact we have
accumulated roughly 46 million in federal operating loss carryforwards over the
years as we've built the business. Accordingly, we will not pay a material
amount of cash taxes at the federal level until we have generated enough
cumulative profits to exhaust these carryforwards. It's inevitable, however,
that ZipRealty -- that we will, provided we maintain our positive trajectory,
will recognize our deferred tax assets, resulting in a material one-time
non-cash item on our P&L. This will also force us to incorporate an income tax
FOCUS
expense of roughly 40 percent.
We will be working with our auditors to determine the appropriate time to

recognize this deferred tax asset, but at this time, we do not anticipate it
being a 2005 event. Once we have a better sense of the ultimate timing of this
event, we will incorporate it into our EPS guidance. Remember, though, even
though we will include a full tax expense on our P&L, once this deferred tax
asset is recognized, we will still be paying minimal cash taxes until we burn
through our substantial tax loss carryforwards.
We expect to end the year with between 1,200 and 1,300 agents for an average
net revenue per transaction flat to slightly down in 2005, relative to 2004.
This is due to what we believe to be a slowing increase of national housing
prices, and also due to a slight mix shift. Closed transactions per agent per
month are expected to approximate 1.1 to 1.2, as we expect to continue to
generate agent productivity that is significantly higher than industry averages.
Late last year, we made the strategic decision to significantly front-load
our hiring during the fourth quarter, in an attempt to increase our base of
seasoned agents for the spring buying season, which begins in earnest in March
and April. To that end, we added 132 agents during Q4, who are in their ramp-up
period this quarter. While the productivity of rookie agents is typically
FOCUS
below the Company average, increased productivity ties directly to higher tenure
and agent benefits from our intensive training program, and begin converting
leads into transactions. As such, we would anticipate improving productivity
from recently hired agents to correlate with the seasonally strong second and
third quarters.
With that, I would like to turn the call back over to Eric for closing
thoughts.
ERIC DANZIGER: Great. Thanks, Gary. While we remain excited about the
Company's future, I would like to underscore that these opportunities are
supported by our accomplishments to date. Thanks to the recruiting
infrastructure we developed this past year, we can expect ongoing growth in
agent headcount. And in addition to that growth, we continue to focus on
quality. We are an operating company. So in 2005, we will simply stick to what
got us here, and we will execute against our plan in our markets. We are, after
all, building a brand.
In addition, we will expand to new geographies, but we won't be overly

aggressive, particularly while there is so much opportunity in our existing
markets. Today, I am pleased to announce our first new market entry and five
years, as ZipRealty prepares to enter Las Vegas. We think it's reasonable to
FOCUS
assume that we will target one or two more markets in addition to Las Vegas this
year; but, again, we will just be laying the foundations for future growth in
those areas.
More specifically, on Las Vegas, we believe that as one of the

fastest-growing real estate markets in the country, it represents a natural fit
for a customer-centric company such as ZipRealty. Our move to Las Vegas will not
involve a large capital requirement. In fact, when entering any new market, we
primarily invest in marketing, training and recruitments. We anticipate a total
initial outlay of about $500,000 to $1 million, before achieving breakeven
results at the district level in roughly 12 to 15 months. We are excited about
the opportunity, and look forward to updating you on our progress.
Finally, before turning over the call to Q&A, I just want to leave you with a
few final thoughts on ZipRealty. First, on a commission basis, we currently
have, on average, less than 0.5 percent share in our markets and less than 0.1
percent share of the $60 billion national market -- which, by the way, suffers
from high levels of customer dissatisfaction. This is an industry, frankly, I
feel has been built more around the realtor that it has the customer, and we
feel compelled to change that equation. Our customer satisfaction ratings for
the year were the highest in the Company's history, despite this significant
growth, with an overall client satisfaction rating of 94 percent. We believe
FOCUS
that is nearly three times the national average. Here at ZipRealty, it is about
the customer. Now, we are not saying that we are eBay or Amazon, but we do think
we are an agent of change in the real estate industry, much like Amazon and eBay
are agents of change in their industries.
Second, we are building a great brand. Now, unlike most of our competitors
who are franchisors, our employees work for us, and we control the training,
support and best practices, which equates to controlling the brand. The customer
works directly with the brand, not just an independent contractor who has a
loose affiliation with a brand. And that makes all of the difference.
Third, I would like to reiterate that our company is unique. And, while it
faces its own risks, it lacks many of the risks associated with the traditional
business model. As Gary indicated, we have no debt, no inventory, no accounts
receivable risk. And in terms of our economics, we're a transaction-based model,
which results in a very straightforward accounting and high free cash flow. This
leads to a high degree of leverage, which is illustrated in our 400-plus percent
growth in net income on our nearly 90 percent growth in revenues for the
quarter.
Finally, we're committed to running the Company for the long-term benefit of
our stockholders. To that point, we feel comfortable with our financial
FOCUS
outlook and expected long-term growth. We aren't going to manage earnings to the
penny, however; rather, we will my common-sense investments in the business when
we believe it will best position us for continued growth and expansion.
With that, I'd like to thank you all very much for listening this afternoon,
and open up the call to Q&A.
OPERATOR: (OPERATOR INSTRUCTIONS). Jeetil Patel, Deutsche Bank.
JEETIL PATEL, ANALYST, DEUTSCHE BANK: I had a couple of questions. First of

