Welcome everyone to the CoStar Group second quarter 2008 earnings conference call. (Operator Instructions) Mr. Trainor, you may begin your conference.

Good morning, everyone and welcome to CoStar Group's second quarter 2008 conference call. Before I turn the call over to our CEO, Andrew Florance, let me state that certain portions of this discussion contain forward-looking statements which involve many risks and uncertainties that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to those stated in CoStar's second quarter 2008 press release and in CoStar's filings with the SEC, including CoStar's form 10-K for the period ended December 31, 2007 and CoStar’s form 10-Q for the quarter ended March 31, 2008 under the heading "Risk Factors." All forward-looking statements are based on information available to CoStar on the date of this call and CoStar assumes no obligation to update these statements. You can find a webcast of this conference call at www.costar.com/corporate/investor. Thank you again for joining us. I will now turn the call over to Andy.

Welcome everyone to CoStar Group’s second quarter 2008 conference call. I'm very pleased to report that CoStar posted another strong performance in the second quarter, one which we added a large number of new subscribing firms continued to added net new individual subscribers and continue to generate very solid earnings growth. In May we launched our newest product offering CoStar showcase, which has surpassed even or most ambitious expectations in terms of market reception. Also during the quarter the total number of commercial property listings marketed through CoStar exceeded 1 million for the first time and continues to grow. We believe that this is by for the most property listing available through a unified database in any website in the industry and represents a monumental achievement for our company. In addition as we announced in our release today we have made substantial progress on the comment we made to investors 12 months ago to pursue, accelerate earnings growth while in the substantial investments we made over the past years to expand our market coverage in the U.S. and the United Kingdom. Having conclude the transition last year from a period of heavy investment in our business to one in which we generate solid earnings growth we set a goal on the second quarter of 2007 to dramatically increase our then company wide 9% EBITDA margin and achieve a 30% EBTTDA margin within the U.S. by the fourth quarter of 2008. With this quarter’s results showing a 29% U.S. EBITDA margin we have almost reached that goal. As a result we are again raising our earnings outlook to the rest of this year. Having established a pattern of increasing profitability over the past four quarters, we intend to continue to pursue our current strategy of sequential earnings growth further strengthening the…

CoStar posted another strong quarter of earnings growth at the mid-year point. As Andy, mentioned earlier and as we stated in yesterday’s press release net income increased 263% in the second quarter of 2008 to $5.4 million or $0.28 per diluted share, compared to $1.2 million or $0.06 per diluted share in the second quarter of 2007. EBITDA, which is Earnings before Interest Taxes, Depreciation and Amortization for the second quarter of 2008, was $12.8 million, an increase 204% compared to EBITDA of $4.2 million for the second quarter of 2007. Today I am going to principally focus on the sequential results for the second quarter of 2008, compared to the first quarter and in our outlook for the third quarter and full year of 2008. Total revenue grew sequentially from $52.3 million in Q1 of 2008 to $53.5 million in Q2 of 2008. Core U.S. subscription revenue increased by 2.9% from Q1 to Q2, which is consistent with the past several quarters. It was slightly offset by lower non-subscription or ad hoc revenue during the quarter. Subscription revenues continue to account for approximately 95.3% from our total revenue during the quarter. Our 12 month trailing customer renewal rate remained strong at 90.9%. The subscription revenues accounting for approximately 95% of our total revenue and the majority of our subscribers on annual agreements, we consider our 12 month trailing customer renewal rate to be a good indicator. Also for the second quarter our customer renewal rate for subscription based services remains solid at 89.7% or as we stated in the press release approximately 90%. All-in-all these are very healthy numbers based on where we are today in the economy. International revenues increased 3% from Q1 to $6 million in Q2 of 2008. International operations contributed approximately 11% of total revenues…

(Operator Instructions) Your first question comes from John Neff with William Blair.

You mentioned with the Showcase product, you mentioned a fair number of retailers that sounded like they were trying the product. Was that retailer trying it directly or through the brokers? Any sort of -- can you give us maybe an update on sort of the retailer appetite for the product and what you think it could mean as far as penetrating that market? And then, can you give us an updated view on how you’re thinking about capping the listings inventory available on Showcase?

I think the product retailers who have access to inventory that are trying to dispose, they would be interested in the product because it would typically while those dispositions are going to be picked up by smaller mom and pops or at retailers and Showcases a great venue to reach a general business audience on the Internet. Also, retail in general, when you get outside the retailers, we’re seeing about a third of the activity on the Showcases coming from retail real estate and that’s a very fragmented part the commercial real estate market often under-served by the brokerage community. So, a lot of the business community at the smaller end of retailers spending for themselves and CoStar Showcase is an ideal way for them to try to find opportunities. So, we do think that a big part of the growth story in retail and then in Showcase will be around that whole retail segment. I’m surprise to see that the retail segment for us in Showcase is larger, the second element in the office segment’s larger than the industrial segment. What we intent to do, in your second part of your question, I’m capping how much we’re putting in there, we intent to initially cap at about half of listings in any given metropolitan market can go into Showcase and because of the really great response we’ve received for the product, there are some markets in which I believe we are approaching 30%, of the listings being Showcased. So in those markets I anticipate we will bump up against the 50% cap, but generally across the United States we would be in the -- I would not see us hitting the cap in the substantial number of markets for another year or two and by then we would have an awful lot of revenue from the product. Does that answer your question?

