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Edited Transcript of REIS earnings conference call or presentation 7-May-18 3:00pm GMT

Q1 2018 Reis Inc Earnings Call

NEW YORK May 10, 2018 (Thomson StreetEvents) -- Edited Transcript of Reis Inc earnings conference call or presentation Monday, May 7, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lloyd Lynford

Reis, Inc. - Co-Founder, President, CEO & Director

* Mark P. Cantaluppi

Reis, Inc. - VP, CFO & Principal Accounting Officer

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Conference Call Participants

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* Michael Patrick Graham

Canaccord Genuity Limited, Research Division - MD & Senior Equity Analyst

* Michael Roy Crawford

B. Riley FBR, Inc., Research Division - Senior MD, Co-Head of The Discovery Group & Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Reis Inc. First Quarter 2018 Financial Results Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to Lloyd Lynford, CEO. Sir, you may begin.

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Lloyd Lynford, Reis, Inc. - Co-Founder, President, CEO & Director [2]

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Thank you. Good morning. This is Lloyd Lynford, President and CEO of Reis. Joining me on our first quarter 2018 conference call are Jonathan Garfield, Co-Founder and Executive Vice President of Reis; Bill Sander, President and COO of Reis Services; Mark Cantaluppi, Reis' Chief Financial Officer; and other members of Reis' senior management team.

First, I need to provide our legal disclaimer. Today's comments may include forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in those forward-looking statements. These statements are based on currently available information. We do not plan to update any forward-looking statements to reflect subsequent events or circumstances or if our expectations change.

For more information relating to the risks and uncertainties involved in our forward-looking statements and the company generally, please see the risk factors and cautionary statements regarding forward-looking statements sections of our recent filings with the SEC, including our March 31, 2018, quarterly report on Form 10-Q issued earlier today and our annual report on Form 10-K for the year ended December 31, 2017.

This call is being broadcast live over the Internet and will be available for replay for a period of time following the call. A link to the webcast of this call as well as information on the replay is available at www.reis.com/events.

Our earnings press release and Form 10-Q were both issued this morning and can also be found at the Investor Relations portion of our website. Today's call will include my comments on Reis' financial and operational results. I will then ask Mark to review our financial performance. After Mark's comments, we will open the telephone lines for analyst questions.

As you know, in early March, Reis' Board, which includes Jonathan Garfield and myself as cofounders and leading shareholders as well as our 3 independent Directors, unanimously determined that it was appropriate to explore strategic alternatives for Reis.

A brief update. Our process, assisted by our bankers at Canaccord Genuity and our Counsel at Fried Frank, continues to be active and ongoing. We are pleased with the progress made to date and look forward to briefing you more fully once the Board of Directors reaches a definitive decision regarding the company's strategic direction.

Reis posted another solid quarter of financial performance in the first quarter of 2018. Revenue totaled approximately $11.8 million. While this is 2.9% below the previous year's first quarter, this reduction is attributable to fewer one-time settlements for past unauthorized usage of Reis' data. As we have discussed in our previous filings and on our earnings calls, the number and dollar value of settlements can vary meaningfully from quarter-to-quarter.

In 2017's first quarter, Reis resolved cases totaling $547,000. In the most recent quarter, settlements totaled $223,000. While we are finding instances of unauthorized usage more promptly, thus minimizing the necessity and costs of pursuing settlements, case resolutions and associate settlement revenues do fluctuate from quarter-to-quarter.

Subscription revenue, more recurring in nature than settlements, accounted for 98% of total revenue and was stable over the prior year's first quarter. It is also important to note that contracts for our new generation of products and services that we have discussed in earlier calls, specifically our recently launched Every Property, Everywhere database and our API delivery platform, will both support and grow our subscription revenue both in the form of new and expanded subscriptions and higher renewal rates. I will discuss some recent wins related to Reis' expanded property-level database and API.

