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`EDITED TRANSCRIPT
`TRLA - Q2 2014 Trulia Inc Earnings Call
`
`EVENT DATE/TIME: JULY 31, 2014 / 9:00PM GMT
`
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`
`TRULIA - EXHIBIT 1018
`
`

`

`JULY 31, 2014 / 9:00PM, TRLA - Q2 2014 Trulia Inc Earnings Call
`
`C O R P O R A T E P A R T I C I P A N T S
`Ian Lee Trulia Inc - IR
`Pete Flint Trulia Inc - CEO
`Sean Aggarwal Trulia Inc - CFO
`
`C O N F E R E N C E C A L L P A R T I C I P A N T S
`Lloyd Walmsley Deutsche Bank - Analyst
`Deb Schwartz Goldman Sachs - Analyst
`Chris Merwin Barclays Capital - Analyst
`James Cakmak Telsey Advisory Group - Analyst
`
`P R E S E N T A T I O N
`Operator
`
`Good day, ladies and gentlemen, and thank you for standing by. Welcome to Trulia's second quarter 2014 earnings conference call. At this time all
`participants are in a listen-only mode.
`
`(Operator Instructions)
`
`As a reminder, this conference call is being recorded. I would now like to hand the call over to Mr. Ian Lee, Trulia's head of Investor Relations. Please
`proceed.
`
`Ian Lee - Trulia Inc - IR
`
`Thank you, operator. Good afternoon and welcome to Trulia's second quarter 2014 earnings call. Joining me today are Pete Flint, Trulia's Chief
`Executive Officer; and Sean Aggarwal, our Chief Financial Officer.
`
`Before we start this call, I want to remind all of you that this presentation contains forward-looking statements within the meaning of the federal
`securities laws. Forward-looking statements generally relate to future events or our future financial or our operating performance.
`
`Forward-looking statements in this presentation include but are not limited to statements related to our business and financial performance and
`expectations for future periods, our expectations regarding to continued use of our products by consumer and real estate professionals, our
`expectations regarding macro trends in the market, and our expectations regarding our national marketing campaign, our expectations for our
`products, and our expectations regarding the proposed merger with Zillow.
`
`Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties
`that could cause actual results to differ materially from those projected. These risks include those set forth in the press release that we issued earlier
`today as well as those more fully described in our filings with the Securities and Exchange Commission.
`
`The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation
`to update any forward-looking statements except as required by law. We also remind you that this call will include a discussion of GAAP and
`non-GAAP financial measures. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared
`in accordance with GAAP. A discussion on why we present non-GAAP financial measures and the reconciliation of the non-GAAP financial measures
`and reconciliation of the non-GAAP measures discussed in this call to the most directly comparable GAAP financial measures are included in our
`earnings press release that is available on our website.
`
`2
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`JULY 31, 2014 / 9:00PM, TRLA - Q2 2014 Trulia Inc Earnings Call
`
`Please note that our discussion of financial and operating metrics during the call today will primarily focus on consolidated data for Trulia and
`Market Leader. This conference call is also being webcast and is available through the Investor Relations section of Trulia's website. And now I'll
`turn the call over to Pete.
`
`Pete Flint - Trulia Inc - CEO
`
`Thanks, Ian. Welcome and thank you for joining our second quarter 2014 earnings call. It's been a landmark week here at Trulia. As most of you are
`aware, on Monday we announced that we have agreed to be acquired by Zillow.
`
`Spencer and I covered the details of the acquisition on Monday's conference call so I won't repeat all the details here, but I would like to take this
`opportunity to share how tremendously excited we are about our announced combination with Zillow. We both are consumer first technology
`and innovation driven philosophies and cultures and we believe that together we'll be able to create even better products and services for both
`consumers and real estate professionals.
`
`Expect to be covered on the call, we expected the transaction to close in 2015. In the meantime, it is business as usual. And I am very pleased to
`say the business is great. We had another fantastic quarter at Trulia. In Q2, we achieved record revenue of $64.1 million and added more than 7,000
`subscribers.
`
`We also continued to see positive results from our marketing campaign. The growth of Trulia's standalone audience has accelerated for four
`consecutive months, and our total traffic alone traffic exceeds 57 million unique visitors in July. Said another way, our two-sided marketplace is
`working. With our consumer first technologies driving increased engagement from home buyers and sellers as well as real estate professionals.