Yes, yes that’s great and just one more Showcase question. The 587 new subscribing firms you added during the quarter, does that include Showcase or is that for traditional kind of products?

That’s traditional.

With the international revenue growth, can you just remind us of the businesses that were business lines or products that were discontinued and also Brian remind us of why the sharp drop -- in looking at the EBITDA for international, why the sharp drop in corporate expense allocation from a year ago 285,000 from 975?

Okay and some of the other Propex kinds of products, like the deal introduction platform and the auction platform, are those part of subscription revenue or are those part of non?

Those are part of subscription revenue.

Yes, there is some marketing components of the Propex. There are some marketing components and if you look at, I mentioned it this time in the call; I’m not sure if I’ve mentioned it before, but the international side I mean it’s not much but they are only at about 90% subscription revenues, so they do have a little bit more variability. So, the Propex component has namely a subscription fees, but there is a small non-subscription fees that goes along with it, so. I think because the U.K. numbers are a little smaller than the U.S. and the fact that they are slightly less, subscription based, it’s still 90% which is high, but a little bit more subject to, variability on the non-subscription or ad hoc type areas.

And then Andy I was looking for maybe an update on the sales force, if you could update us on the average tenure experience of the sales force, had some time to absorb some of the new folks, your view on sort of headcount growth going forward and then maybe an update on turnover?

I would say that our turnover is down, this year over last year and while we are down a little bit quarter-over-quarter in the headcount in sales, I would anticipate that number would fluctuate up and down a little bit and be fairly stable and what we’re focusing on is doing exacting what we’re doing which is continuing to put more training into the existing players that are there, bring that tenure up and build their experience level. So, I’m a pretty comfortable with where that group is and what they’re achieving at this point. I would say that our turnover is down, this year over last year and while we are down a little bit quarter-over-quarter in the headcount in sales, I would anticipate that number would fluctuate up and down a little bit and be fairly stable and what we’re focusing on is doing exacting what we’re doing which is continuing to put more training into the existing players that are there, bring that tenure up and build their experience level. So, I’m a pretty comfortable with where that group is and what they’re achieving at this point.

Your next question comes from Jon Maietta with Needham and Company. Jonathan Maietta - Needham & Co.: First question I had was for you Brian with regard to cash flow, that kind of that bogey of $100 million revenue EBITDA run rate for year-end 2010; it implies some healthy cash flow growth. How shall we think about approximately for cash flow growth? Is that EBITDA growth kind of the best proxy, as you think about it?

I think the EBITDA growth is the best proxy and I think if you just took modest revenue growth figures which we’ve been seeing here in the past few quarters and you look at the fact that a high percentage of those revenues dollars are dropping to the bottom line, so you’ll be looking at 70%, 80% are dropping at the bottom line, you can fairly easily calculate on a pretty high-level, getting to the $100 million annual EBITDA before the end of 2010 and that’s how we look at it internally, so that’s how I would expect a lot of investors to be looking at that. It’s also, I hate to say it, but you can pull up our proxy, it’s our bonus too, so that’s what the company is focused on. Jonathan Maietta - Needham & Co.: Yes, and that really is the base case scenario because I mean you are basically saying, as the market faces today excellent progress in macro growths and things like that…

I mean I think we’re looking at where we are today? What's happening today? And, we feel obviously a very good about it. We’ve raised guidance twice this year. Our business model is healthier than anything else I’ve seen. I mean it seems like every time I’ve pick up the paper we are bombarded with negative news, other companies reducing guidance, loosing customers, going out of business and trying to raise more capital and to be honest with you I mean our business is just performing exceptional and it’s healthy as it’s ever been. So, we’re very pleased. Jonathan Maietta - Needham & Co: And then Brian I may have missed it; did you disclose what the cash flow from operations number was for the quarter. I got cutbacks, but not…

I don’t think I talked about it. It was about $8 million. Jonathan Maietta - Needham & Co: Okay, got it. Then on the -- the other thing I think I missed, you talked about kind of a sequential increase in revenue in Q3 and Q4, but could you reaffirm kind of that 14% to 16% number for the full year?

I didn’t reaffirm it. I think what we talked -- what I said was that I think we’re in the 2% to 4% range and that’s where we have been in the last couple of quarters. So, I think we’re kind of still in that 2 % to 4% range, until we see us come out of that. I mean I think obviously the economy and those types of things are going to be a factor in there, but I think that’s a good range that we’re going to be into for quite some time. Jonathan Maietta - Needham & Co: And then Andy with regard to John coming onboard and running the sales force, is it pretty much the same game plan in terms of running the ball and you plan any chance of sales force compensation or anything like that?