all, it sounds like you were able to close transactions earlier, as you
indicated. Is there any way to quantify the impact of that shift from Q1 into
Q4? And, I guess, what actually happened that actually drove close rates faster
on the open transactions? Do you think this is more kind of a change in general,
or do think this was a one-time event?
Second, as you look at the agents that you have added and the expansion into
have you set (ph) (technical difficulty) Las Vegas
at this point, or talked about how many agents you plan to have, as you get into
the spring selling season? And I have a couple of follow-ups.

FOCUS
ERIC DANZIGER: Let me answer a couple of those, and Gary will fill in with
some additional facts. It is unique to December that there are so many pulls of
opens into the month, and it probably has more to do with the year-end taxes and
real estate taxes and various tax adjustments people can take on their income,
because it's an unusually high conversion number of opens that close that fast
into the month, 30 days, and we don't typically see it. So I don't think it's a
normal course of events. We'll let Gary come back to can we quantify it or not.
In terms of Las Vegas, what we can say here is we have hired key management.
The teams are in Las Vegas. We are in the licensing process now. We have
executed, or will, their lease of the office here in the next couple of days. We
selected it, and it's all ready to go, and we have our recruiting plan, and
management started a plan as well. I'm not prepared to tell you how many agents
that will include, but suffice it to say we will launch the market in a notable
way within the market to take advantage of any advertising dollars that we would
throw into a new market.
GARY BEASLEY: And in terms of how much revenue closed early, I would say it
was about $0.5 million.
JEETIL PATEL: Just have a couple follow-up questions -- one, can you talk
about how the recruitment process is going today, in terms of with the

FOCUS
unemployment market getting a little better out there. How is that affecting
your ability to recruit or hire in the marketplace? Are you getting the right
kind of candidates out there, in general?
And then, second, can you speak to the early returns on productivity from
your Q4 '04 vintage (ph) from an open transaction standpoint or closed
transaction standpoint?
ERIC DANZIGER: I'll do the first, Gary will do the second again. Recruiting
is, first of all, a key fundamental driver of our business. It's something that
we continually work on. This year over last, as an example, we are really
excited. We have moved -- in each district, there is a full-time recruiter in
the field, which was not the case last year at this time. We had seven
recruiters based in the corporate office; now there are 15 based in the field.
There's remote field training facilities as well, and frankly it's just part of
brand-building. As the brand becomes better known, as more agents are very
successful in the Company, there is a normal inertia that starts to bring to the
table better agents, frankly. So we are always striving to do a better job of --
whether it's testing at the beginning or overtly recruiting, we're trying to do
a better job of getting the right person in, which, of course, is to everyone's
betterment, in terms of reduction of turnover, being sure we are creating that
long-term association which, then, productivity does increase.
FOCUS
So what I would say to you is I can tell you just by my own personal
observations -- as well, by the way, as looking in our training room here, every
week we have any a new training class here in Atlanta and some other districts
-- that we are really pleased with the progress of their recruiting effort, in
terms of not only numbers, which is significant, but the quality of agents
coming in.
GARY BEASLEY: To the point of productivity of those people, it's a bit early
to tell, quite honestly, because we brought these people on around the holiday
season. And we are just starting to get into the time of year when we sort of
make hay. And what we can tell you, though, is the people -- we feel very, very
good about the quality of people we have, and the way that they are working
their platforms. And we think that's beginning to translate, I think, into some
good traction. But we will know a heck of a lot more on the next quarterly call
about how that class is doing.
JEETIL PATEL: And then, can you talk about maybe Q3 and how that is producing
in Q4?
GARY BEASLEY: Q3 hires?