`
`On the consumer side of the marketplace we continued to attract more and more serious home shoppers who are drawn to our user-friendly
`products that provide deep insights on homes, neighborhoods, and real estate professionals. This product driven approach is being complement
`by our strategic marketing campaign. Together our product and marketing efforts are reaching consumers who are looking to move or contemplating
`a move. These are individuals who have a high likelihood of contacting an agent in the near term.
`
`This highly motivated set of consumers helps drive the success of the agent side of our market place. We connect real estate agents with our large
`going audience of transaction ready consumers generating a large number of quality leads for them In addition, with Market Leader we cannot
`only send leads to agents but also provide them with a comprehensive end to end platform to help convert their leads into meaningful business.
`Technologically enabled agent is a better partner to the consumer and a better advertiser.
`
`Let me now move to a review of our business in the second quarter of 2014. Trulia's performance continues to be built on the back of our three
`core strategies. These are one, delivering a superior experience to consumers especially of our mobile devices. Two, growing our agent base; and
`three, extending our marketplace into adjacent segments.
`
`For consumer's mobile was once again at the center of our product and marketing initiatives. Reaching our serious home shoppers requires constant
`innovation to deliver the most friendly and insightful products and features. Achieving this for our mobile devices is critical as consumers now
`primarily search for homes and agents on the go.
`
`In Q1, we relaunched many of the core consumer mobile products rolling out completely new versions of our iOS products and the completely
`updated mobile web experience. In Q2, we stepped on the gap and showcased more of the mobile innovation that is core to Trulia's technology
`focus.
`
`Central to this innovation was a significant feature on our mobile app called nearby home alerts. This feature available on both iPhone and Android
`versions of the Trulia app alert consumers to new rentals or homes for sale listed in the last 24 hours. Consumers can see homes as soon as they
`hit the market in real time on their mobile phones without even having to enter the location. Users can customize their alerts by key parameters
`such as search radius, price range, and alert frequency. This functionality allows consumers to keep a finger on the pulse of their target neighborhoods
`literally up to the minute.
`
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`JULY 31, 2014 / 9:00PM, TRLA - Q2 2014 Trulia Inc Earnings Call
`
`Trulia's continuing to be the forefront of innovation with mobility and wireless technology. In June, we launched a new mobile real estate app for
`Android wire, and we're delighted to see the app being highlighted at Google I/O 2014, Google's Annual Developer Conference.
`
`As many of you are aware, since March we've complemented this -- our product led approach with a strategic marketing campaign. As with our
`products, our marketing strategy is targeted at attracting transaction ready consumers. Our goal is to achieve this with a focus on direct response
`especially in mobile acquisition while also building a trusted brand. We believe the effects of the campaign will be experienced in a four stage
`funnel.
`
`These stages drive the metrics that we will use to gauge the success of the campaign; and include, one, attracting more transaction ready users.
`Two, generating more leads from users. Three, attracting more agent subscribers who are drawn to a serious consumer audience; and four, bring
`revenue and profits driven by the growth in our subscriber base.
`
`As we reached the busiest part of the year for the real estate industry, the campaign is in full swing. The results of the overall campaign today
`continue to be very positive. Let me share some of our latest data to provide you with some insight into what we are seeing. Our paid marketing
`efforts are working and working efficiently.
`
`Through the scale of paid marketing even further since our Q1 earnings call, we've seen our initiatives continue to perform well against our internal
`goals. In particular, we made significant progress in terms of the cost effectiveness of our paid marketing. Since we began the program in Q1, we
`have seen the cost per unique visitor acquired decrease by about 50%. This performance is attributable to the data driven analysis and rigor our
`marketing team efforts to target the right consumers through the most effective and efficient channels.
`
`As a result we are counting on trying to reach more than 57 million unique visitors in July. This first time in Trulia's history that our transaction ready
`audience has reached this level. And as I mentioned earlier, we're seeing the rate of growth of Trulia's standalone audience accelerate for four
`consecutive months. Not only is that audience reaching new heights but it is also becoming increasingly mobile and highly engaged.