The strength of Reis' business model is apparent based upon Reis Services' first quarter EBITDA of $3.3 million, up 1.4% from 2017's first quarter. Even these totals and growth rate understate the quarter's EBITDA performance. Mark will elaborate in more detail in his portion of today's call, but let me note that expenses related to our strategic process totaled approximately $171,000 in the first quarter. The adoption of FASB's new revenue recognition accounting standard negatively impacted pretax earnings by $98,000 and consulting fees associated with this accounting change totaled an additional $92,000. Without these costs, Reis services EBITDA would've improved to $3.5 million, an increase of 7.2%. Consolidated adjusted EBITDA would've been $2.8 million, an increase of 10.7% over the 2017 first quarter. Notably, Aggregate Revenue Under Contract and its forward 12-month component are the largest reported balances of any March 31 in Reis' history.

The company remains debt-free and is paying dividends at the quarterly rate of $0.19 per share. We expect that 2018 will follow a similar trajectory as 2017, with improving revenue and EBITDA results in each successive quarter largely due to the fact that our bookings in recent years have become increasingly concentrated in the third and fourth quarters of the year.

The commercial real estate information landscape is evolving quickly, and Reis' role within it has never been more exciting. One of the benefits of a strategic process is to engage in dialogue with strategic and financial investors, all of whom have specific, sometimes unique, sometimes overlapping plans to bring innovative technologies and products, together with talent and capital to bear on an asset class that is a major component of the U.S. GDP, but one that requires additional information and decision support in order to claim its proportional share of capital allocation.

One observation is clear, virtually all players with whom we are in dialogue, regardless of their specific business vision, recognize that property and market level data is an indispensable prerequisite to maintaining the growth of the commercial real estate industry.

An inventory of Reis' assets makes clear why the company is essential to commercial real estate transactions and assets and portfolio management. Our market coverage by property type and geography is unparalleled. Our 40 years of historical trends are virtually impossible to replicate and represent a wide competitive mote. Our Every Property, Everywhere database, that includes all U.S. commercial properties and parcels, together with our new API technology, allow us to deliver seamlessly our market and property intelligence to any user platform. We are gaining sales traction with all of these initiatives. And as we determine how to optimize our information assets and industry-leading brand, we are building upon our central role in the evolution of commercial real estate as an asset class.

In the weeks since our last earnings call, we have continued to focus on what we do best, building databases, analytical products and tools that support superior decision-making by commercial real estate professionals. Specifically, our Every Property, Everywhere achievement has enlarged Reis' addressable market by meeting business needs in new geographies, new market segments and for emerging use cases such as those presented by FinTech companies and the forthcoming CECL accounting standard.

This is true both within our base of institutional subscribers, where we are attracting user groups not previously included under the Reis' license agreement and among prospects that until now have not considered Reis an option simply because their geographical and property-type footprints range beyond our traditional coverage.

In parallel with Every Property, Everywhere, our API is embedding our now much broader data directly into clients' systems, providing value-added efficiencies. The most effective path to monetization of both Every Property, Everywhere and our API has been to begin building sales specialists teams to pursue each type of opportunity.

This approach has the added benefit of allowing our core sales teams of account executives and account managers to focus on protecting and growing our core business. This strategy has resulted in a number of closed API opportunities, both from traditional clients as well as some prospects. API delivery has proven to be an add-on capability to our core service and serves as a differentiator in the market.

A few examples of our first quarter wins include a regional bank, who is deploying our API to help automate its underwriting process by pre-populating its system with Reis' information. In this instance, we replaced our primary competitor completely. Another example is a national ratings agency, which is leveraging our API capabilities to streamline CMBS loan ratings. We are also gaining interest in the CRE FinTech sector, in which over 150 companies, many well-funded and some gaining traction, are pursuing CRE applications, have logical adjacencies to Reis, but whose platforms require property and market data to fulfill their business mandate.

Reis has sold both directly to these firms as well as to their clients. One example of this is a national real estate investment platform that brings investors and sponsors together to crowdfund real estate projects by offering investment opportunities across its network of accredited investors. This firm is utilizing Reis' API to score potential properties for their debt capacity and to conduct due diligence. Reis' usage-based pricing model is very attractive in this sector that as the client application grows, Reis' revenue grows as well.