FOCUS
JEETIL PATEL: Yes.
GARY BEASLEY: Q3 hires, I think, slicing it that way, uniformly was a very
good class, relative to if you seasonally adjust and look at new hires, say,
from last Q3.
OPERATOR: Ben Schacter, UBS.
BEN SCHACTER, ANALYST, UBS: The 914 that you ended with -- I'm just wondering
if that's about in line with expectations, or was there better retention than
you might have thought, or better recruiting?
And then, secondly, the average revenue per transaction, also, was that about
where you expected it to be? And going forward, do you think we should keep it
at right around the same number that is the average for the year, or should we
keep our number more where it came in, in Q4? And then I have a follow-up after
that.
GARY BEASLEY: Let start off with where we ended up. We ended up a bit higher
than we had planned, for two reasons, at the end of the year. One, we recruited
a bit more successfully in Q4 then we thought we would be able to. That's
usually a harder time to recruit, but I think partially because of the IPO, we
FOCUS
had some good exposure, a lot more inbound calls from agents. So we had more
hires.
We also had a record low turnover quarter. Now, as you all know, we don't
report turnover specifically; we report net agent growth. But our turnover was
the lowest quarter we have ever experienced, and we did show nice improvement
year over year, 2004 to 2003, in terms of turnover. So I think we are feeling
good that we are pointed in the right direction, in terms of agent count growth.
And, I'm sorry, what was your second?
BEN SCHACTER: The average revenue per transaction. The number going forward
for '05 -- should it be more the average for '04, or should we basically keep it
steady at where it ended up the year, 7,300?
GARY BEASLEY: I think that we like to be conservative around here, so I would

say work with the average for the year -- although one might argue that the more
relevant number is where you end it, because it trends (ph). But we do have, as
I mentioned -- we feel that price appreciation is going to flow, in a lot of
markets, fairly dramatically. So I think you'll be safe.

FOCUS
BEN SCHACTER: And the last question -- timing on the next couple markets?
ERIC DANZIGER: Hard to say, Ben. We focus on doing what we do very, very
well. We will get Vegas off. We obviously have sort of a timeline that we spread
out through the summer and fall months, to the extent we pull the trigger on
them.
OPERATOR: (OPERATOR INSTRUCTIONS). Neil McCluskey, Pacific Growth Equities.
DEREK BROWN, ANALYST, PACIFIC GROWTH EQUITIES: Actually, this is Derek Brown,
and my question relates to the cost of marketing and customer acquisition.
There's been a lot of chatter that just in general online ad prices have been
going up. And I'm wondering if you have seen that hit your business; if so,
where? And can you quantify, if not, do you think it's just a matter of time?
GARY BEASLEY: As you know, we don't want to get too granular about customer
acquisition for competitive reasons, in terms of numbers of leads and actual
cost per lead. But what we can tell you is that historically, we have been at
about 14 to 15 percent of revenues. And that's our goal, to kind of stay in that
15 percent range, plus or minus a little bit, depending on the time of the year
we are in.

FOCUS
(Indiscernible) is the area where I think there has been the most chatter
about prices going up, and for us, that's only about ten or 11 percent of our
leads come from that. For the most recent quarter, we had about 30 percent,
actually 31 percent of our leads came direct to our site. That number has been
building from kind of midteens a year ago. That's the most efficient way for us
to get customers. So, what we try to do is diversify away from the sources that
are growing at 10 or 20 percent a year, in terms of costs, and trying to
optimize some of our affiliate sources and other lower-cost sources.
OPERATOR: Jake Fuller, Thomas Weisel.
JAKE FULLER, ANALYST, THOMAS WEISEL: I think that about covered it.
OPERATOR: (OPERATOR INSTRUCTIONS). Ben Schacter, UBS.
BEN SCHACTER: Any shift in buy-side versus sell-side?
ERIC DANZIGER: No, it's pretty much the way it always has been. As you may
recall, we sort of managed to that level. We like being largely buyers. It's a
great place to focus, it's a great commodity, as markets cooldown, that you have
this buyer when everyone else is working on sellers.