`
`In Q2, over half of our total traffic was mobile, and has spiked to about 2/3 on weekends. More than half of our visits and leads are also generated
`by consumers using mobile devices. Visit growth in Q2 outpaced Q2 visitor growth indicating that we are attracting a quality audience that is
`increasingly engaged in our products.
`
`Moving to our second strategy and the other half of our two sided marketplace, we are growing our agent base. Our execution on the agent side
`of our business, coupled with our audience and serious home shoppers attracted more than 7,000 new subscribers to Trulia in Q2. Due to the high
`ROI and value that we provide the portion of our subscribers find more than one product in Q2 this year is approximately 40%, up from about a
`1/3 a year ago.
`
`This helped grow our offer by $10 sequentially to $206. This is our largest sequential increase in one year. One of the primary drivers of our subscriber
`growth continues to be our inventory expansion program. Inventory expansion has enabled us to take advantage of pent-up demand from agents
`in many of our high demand zip codes across the country over the past year. We remain on track to complete the rollout by the third quarter of
`this year.
`
`The success of our agent business was also enhanced by the combined Trulia and Market Leader platform. For busy agents who not only want
`quality leads but also system manage, nurture, and convert those leads into transactions, Trulia and Market Leader provide a great technology
`solution.
`
`We're making great progress on our product development roadmap with Market Leader. As we discussed last quarter, our teams are hard at work
`on product offerings that will combine Trulia's lead generation capabilities with Market Leaders open platform. We expect these to rollout in the
`second half of this year. As with our consumer products, mobile will be central to these plans with advance leadership for agents.
`
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`JULY 31, 2014 / 9:00PM, TRLA - Q2 2014 Trulia Inc Earnings Call
`
`We will continue to be a pioneer in delivering the leading mobile apps for agents. The third part of our strategy is expand our business and grow
`in adjacent segments. In rentals, we're continuing to build a rapidly growing and highly engaged consumer audience. Our playbook for our adjacent
`businesses is to create the best product in both couple scale and then monetize.
`
`For rentals as we continue to build even better products, we are also making great progress on scan to business. In Q2, we are continuing to send
`a rental lead every one and a half seconds. For property managers placing a listing on Trulia, it's moving from a nice to have to a must have as
`becoming increasingly important source of new tenants.
`
`This is demonstrated by the fact that in Q2 the number of apartment communities receiving a least one lead from Trulia each day almost tripled
`from Q1, far outpacing seasonal growth. In summary, we saw strength across our business in the second quarter. Our audience of transaction ready
`consumers experienced accelerating growth as our marketing campaign hit high year.
`
`Similarly our agent business continues to grow at a rapid rate with almost 74,000 real estate professionals validating the strength of our comprehensive
`platform. With that, I'll pass the call to Sean.
`
`Sean Aggarwal - Trulia Inc - CFO
`
`Thanks, Pete. My prepared remarks are accompanied by a presentation, which is viewable on this webcast and also available on Trulia's Investor
`Relations website. We experienced strong growth across our business in the second quarter.
`
`Today, I will discuss this growth by covering three items: an overview of key metrics, a review of second quarter results, and guidance. I'll start with
`key metrics. I'll first color out three key consumer metrics: total visitors, mobile visitors, and user-generated content. Q2 profit totaled nearly 51.6
`million monthly unique visitors, an increase of 48% year-over-year.
`
`Breaking this down further, the year-over-year growth rate for Trulia standalone was 30%. In the month of July, Trulia's standalone traffic is trending
`to grow at 39% year-over-year representing the fourth consecutive month of reaccelerating growth. This is strong evidence of the success of our
`marketing campaign.
`
`In Q2, Trulia's mobile traffic was approximately 25.1 million monthly unique visitors, an increase of 92% year-over-year. Mobile traffic growth for
`Trulia's standalone in the quarter was 81% year-over-year. In regard to user-generated content during the quarter, our users made approximately
`1.3 million new contributions to our site, a 19% increase over the second quarter of 2013.
`
`We finished the quarter with a cumulative total of over 14 million user generated contributions on our database. On the agent side of our marketplace,
`we focus on two key metrics, number of subscribers and average revenue per user or ARPU. We added more than 7,000 new subscribers in the
`quarter, ending the quarter with almost 74,000 subscribers. The strong growth in our subscriber base was driven by the continued rollout of our
`inventory expansion program as well as solid sales force execution.