We have also begun closing brokerage deals by leveraging our new Every Property, Everywhere campaign. We are finding demand in this community for an additional or alternative provider to their current service provider. Again, as in our API campaign, we are attacking this market opportunity with sales specialists armed with specific offerings, supported by multichannel marketing campaigns, targeting national accounts from the top down as well as selling directly to local and regional brokerage offices.

After our prelaunch of our sales campaign in mid-March, we have already closed a handful of accounts, some local firms and some affiliated offices of national firms. We have also signed collaboration agreements with national firms that essentially sponsor Reis as an approved vendor to their regional offices.

Since we last spoke, our operations economics and product development teams, in full engagement with clients, prospects and Reis' sales organization, have added greater analytical functionality to Every Property, Everywhere and more data elements to property-level records. We remain relentless with respect to seeking competitive advantages for our products. Over the next few weeks, we will add to our property-level records a series of reports that we call the economics of a lease, essentially a line item pro forma of concession packages and discounts for both new and renewal office leases.

Other firms sometimes imply that they are privy to the confidential terms of selected leases, but only Reis methodically gathers these details and has been doing so for years. Only Reis, therefore, is in a position to specify dollar values at the property level for tenant improvement allowances, free rent periods, leasing commissions, operating expenses and real estate taxes, and crucially, the discount between street and signing rents.

This unprecedented insight into lease terms and economics will be available within the next 8 weeks, and we look forward to exploiting this competitive differentiator to the fullest. Any real estate professional seeking insight into net effective rents, cash flow, expenses, net operating income or property value, which is to say virtually anyone engaged in commercial real estate, will understand the unique and unprecedented nature of this data.

Also, we remain on track for our previously announced November expansion of warehouse distribution coverage that will more than double the number of markets for which we offer the traditional suite of Reis market, submarket and comparables reports. Since the warehouse sector is attracting much capital and investor interest, we are pleased that Reis will shortly assert a leadership position in the coverage of this property type.

Looking beyond the warehouse build, our now complete database places Reis in a position to carve out new property sectors for market coverage in a fraction of the calendar runway once required when we had to begin building out market coverage with the lengthy process of identifying the competitive inventory in each sector.

We are pleased by the traction we are attaining with our recently launched products, databases and technology platform. Reis and the entire commercial real estate industry is at an inflection point in how data and analytics will be consumed throughout the life cycle of the commercial real estate asset. We believe that our launch of Every Property, Everywhere, in concert with the availability of our API, opens up many more applications and use cases that have historically been supported by Reis SE.

Reis' board and management team are excited about the company's immediate and long-term prospects. As we perceive with our strategic process, we are in productive dialogue with many parties, sharing ideas about the convergence of products, technology, talent and resources that can optimize Reis' future for its stakeholders. These conversations reinforce how far Reis has come as a long-standing leader in commercial real estate, while it simultaneously illuminates a bright future, in which Reis prospers and provides unequaled insight for its clients.

Let me now turn the call over to Mark Cantaluppi.

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Mark P. Cantaluppi, Reis, Inc. - VP, CFO & Principal Accounting Officer [3]

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Thank you, Lloyd. Today, I will be presenting Reis' first quarter 2018 results, which are more fully described in the financial results press release and the Form 10-Q issued earlier today.

In the first quarter of 2018, total revenue aggregated $11.8 million, which included $11,557,000 of subscription revenue and $223,000 of other revenue. Total revenue decreased $346,000 or 2.9%. Subscription revenue decreased $22,000 or 0.2% from Q1 2017 to Q1 2018. The remainder of the decline was from other revenue, which can be variable from period to period as it specifically includes revenue related to one-time fees for settlements of previous unauthorized usage of Reis' data in 2017 and 2018.

Reis' performance, specifically the earnings metrics of net income or loss, income or loss before taxes and consolidated adjusted EBITDA, as Lloyd noted earlier, were impacted by 3 discrete factors: professional fees of $171,000 expensed in the quarter in connection with our review of strategic alternatives; the adoption of the new revenue recognition accounting standard, which negatively impacted pretax earnings by $98,000; and consulting fees of $92,000 incurred in the first quarter, associated with the revenue recognition accounting change. The aggregate impact of these 3 items totals $361,000. Without their effect, we would have been approaching breakeven for net income and income before income taxes. Consolidated adjusted EBITDA would have been $2,846,000, an increase of $276,000 or 10.7% over the 2017 first quarter. Reis Services EBITDA would also have improved to $3,526,000, an increase of $237,000 or 7.2%. I will address this in more detail in a few minutes.

