In March 2001, Homes.com filed for Chapter 11 bankruptcy protection. In a remarkable turnaround, the company has gone from owing $32 million to positive cash flow in less than 18 months. The company has been EBITDA profitable on a GAAP basis since November 2001, and expects those results to continue, say Homes.com leaders.

The company's message is strong - "We're safe to do business with!"

At the end of October, Homes.com will get a confirmation from bankruptcy court on its reorganization plan, which will allow the company to emerge from bankruptcy protection.

Says CEO Tom Orsi, "We have generated over $3 million in cash. We are going into the confirmation hearing with more than $2 million in usable cash, and we'll use $1.2 million to pay off administrative claims and some small claims, and interest to one of the secured creditors."

In other words, the secured creditors are being paid in full over time, while the majority of unsecured creditors owed over $2,000 had the choice of accepting $.05 on the dollar in cash, or converting their debt to a new common stock equity position of 1 share for each $3 of debt. Those owed under $2,000 were paid $.25 on the dollar in cash, explains Orsi.

Homes.com, like other companies which process credit card purchases, must keep a reserve of cash for its credit card processing company. No processing company will agree to process sales without a reserve to cover returned items and canceled orders. For this purpose, Homes.com also an additional $750, 000 in restricted cash.

"The company's reorganization plan shows that it can fully support operations and pay creditors from existing and expected near-and longterm operations," explains Orsi. "We have to demonstrate that we have the wherewithal to fund our business and pay off the debt. The repayment plan is an extension of our budget, and we have met or beaten our budget every month."

"We were losing $2.5 million a month until we filed," says Orsi. "We became profitable on a monthly basis soon after filling, and we got control over costs and created discipline in the organization."

Homes.com may be the first dot-com to exit bankruptcy without being acquired. According to Webmergers.com, between January 2001 and June 30, 2002, there were 862 Internet company shutdowns and bankruptcies.

Says John Perkins, COO of Homes.com, "I suppose it wouldn’t be a big surprise if some dot-com company somewhere has already exited by means other than by their having been acquired out of the process. But after our communicating with bankruptcy courts, bankruptcy attorneys, our V.C., BusinessWeek’ Magazine online technology editor, the American Bankruptcy Institute, and the leads database administrator for Bankruptcydata.com, we are confident that each of them would agree that the Homes.com bankruptcy exit is a significant achievement and that we would be one of the very few to book that achievement."

In addition to generating operating cash, Orsi says that the Homes.com expects to secure a line of credit from its venture capital firm, Hummer Winblad, for $1.5 million.

Orsi says that current management and employees have been key to the turnaround, and anticipates no changes. Some staff has been added over the last few months. The company currently employs 125 people in three locations, San Diego and Palo Alto in California and Tallahassee, Florida serving approximately 13,000 agent and 500 broker subscribers.

What can Homes.com do to show the real estate community that it is "safe" to do business with?

Says Perkins, "For over a year now we have been doing exactly that as demonstrated by the quality of our products, member services, and financial performance. In fact, some customers that had left out of fear of our continuing business operations are returning now that the word is ‘out’ regarding our financial strength, our product strength, and the industry setting standard of our customer service efforts."

"We see ourselves continuing to focus on our core competency of delivering high quality lead generation websites and productivity tools to agents and brokers," continues Perkins. "We have just released a new next generation Agent flagship website line called the Homes.com AgentExpert™. This product is unparalleled in the industry as a lead generation website that eliminates cold reactive prospecting and let’s the agent focus on warm to hot leads exclusively. It even allows the agents to track the return on investment from all their various traditional forms of advertising. It is a completely integrated Web and Communications Solution. We are very excited about it."

Homes.com is confident that the site can compete for customers against Realtor.com, HomeSeekers, Yahoo!, and other leading real estate portals.

"The portal is a secondary effort that we use as a solid lead generation machine for the agents and brokers with our websites. That said, we think we are in a unique position on at least two levels. First, we are the only company whose sole primary mission is to provide products to agents and brokers (and not consumers) and second, we are financially strong and that is not necessarily true of others. Of the list you mention, it seems clear to me that although they are not likely to admit it, HomeSeekers has pretty much abandoned the website game to continue its efforts in data delivery and desktop software. Realtor.com is a consumer driven focus and not an agent and broker focus. HomeAdvisor is the same. Yahoo is a huge conglomerate of everything and is attempting to monetize their real estate section by partnering with discount brokers. So, the bottom line is that we will remain positioned as a company that uses its portal and its 500,000 unique visitors per month in support of the agents and brokers with our websites. That is our primary mission. No one else can say that and mean it!"

Yet, the industry will continue to present challenges going forward especially with regard to listings. The publication of listings has been the greatest source of competition among the real estate portals because they are of the most interest to online homebuying consumers.

"The agent wants to be in charge of their own destiny by controlling their business the way that they see fit," offers Perkins. "and they see themselves as the frontline workhorses when it comes to closing transactions. So in regions where various policies exclude listings from being displayed on their Websites, or where the rules are so restrictive that it does not even make sense for those agents to spend Internet marketing dollars to try to acquire Internet customers because those leads would get directed to someone other than them, they are feeling underappreciated and undervalued.

"From that perspective, this agent segment wants integrated Website technology that allows them to abide by the listings rules in their region but still be the first to capture leads from the display of those listings.

"From the perspective of the MLSs and BoRs, they are trying to find ways whereby they can support their membership effectively and increase their revenues and profits in the face of increasing costs due to regulation and decreasing revenues from national aggregators not willing and/or able to pay for data feeds. To the mid-size and larger of this group, they need a cost-effective, revenue-generating, and hassle-free, technology delivery solution for their membership that also incorporates the unique listing rules and regulations of the region. We at Homes.com have positioned ourselves to deliver private label solutions that allow for the flexibility and revenue opportunity that the MLSs/BoRs need while at the same time does not burden them with the challenging business of Website development and hosting. In this scenario, they can remain focused on their core competency and we can remain focused on ours."

Concludes Perkins, "Homes.com is profitable, strong, and one of the last surviving data aggregators in the nation whose sole focus is on the success of the agents and brokers. Almost all of our remaining competitors are local or regional website providers with zero data aggregation capability. They will be price-pressured or market-squeezed by larger existing players and now, some new MLSs getting into the Website delivery game, if you think about it, these local and regional players cannot compete in the long run because who other than the larger players can afford the millions of dollars each and every year that it takes to continue improving and developing technology solutions? This is the type of business where spending money on ongoing development is an absolute requirement for survival.

"We will simply outspend them, smartly and with vision, year after year after year."

Published: October 17, 2002

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