Market Leader prepared to raise up to $50 million

Editor's note: This story has been updated to correct that in reporting third quarter results, Market Leader said one customer accounted for 80 percent of the company's accounts receivable balance, not 80 percent of revenue. The customer in question represented less than 5 percent of Market Leader's revenue.

Market Leader Inc. has filed papers with securities regulators that would allow the company to raise up to $50 million by offering stock or debt securities -- money the company says it might use to grow its customer base, or acquire new technologies or businesses.

The S-3 registration statement filed by Market Leader paves the way for, but does not commit, the company to offer common stock, preferred stock, convertible preferred stock, debt securities, convertible debt securities, stock purchase contracts, stock purchase units or warrants in one or more offerings.

"Putting this facility in place is considered good corporate governance as it provides the timely financial flexibility to be opportunistic should strategic opportunities arise," said a spokesman for Market Leader, Matt Heinz.

Shareholders will also be permitted to sell 1.5 million shares of previously issued common stock in a secondary offering valued at about $9.84 million, based on the $6.56 average price per share of company stock in trading Nov. 30. Market Leader will not receive any proceeds from those sales.

According to the Dec. 6 registration statement, Market Leader's management team will have "broad discretion in using the net proceeds" from the sale of any new shares or debt securities.

The Kirkland, Wash.-based company says it currently expects to use net proceeds from the sale any securities "primarily for general corporate purposes, which may include working capital, customer acquisition activities, and capital expenditures."

Market Leader may also use a portion of the net proceeds "for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no commitments or agreements as of the date of this prospectus to enter into any acquisitions or investments."

Last year, Market Leader acquired property listing portal RealEstate.com for $8.25 million, online and print marketing company SharperAgent LLC for $1.74 million, and mobile lead generation platform kwkly for $1.15 million.

Market Leader, which went public in 2004 as HouseValues Inc., is a leading developer of real estate marketing software, trading on the Nasdaq Stock Market under the ticker "LEDR."

In its most recent quarterly report to investors, Market Leader reported a net loss of $1.94 million for three months ending Sept. 30, down from $3 million during the third quarter of 2011, and a $6.6 million net loss for the year to date, down from $10.5 million for the same period a year ago.

Sales and marketing expenses for the quarter were up 10 percent from a year ago, to $7.7 million, accounting for 66 percent of revenue. At $2.26 million, spending on technology and product development was essentially unchanged from a year ago, but represented a smaller share of revenue (19 percent) than it had a year ago (25 percent).

Heinz noted that Market Leader's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) turned positive in the second quarter, providing the company with an expectation that it can fund future growth with company-generated revenue. At $937,000, adjusted EBITDA was up 260 percent from the second quarter to the third.

In March, Market Leader signed a two-year contract worth at least $2.55 million to provide a marketing and customer relationship management platform for franchisor Century 21 Real Estate's U.S. agents. The company has a similar partnership with another Realogy Holdings Corp. subsidiary, Better Homes and Gardens Real Estate.

Market Leader's biggest single deal to date has been five-year term agreement to power franchisor Keller Williams' marketing platform, eEdge. Market Leader has said it expects to receive a minimum of $10 million from the agreement, and to generate additional revenue by "upselling" premium software and services to Keller Williams agents.

In reporting third quarter results, Market Leader said just one customer accounts for 80 percent of its accounts receivable balance. But that customer accounts for less than 5 percent of the company's revenue, Heinz said.