Subscription revenue in the period was negatively impacted by a reduction in our TTM renewal rates. This also impacted all of our key financial metrics. The company's March 31, 2018, TTM-based renewal rate, including price increases, was 83.2%. And for institutional subscribers, the base renewal rate with price increases was 84.1%. These rates are down from the TTM March 31, 2017, base renewal rate, including price increases of 86.5%, and the institutional subscriber base renewal rate with price increases of 88%.

The March 31, 2018, TTM renewal rate largely reflects the impact of the cancellation of 2 institutional accounts, both of which have issues related to noncompliance of their contractual terms. Reis continues to address the ongoing challenge of renewing customers, who have become subscribers as a result of previous unauthorized access to Reis' data. The company continues to work to raise the renewal rate among this subset of customers by emphasizing multi-year contracts and assigning a dedicated team of managers to train and service these accounts. Any improvement in renewal rates among these intellectual property compliance accounts will have a favorable impact on Reis' overall renewal rate.

On the new customer front, there were positives in the 2018 first quarter. Reis' new business bookings in 2018 came from a variety of sources, including the single largest first year contract from a commercial bank in the company's history. Revenue in the first quarter of 2018 continued to be positively impacted by sales that were directly tied to recent product launches, including new contracts with investment sales brokers, associated with our expanded sales transaction database as well as API wins.

For the first quarter, the net loss was $352,000 or negative $0.03 per diluted share, compared to the 2017 Q1 net income of $535,000 or $0.05 per diluted share. The company had a pretax loss of $396,000 for the 2018 first quarter as compared to pretax income of $113,000 in the 2017 first quarter.

As I stated a few minutes ago, the 2018 first quarter included a few specific items that impacted our results by the aforementioned total of $361,000. Also in the 2018 period, there was additional amortization expense of $334,000 over the 2017 first quarter from prior investments made in our sales transaction databases, the increase in coverage of the self-storage sector and the expansion of coverage in February 2018 for Every Property, Everywhere. These items, along with the revenue impact described above, resulted in the loss before income taxes and net loss in the first quarter of 2018.

Reis' management utilizes and monitors performance measures such as revenue, deferred revenue, Aggregate Revenue Under Contract, EBITDA and adjusted EBITDA. EBITDA is net income or loss before interest, taxes, depreciation and amortization expense. Adjusted EBITDA is EBITDA before expenses related to noncash stock-based compensation.

I would like to refer you to the cautionary language included in the MD&A of our quarterly report on Form 10-Q and in our earnings release, both issued earlier today about the use of EBITDA, adjusted EBITDA and Aggregate Revenue Under Contract as non-GAAP measures and the reconciliations of net income or loss to EBITDA and adjusted EBITDA for the respective periods and deferred revenue to Aggregate Revenue Under Contract as of the respective balance sheet dates. These cautionary statements and reconciliations apply to all references made to these metrics on this call today.

In addition, we present EBITDA and adjusted EBITDA on a segment and consolidated basis. Consolidated adjusted EBITDA for the 3 months ended March 31, 2018, was $2,503,000, a decline of $85,000 or 3.3%. Consolidated adjusted EBITDA margins were 21.2% and 21.3% for the quarters ended March 31, 2018, and 2017, respectively. As I stated earlier, the effects of the new revenue standard adoption, professional fees and consultant costs all reduced the reported consolidated adjusted EBITDA amount.

Reis Services EBITDA was $3,336,000 in the first quarter of 2018, growth of $47,000 or 1.4% over first quarter 2017. The EBITDA margin for the Reis Services segment improved to 28.3% from 27.1% for the quarters ended March 31, 2018, and 2017, respectively. Reis Services EBITDA was affected by the new revenue accounting and the consulting fees incurred in the period related to its adoption, but does not include the professional fees related to the strategic alternatives review as that is not a cost charged to the Reis Services segment. Overall, expense declines in the first quarter of 2018 as compared to the 2017 first quarter are from reduced headcounts and operations and lower sales and marketing costs.

