Homestore, the National Association of Realtors-affiliated company that runs home-search site Realtor.com and other Web sites, today reported a net loss of $4.57 million for the third quarter, which compares to a $4.26 million net loss in the second quarter and a $30.58 million loss in third-quarter 2003. The net loss for the nine months ended Sept. 30 for this year was $13.9 million, compared with a net loss of $35.1 million for the first nine months of 2003.

“During the third quarter, we made progress on many key financial measures, including revenue growth, improved segment profitability, and increased liquidity,” said Mike Long, Homestore CEO. “We also made significant improvement in overall profitability, although these results are somewhat masked by unusual and non-recurring costs in the quarter.”

Long noted a $7.2 million charge the company took against its third-quarter results for the potential advancement of legal costs for former officers of the company. That charge relates to an Oct. 27 ruling by the Delaware Chancery Court that Homestore must advance legal costs to Peter Tafeen, a former marketing and business development executive at Homestore who left the company in the fall of 2001. Long said, “We intend to continue our vigorous challenge of this ruling because it puts an undue burden on the company to defend those who allegedly created our legacy regulatory and legal issues.”

Total revenue for the third quarter was $56.1 million, compared to $55.6 million in the second quarter of 2004 and $52.9 in third-quarter 2003. Revenue for the first nine months of 2004 was $166.4 million, compared to $158.1 million for the same period in 2003.

Homestore’s earnings before interest, restructuring charges and certain other non-cash expenses, principally stock-based charges, depreciation, and amortization – also known as EBITDA – was a loss of $3.3 million in the third quarter, compared to income of $2.5 million in the second quarter, and a loss of $5.2 million in third-quarter 2003.

The third quarter EBITDA for this year includes two expense items totaling $8.6 million that are not considered ongoing operating costs of the business. An accrual of $7.2 million is included in general and administrative expense and relates to the potential liability for advancement of legal costs related to the Delaware court ruling, and also included is a $1.4 million settlement expense related to the reclassification of certain sales employees relative to “non-exempt” status and the payment of past overtime wages under that classification. “Absent these two expenses, the company would have reported positive EBITDA in excess of $5 million,” Homestore reported.

Results for the current quarter also include $2.1 million in one-time gains related to the sale of a building and other assets. Results for the second quarter include litigation settlement charges of $2.2 million relating to the settlement of two legacy litigation matters. Results for the third quarter of 2003 include an impairment charge of $15.7 million.

The results for the current and prior periods reflect the reclassification of the Company’s WyldFyre business as discontinued operations. WyldFyre was sold for $8.5 million in cash on Oct. 6, 2004. The gain on the sale of approximately $6.5 million will be reflected in the company’s fourth quarter results.

At Sept. 30, 2004, Homestore had $48 million in cash and short-term investments available to fund operations, an increase of $12.8 million from last quarter. The Sept. 30 balance did not yet reflect $7 million in cash proceeds from the sale of WyldFyre.

CEO Mike Long, and Chief Financial Officer, Lew Belote, discussed the company’s third quarter 2004 results in a conference call today.

Homestore stock (Nasdaq: HOMS) closed at $2.60 per share Wednesday, up 9.7 percent from Tuesday’s closing price of $2.37 per share.

***

Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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