FOCUS
Having said that, then, we have in the last couple of months begun very
significant new introductions, as we start to focus a little bit more on that.
If you want to our website today, the sales tools that are available on the site
for a seller are huge; you can look at all the homes that have been sold, how
long it took, what it was, how it compares to yours, draw a map around those,
all those sorts of things -- incredibly terrific automated CMA, which comes
after you give us some information.
So, yes, we are working on it, but we are never going to push the pendulum to
focus extraordinarily on that. But you will start to see slight movement from
the proverbial 80/20, which has sort of been our mix, buy to sell, for the last
five years.
OPERATOR: At this time, there are no further questions. Mr. Danziger, I'll
turn the call back over to you.
ERIC DANZIGER: Thank you. Well, thank you, everyone, for listening in today
and joining us. We are happy to be doing this with you today, and we will look
forward to chatting with you again certainly at next quarter. And we will keep
you posted on the developments. Thank you, and have a great day.

FOCUS
OPERATOR: Ladies and gentlemen, this will conclude today's conference call.
We thank you for your participation, and you may disconnect at this time.

changes.
be realized.

FOCUS
LOAD-DATE: February 25, 2005

ZIPR Calls

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

ZIPR Calls

Hochgeladen von

Copyright:

Verfügbare Formate

FOCUS - 1 OF 23 STORIES

Copyright 2009 CQ Transcriptions L.L.C.

August 4, 2009 Tuesday

LENGTH: 5029 words

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

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

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

* Jim Wilson JMP Securities - Analyst

OPERATOR: Good morning and welcome to the ZipRealty Incorporated Second

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

Please also note that to supplement its consolidated financial statements

The presentation of this additional information should not be considered in

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

I'll first review ZipRealty's operating and financial performance in the

In the second quarter, ZipRealty's total revenue increased 6% year to year to

We believe the foreclosure-short sale phenomenon will continue to hold sway

The reduced influence of nonstandard transactions, which typically occur at

Moving onto corporate costs, our operating expenses reflected a continued

General and administrative expenses were up $340,000 year to year to $3.3

Putting the pieces together, operating income declined by $300,000 year to

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

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

I'll now turn the call over to Pat.

In terms of the quarter, we started to see transaction volumes pick up in

As Lanny mentioned, we saw an improvement in the mix between standard and

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

As supply-demand dynamics improve, we believe they will validate the

It's important to note, however, that falling inventory levels and

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

Another factor we see as lengthening the cycle is a new set of guidelines

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

More broadly, we believe the Obama Administration has signaled continued

So to summarize the macro environment, the supply-demand equation has

We will remain true to several key traits that differentiate ZipRealty.

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

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

Another leg of our competitive advantage resides in our employee agents. At a

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

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

Specifically, customers will have access to current mortgage rates and

So in closing, our position in the marketplace combines a strong and

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

Questions and Answers

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

PAT LASHINSKY: Hi, Jim.

So we have found that while it is difficult to find good people, we continue

JIM WILSON: Okay. Very good. Thanks.

OPERATOR: (Operator Instructions). And there are no further questions. I

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF

LOAD-DATE: August 8, 2009

Copyright 2009 CQ Transcriptions L.L.C.

May 5, 2009 Tuesday

LENGTH: 5777 words

HEADLINE: Q1 2009 ZipRealty Inc. Earnings Conference Call - Final

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

Q1 2009 ZipRealty Inc. Earnings Conference Call - Final FD (Fair

* Claus Van Schtuderhan - Analyst * Jim Wilson JMP Securities - Analyst *

OPERATOR: Good afternoon and welcome to the ZipRealty Incorporated's first

Q1 2009 ZipRealty Inc. Earnings Conference Call - Final FD (Fair

Forward-looking statements also include comments regarding investing in our

Q1 2009 ZipRealty Inc. Earnings Conference Call - Final FD (Fair

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

Please note that we believe it is appropriate to modify our definition of