CapEx spending of over $8.5 million in each of the past 2 years has produced significant and well-considered investments in our databases and to our delivery systems. As we have discussed a few weeks ago, Reis launched Every Sale, Everywhere and added our API distribution platform in 2017 and announced Every Property, Everywhere and the expansion of coverage for self-storage in up to 125 markets in 2018. Our CapEx in the first quarter of 2018 totaled $1.9 million, which was consistent with the fourth quarter amount, but down from the peak in Q2 2017 of $2.4 million. We expect CapEx to continue to trend modestly downward over the next few quarters.

Following are some consolidated balance sheet statistics at March 31. Cash and cash equivalents at March 31 aggregated $16.3 million. During the quarter ended March 31, 2018, we invested $1.9 million of cash in website and database development. We also utilized $2.2 million of cash to pay the first quarter dividend at a quarterly rate of $0.19 per share and 11.8% increase in the dividend per share.

Customer receivables net of allowances aggregated $7.6 million at March 31. No bad debt expense was recorded in the period. You may have noticed increases in other balance sheet accounts in the first quarter of 2018 such as for other assets increasing by $3 million. This is a result of the new revenue recognition standard adoption, whereby we have recorded contract assets on our balance sheet at January 1, 2018. Contract assets include the cost of obtaining a contract, and for Reis, is commissions and related employment taxes.

We provide significant detail on the new revenue recognition standard adoption in our Form 10-Q issued earlier today in both notes 2 and 4 to our consolidated financial statements. The disclosure includes the opening balance sheet adjustments upon adoption of this standard and includes a required comparison for the 2018 period as if the 2018 period were reported under previously existing GAAP.

We are reporting deferred tax assets on the balance sheet of approximately $11.5 million at March 31. The decline in the DTA balance since December 31 is also primarily due to the tax effects of the new revenue recognition standard adopted on January 1. Separately, our 2018 tax expense and effective tax rate were significantly impacted by the Tax Cuts and Jobs Act enacted this past December, specifically the reduced federal corporate tax rate from 35% to 21%. The company's effective tax rate is even lower at approximately 11% for the quarter as a result of certain discrete items in the 2018 period's tax provision.

Total liabilities aggregated $30.5 million, of which deferred revenue was approximately $24.1 million. Additionally, Aggregate Revenue Under Contract, which is a balance sheet-based performance metric, is the sum of deferred revenue and future revenue under noncancelable contracts for which we do not have the contractual right to bill and totaled $48.7 million at March 31. Of that $48.7 million, approximately $34.6 million relates to amounts under contract for the forward 12-month period through March 31, 2019. Aggregate revenue under contract and its forward 12-month component are the largest reported balances of any March 31 date for Reis, with deferred revenue lagging only in the March 31, 2017, balance by $70,000. These balances are all positively influenced by the increasing volume and multiyear contracts signed in 2017.

At March 31, 2017, approximately 45% of our revenue is under multiyear contracts, up from 38% in 2016 and 33% in 2015. The average life of an in-place multiyear contract is 2.2 years. You may have also noticed the decline in these balances from December to March. This is a normal seasonal trend, a pattern occurring for each of the last 10 years. Stockholders' equity was $88.2 million at March 31. Total common shares outstanding aggregated 11.6 million, of which our directors and senior management beneficially own approximately 22%.

This concludes our comments on the financial results for Reis' first quarter ended March 31, 2018. We will open up the line for questions from the analyst community.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Michael Graham of Canaccord.

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Michael Patrick Graham, Canaccord Genuity Limited, Research Division - MD & Senior Equity Analyst [2]

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Just have a couple of questions here. The first one I wanted to ask about is just on property types. Over the last couple of years, you brought a lot of new property types to market. I'm just wondering if you could give us some color on which ones are sort of overperforming and maybe underperforming or just sort of talk about where you've seen some of those newer property types moving here in the last few quarters.