`
`Understanding these is the highly transaction ready set of consumers that Trulia attracts combined with the end to end platform that Trulia and
`Market Leader have created and continue to improve upon. ARPU was $206 in Q2, up from $196 in the prior quarter. The sequential increase in
`ARPU was driven primarily by subscribers purchasing a greater number of products from Trulia.
`
`As Pete mentioned, in Q2 about 40% of subscribers have purchased two or more products, up from about one third of subscribers purchasing two
`or more products this time last year. Having covered key metrics, I will next turn to a review of second quarter financial results. Second-quarter
`revenue was $64.1 million exceeding the top end of our guidance range by $1.6 million.
`
`Year-over-year growth was 116%. Total revenue further breaks down into two categories: marketplace and media. Market place revenue, which is
`comprised primarily of revenue from subscription products sold to real estate professionals including Market Leader was $53.2 million for the
`quarter, a 142% year-over-year increase. Media, which includes sales of display ads to national advertisers also performed strongly with revenue
`of $10.9 million, up 41% year-over-year.
`
`5
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`JULY 31, 2014 / 9:00PM, TRLA - Q2 2014 Trulia Inc Earnings Call
`
`Our media business continues to be driven by solid execution and advertiser demand as we become a must-buy in the category. I will next discuss
`earnings and then walk down the P&L commenting briefly on each P&L line item. Our discussion of operating expense items excludes compensation
`paid in stock. For details on operating expenses including compensation paid in stock, please refer to the appendix of the earnings presentation
`accompanying this call.
`
`Second-quarter adjusted EBITDA was $4.6 million or 7% of revenue, exceeding the top end of our guidance range by almost $2 million. Gross
`margin for the quarter was $53.4 million or 83% of revenue, slightly higher than the 82% gross margin in the prior quarter. Sales and marketing
`expenses were $34.4 million or 54% of revenue, consistent with 54% of revenue in the prior quarter. Sales and marketing expense continues to
`reflect our investment in the marketing campaign that we launched earlier this year.
`
`Technology costs were $12.1 million or 19% of revenue, in line with the 20% of revenue in the prior quarter. Our continued investment in engineering
`headcount was offset by revenue leverage. G&A expenses were $9.2 million or 14% of revenue, consistent with the 14% of revenue we recorded
`in the prior quarter.
`
`Please note that these numbers exclude approximately $3.6 million of restructuring costs related to the reorganization at Market Leader we
`announced during the second quarter. Having covered the P&L, let me touch briefly on the balance sheet. We finished the quarter with $215 million
`of cash and equivalents and $230 million of convertible debt.
`
`I'll now close by covering guidance for Q3. We expect the strong momentum in our business to continue into the third quarter of 2014. We expect
`Q3 revenue to be in the range of $68.4 million to $70.4 million. Marketplace is expected to represent 80% to 85% of total revenue. We expect
`adjusted EBITDA to be in the range of $5.4 million to $5.6 million or 8% of revenue at the midpoint.
`
`I will close by recapping the highlights from today's discussion. First, our marketing campaign is driving results. In July, Trulia standalone year-over-year
`traffic growth was 39%, our fourth consecutive month of reaccelerating growth. Second, we added more than 7,000 subscribers in the quarter.
`And third, the team continues to execute well. In Q2, we exceeded the top end of our guidance range for both revenue and adjusted EBITDA.
`
`I'll now pass the call back to the operator for Q&A.
`
`Q U E S T I O N S A N D A N S W E R S
`Operator
`
`(Operator Instructions)
`
`Lloyd Walmsley, Deutsche Bank.
`
`Lloyd Walmsley - Deutsche Bank - Analyst
`
`Thanks, guys. A couple, if I may. First, can you talk a little bit about your plans around product integration, what's happened, what is going to
`happen, with the Market Leader software product. I think you have done a lot of integration there since this restructuring, or you are planning to
`-- some color there. And then around any changes to pricing, potentially to tie it more to traffic growth.
`
`And then, I guess the second question, more big picture, if you look at the NAR agent survey data -- agents are reporting pretty consistent percentages
`of leads from the Internet as a whole, at around, call it, 10%, with 60% of their business coming from repeat business and referral despite what
`seems like a lot of advertising across the space, and traffic growth from you guys and others.