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Lloyd Lynford, Reis, Inc. - Co-Founder, President, CEO & Director [3]

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Sure. Yes, I think that the kind of 5 property types that we've pretty much introduced in the last 5 years, they all have different, I'd say, responses in the market. But the clear leaders have been affordable housing and self-storage in my view. They are the ones where you see a lot of banks with portfolios of debt on affordable housing and you see the same with the self-storage. Also in the affordable, it's a very complex asset class because there are a lot of not only federal programs, but state and local programs that make for a very difficult database to replicate. So we're kind of really the only source in the world of affordable housing. So that has been a quite potent product type. I would say that those 2 are the most important, and beneath that would be both student and seniors housing, both of which are important. And typically those will be when you're selling -- when we're selling our multifamily database generally to conventional apartments, you will often see both debt and equity players who, in addition to doing conventional, may do seniors or maybe do -- or may do student or may do affordable. And so it's a natural cross-sell, if you will, for our sales force. But to answer your question, Michael, I would say the clear leaders would be affordable and self-storage. And more recently, self-storage has gotten a new lease on life from years ago. Because as you know, it's been a very actively growing area as the apartment sector has done so well and apartment occupancy is so high that there often is an associated need for self-storage space for a lot of those tenants.

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Michael Patrick Graham, Canaccord Genuity Limited, Research Division - MD & Senior Equity Analyst [4]

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Okay. Thanks for that, Lloyd. And then just on the renewal rates, you mentioned -- you gave us sort of the renewal rates for the quarter and that they're down a little bit year-over-year, and you called out 2 big institutional accounts. Can you make any comment on, outside of those 2 big accounts, like how renewal rates were from a dollar perspective across the rest of the business, were they up or down or flat or just any color there?

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Mark P. Cantaluppi, Reis, Inc. - VP, CFO & Principal Accounting Officer [5]

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Yes. I won't be able to answer that on a dollar perspective, Mike. But generally, we've also seen and we continue to have difficulty with our renewal rate, particular to our compliance initiatives. I know we've spoken about that in the past, and that has been a challenging area for renewal for us. During 2017, we had seen a slight improvement in that renewal rate, but that is still an area that when you look at that as a component of our overall customer base where we still are seeing pressure on our renewal rates. Lloyd, I don't know if you wanted to add...

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Lloyd Lynford, Reis, Inc. - Co-Founder, President, CEO & Director [6]

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I would just say, that said, the client's thing has got many dimensions and it's very interesting. So one of the things that we note is, that even though we occasionally or more often than not lose sometimes an account that has come from compliance, it's often restored also by a compliance activity in the subsequent year or 2. So we find that a lot of these firms, and I don't think we're the only information vendor that experiences this, come in and out, they make the decision perhaps if they don't need the service for a period of time than their normal business flow demands that they need information, and guess what happens the next? They find a way of getting a report. And obviously, our technology and software is getting better at detecting them. So renewal rates are an interesting thing now in this -- in the information business. They don't maybe necessarily mean exactly the same thing that they might have meant x number of years ago, Michael. And I think a lot of information vendors see at that as a much more fluid notion than just who renews in point A versus point B because of this password migration and all of the different types of things. So it's a little bit more of a granular issue than just saying, what's the TTM renewal rate this year versus last year? But those are some of the challenges that we face in terms of specifically with compliance.

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Michael Patrick Graham, Canaccord Genuity Limited, Research Division - MD & Senior Equity Analyst [7]

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Yes. And that kind of leads me to my last one, which is just on the API delivery platform. Can you just remind us, is that only sold as an add-on to a subscription? Or could someone get access to the API without a subscription? I'm just wondering if you can make any comment on -- for the customers that are leveraging the API, like what does it typically do for the revenue that you can recognize from those customers?

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Lloyd Lynford, Reis, Inc. - Co-Founder, President, CEO & Director [8]

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So you have to be a Reis SE subscriber to -- in order to be entitled to API access. Because typically, what you can do and what people are doing with the API is, they're benefiting from -- they may actually be using individual data items that they're not as emphasizing in the actual PDF or real-time reports. Their underwriting forms, for example, or their financial reported needs, may entail 2 specific fields of information, a year-over-year number, a quarter-over-quarter number. It doesn't have to be the same thing that they might be doing as what a long document that they're bringing into a loan committee. So it is very, very much of an add-on. They're paying for the efficiencies. As you know, in most APIs, there's some technical work that needs to be done on the client side, which is part of the investment that we consider to be a benefit to the relationship. We've made the investment on our side. We've made -- they've made the investment to receive the API. And there is a certain embedded quality to API delivery that makes the data stickier than it might be by just turning off a desktop service that comes largely in PDF. So I think -- we think the 2 methods combined appeal to broad constituencies within financial institutions and ultimately, do address this long-term issue of renewal rates, not necessarily -- it's not necessarily going to change human behavior for all time and lead people to -- or dissuade people from plucking reports from the forbidden fruit. But I do think it does increase the renewal rates among institutional lenders by embedding our data directly into their systems.

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Operator [9]

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Our next question comes from Mike Crawford of B. Riley.

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Michael Roy Crawford, B. Riley FBR, Inc., Research Division - Senior MD, Co-Head of The Discovery Group & Senior Analyst [10]

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Do you expect subscription revenue to increase in 2018 versus 2017?

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Mark P. Cantaluppi, Reis, Inc. - VP, CFO & Principal Accounting Officer [11]

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Yes.

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Michael Roy Crawford, B. Riley FBR, Inc., Research Division - Senior MD, Co-Head of The Discovery Group & Senior Analyst [12]

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Okay, great. And then just to clarify about the quarterly improvement of revenue and EBITDA you expect in each quarter of this year, that's sequentially from Q1? Because you said that's what we've seen in the past, but that's not what we've seen in the past 2 years for Q2 versus Q1.

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Mark P. Cantaluppi, Reis, Inc. - VP, CFO & Principal Accounting Officer [13]

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Q2 -- last year, our second quarter -- we grew from the second quarter to the third quarter and the third to the fourth quarter. Our expectation is that we would see this year's second quarter improve over this year's first quarter and sequentially thereafter. Sorry if we were unclear on that earlier.

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Michael Roy Crawford, B. Riley FBR, Inc., Research Division - Senior MD, Co-Head of The Discovery Group & Senior Analyst [14]

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Sure. And then in the 10-Q and, I guess, as you referenced in this call that you've had greater than expected nonrenewals in institutional subscribers for both the fourth quarter and the first quarter, but then you cited these 2 institutional accounts as maybe comprising the largest part of the variance. But was -- were those 2 institutional accounts canceled in Q1? Or was there a similar phenomenon in Q4?

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Mark P. Cantaluppi, Reis, Inc. - VP, CFO & Principal Accounting Officer [15]

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Over the last 2 quarters, we each lost 1 of those large customers in the fourth quarter as well as in the first quarter. To break it down and be more specific for you.

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Michael Roy Crawford, B. Riley FBR, Inc., Research Division - Senior MD, Co-Head of The Discovery Group & Senior Analyst [16]

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Okay. So you don't expect another surprise like that? That's what I'm reading between the lines with the rest of the guidance. Is that a fair statement?

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Mark P. Cantaluppi, Reis, Inc. - VP, CFO & Principal Accounting Officer [17]

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Yes. I'm expecting that we can start to work on the incremental improvements in the renewal rate as we move forward during the remainder of the year. And then as we've spoken in the past, how do you refill the bucket with new business? And like I spoke earlier and both Lloyd with his examples, identifying the types of new business wins that have been very rewarding thus far as they relate to the new products that we have been selling.

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Operator [18]

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And I'm showing no further questions in queue at this time. I'd like to turn the call back to Lloyd Lynford for closing remarks.

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Lloyd Lynford, Reis, Inc. - Co-Founder, President, CEO & Director [19]

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Thank you. And thanks to all who have listened and participated on our call today. We appreciate your continuing support of Reis. Thank you, and have a good day.

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Operator [20]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.