`
`What do you think is keeping that metric from rising more substantially? Is it a share gain that the bigger players are seeing from the smaller guys?
`Or can the Internet as a whole drive more than 10% of agent referrals over time? I'm curious to get your big-picture thoughts there.
`
`6
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`JULY 31, 2014 / 9:00PM, TRLA - Q2 2014 Trulia Inc Earnings Call
`
`Pete Flint - Trulia Inc - CEO
`
`Hi, Lloyd. Let me start -- let me shed some perspective firstly on the Market Leader integration. Last quarter, in Q2, we organized the teams; primarily
`the goal there was to streamline the Organization, closely align the different product teams, and different sales and market teams. Essentially what
`we're trying to do there is enabling us to get close to the customer and speed up execution. So, that was a -- we executed that early June, and it's
`really helping us to move our product development processes forward.
`
`Just to give you a little bit of color on that, I think clearly we and other players in the industry recognize that agents that use software to manage
`their business are more productive agents. They are more likely to convert leads into transactions. And they deliver better experiences to those
`consumers. Agents -- we see successful agents using software, and successful agents are obviously good advertisers.
`
`A lot of the traditional platforms, and where Market Leader's history has been, has been on the desktop. A lot of the focus for us has been retooling
`that to a mobile environment. Trulia historically has had a very lightweight agent app; but Market Leader has a very comprehensive platform. So
`the goal there is to bring the two together.
`
`And, as you might imagine, productivity tools is really important, and we are working through just making sure that we execute effectively on that.
`That's a big focus for us, and we will be launching products in that vein later on this year. And we're really excited about that; watch out for that.
`We plan on launching that to provide mobile services for real estate professionals.
`
`The second piece to the question was around -- I think the question is -- share-of-voice versus impression-based pricing. Obviously, historically,
`Trulia has had share-of-voice-based pricing versus charging on impression-based pricing. As we've shared, they're flavors at the same thing.
`
`Should we switch to impression-based pricing? We're open to it, both Trulia and also Zillow, are focused on optimizing revenue and monetization
`in an analytical and data-driven way. We are continually evaluating options to see what is optimal for us as a Business to most effectively monetize
`and scale our audience and revenue.
`
`The last question around the NAR survey data and the percentage of leads coming from the Internet. I think there's likely probably a couple of
`things going on here. One is just the structural nature of the real estate industry, meaning this is a highly infrequent and important decision for
`real estate agents. What we see is that while the source of -- for instance, the source of referrals may come from offline introductions. So I may
`speak to a colleague about if you could recommend an agent.
`
`The consumer is also doing a lot of research online about finding information about our agents, what's their transaction history, what are their
`reviews and recommendation, just like you see in other categories. Whether that's hotels, whether with trip advisor, whether that is restaurants
`with Yelp.
`
`It's, frankly, quite hard to attribute where is the introduction, where is the decision made. And of course, there are just like a multitude of channels
`where consumers do that kind of research, on Trulia and many other platforms.
`
`We know that the Internet is a primary research channel for homes. It's also a significant research channel for agents. Is that 10% number going to
`grow? Likely yes, but, frankly, it is quite hard to attribute what is the ultimate -- what is the primary source of introduction. I hope that is helpful to
`give you some color.
`
`Lloyd Walmsley - Deutsche Bank - Analyst
`
`Yes, that is helpful. Thanks.
`
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`7
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`

`

`JULY 31, 2014 / 9:00PM, TRLA - Q2 2014 Trulia Inc Earnings Call
`
`Operator
`
`Deb Schwartz, Goldman Sachs.
`
`Deb Schwartz - Goldman Sachs - Analyst
`
`Great, thanks and congrats. Two questions: First, on expenses -- sales and marketing seemed a little bit lighter than we were expecting. I'm just
`curious to understand if sales hiring floated on the quarter as a result of the merger talks with Zillow.
`
`And then similarly, what's embedded in your guidance for acquisition-related costs this quarter. And then, secondly, you've had a really strong
`relationship with Realogy; how should we think about the relationship from a software standpoint, with their recent acquisition of ZipRealty?
`
`Sean Aggarwal - Trulia Inc - CFO
`
`Deb, it's Sean; I'll take the first two. So, on sales and marketing, the nature of our marketing spend -- as we said at the start of the year, we intend
`to invest about $45 million against our marketing program. And we see no change in that. We certainly will not spend more than that, and it is
`likely that we're trending right to that number.
`
`The benefit we've seen, and Pete touched on some of this in his prepared remarks, is because we have a data-driven, analytical approach, we find
`we're getting more and more efficient as we go over the course of the year. And he specifically cited that we are now spending half to acquire a
`user then we were at the start of the year. And so, with our marketing funds, we're able to get more done.
`
`So, no change in marketing spend; no change in hiring plans. We did not make any changes in our sales team hiring or composition over the course
`of Q2. It's business as usual. And we expect to spend about $45 million in marketing this year.
`
`Your second question around the guidance for Q3 -- what does that assume for any acquisition-related costs? The revenue and EBITDA numbers
`do not contemplate any additional expense related to the acquisition. To the extent there are some expenses, and there will likely will be around
`legal fees and stuff like that, we will exclude those from the adjusted EBITDA number, and we'll detail all that out for you when we publish Q3. But
`no acquisition-related expenses are baked into the EBITDA -- adjusted EBITDA guidance for Q3.
`
`Pete Flint - Trulia Inc - CEO
`
`So, on the question on Realogy and NRT -- we have a great relationship with Realogy and NRT; on a number of levels, they see us a key advertising
`partner. And then also we shared that we have a software agreement with them related to the Market Leader division. And no change there.
`
`So, we are heads down, focused on building out that software platform to launch with NRT. So, no change there.
`
`Deb Schwartz - Goldman Sachs - Analyst
`
`Great, thank you.
`
`Operator
`
`Chris Merwin, Barclays.
`
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`8
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`

`

`JULY 31, 2014 / 9:00PM, TRLA - Q2 2014 Trulia Inc Earnings Call
`
`Chris Merwin - Barclays Capital - Analyst
`
`Just in terms of the marketing campaign, how much of the $45 million did you spend in the quarter? It looks like year-on-year growth for unique
`visitors accelerated slightly, but just wondering how much incremental spend drove that increase? Sean, you mentioned that there was an
`acceleration in July. Do you expect to spend the highest amount of dollars on an absolute basis into 3Q before ramping back down again in 4Q?
`
`And also, separately, just wondering if you could please just comment on Trulia seller ads -- what has been the reception there so far? Are there
`any other ways that you can think of to monetize sellers' agents down the road?
`
`Sean Aggarwal - Trulia Inc - CFO
`
`Chris, on marketing spend, the arc of the spend over the course of the year, directionally looks like $10 million in Q1, $15 million in Q2, $15 million
`in Q3, $5 million-ish in Q4, something like that is the arc of the spend. So, Q2 was a good-size spend for us, and Q3 will be about an equivalent
`amount of spend.
`
`And I'll re-emphasize the point that, as we're spending these dollars, because of the data-driven approach, we're finding we're being more and
`more efficient as we go. So, the next month, the money that we spend, while it may be equal to the money that we spent in the previous month,
`we believe will be a more efficient spend, and we will be able to drive more traffic with the same level of dollars.
`
`Pete Flint - Trulia Inc - CEO
`
`Chris, on the Trulia seller ads product -- so, as you know, we've been historically focused on the buy side of the transaction, providing services for
`real estate professionals to connect with prospective home buyers. And then earlier this year, we introduced Trulia seller ads, which enabled us to
`provide a product to real estate professionals to target prospective sellers. That is a significant part of the overall ad budget within the real estate
`industry.
`
`We [are spending] in Q1 -- we're delighted with the response and the rollout. We've been primarily cross-selling that to existing subscribers, so
`getting -- upselling that, I'm sorry, to existing subscribers to get them to purchase our product. We are very happy with it -- we're not breaking out,
`but we have extremely positive response.
`
`Just a little bit more color on that -- I think on the opportunity, what we have seen in the overall housing market since the beginning of the year
`has been a pretty sharp uptick in overall inventory as more sellers are looking to market their properties in a way that they weren't before, as you
`are seeing house price appreciation. So,