I don’t foresee at this any material change in sales force compensation other than the typical period incentives and special initiatives but I think it’s more of a switching of leadership and leadership style rather than a issue of big restructuring.

Your next question comes from Brett Huff with Stephens Incorporated

I have two questions; one, last call you talked about kind of step up retention efforts and obviously I think that worked pretty well with keeping retention flat at 90%, can you just talk a little bit more about that and also the dynamics of how the sort of marginal smaller commercial brokers health is because I think that’s part of that dynamic.

As we came into the first and second quarter we had implemented some changes to the sales forces compensation plan at the end of ’07 and very beginning of ’08, but we felt it began to take effect as the year went on where we were putting more emphasis on them proactively driving usage up across their book of business and they’ve been doing that and I think that by-and-large the vast majority of folks in the sales force are in good in contact with their clients and that’s keeping the retention at a good level. I can tell you that I discussed the fact that the -- looking at the statistics for what the statistics say in commercial real estate you did not see evidence of any sort of disaster anywhere, the possible exception being slowdown in investment sales, financing on larger projects, but when you’re listening to large numbers of sales calls and sort of the atmosphere out there, you do have extreme anxiety and just pick up a newspaper and reader and the small brokerage firms can read those newspapers too and they are anxious about the outlook, so you got people who are more likely to cancel as a precautionary measure to control their expenses in the event of a downturn and so its making a slightly more challenging environment and in particular it’s at the low end; its still, 1%, 2%, 3% shops who are perhaps taking down their shingle and going back into a larger shop or going into insurance sales or something. So we are holding a reasonably solid retention rate given the psychology of the market right now and interestingly our gross sales number, our ability to sell product is still pretty strong.

Okay thanks and then just one other sort of color on the reversal of the average sales price or I forget what you guys call the metric, but the change from 6,800 to 7,100 platform. When you look forward what are the major drivers of that continuing to go up over the second half and sort of into ’09?

Well that special incentive program ended mid-May and so that’s going to -- with the elimination of special focus on small firm asking to bring the average number back up and then we are enjoying a period here where we’re signing up some larger dollar Showcase deals which is driving it up as well and then the sales force is becoming more mature which would also drive it up and you could have some smaller Showcase accounts where sales people are going into their existing customers and who don’t have a lot of listing, but good customers and selling them Showcase, which could be a $100 a month sale so as an individual addendum to a contract it’s a small number, but the overall account value will be continuing to grow. So, I would expect the average number to be moving up in the third and fourth quarter inline with what we thought in the first quarter.

Okay, and then last question Brian, can you just repeat the -- or maybe Andy you said this; the number that you’re going to recognize in revenue from Showcase instead of a $1 million was that for 3Q or 2Q, I just missed that statistic.

That is the number that by the end of July it appears that we will have achieved in annualized recognizable run rate of $1 million so over the next 12 months what we do in July will be one -- we’re able to call, recognize what revenue in July, where the trails expired, the contracts firm, the one year to two year contracts, so at that point we have a high confidence on a $1 million of revenue. The number, there is not a lot of trails expiring in August and then there is a large number of trails expiring in September and October, a lot of revenue going firm in September and October.

And Brett what that is, is it’s not going to -- $1 million drops in from those contracts. I mean what that is that those cancellation provisions passed that the client decided that they’re getting a lot of value from their new service, so that number will then come in over two or three months or something like that. So, it’s not like it’s all going to drop into one month and so there will be a kind of a ramp up as those come, but obviously the more-and-more we pass those cancellation provisions and clients continue to go firm obviously you start to build no that and I think that’s where you could see some upside, late in the year as you build on that numbers.

And is that ratably -- is $1 million ratably ratable over a year or is it coming in differently than that?

No, it’s the same as the subscription-based service, so once they go firm depending on the month it is they come in, the monthly subscription-based subscriber, I think that’s why it’s important that you pass those trail periods obviously and then once you do it, it becomes just like any other subscription-based service that we sell and we will include those numbers in our total, you would say 95.3 of the subscription-based services will be included in that number, once they pass that trial period.

Your next question comes from Vance Edelson with Morgan Stanley. Vance Edelson – Morgan Stanley: First, I’m just trying to get a feel for how the selling and marketing expense trends from here. I may have missed it, but I didn’t hear too much on that specific portion of OpEx. There was a little step-up in the second quarter. Is that sort of a onetime bounce-back following the first quarter’s low end marketing or is that increased more and more permanent would you say going forward?

As I put in my script Vance there was kind of a one-time Q2 high about $700,000, $750,000 for ICSC. Otherwise I think it will be relatively stable now. So, you could see a decrease a little bit because that’s only a one-time thing during the second quarter that doesn’t happens in the rest of the year, but that would be somewhat offset on a pay-per-click budget and some other marketing efforts surrounding the new Showcase offering. So you could see a slight decline, but I wouldn’t count dollar-for-dollar that coming off of there, but otherwise besides ICSC I think you had a pretty nice level that you’re going to be at for while.

And you’ll see that ICSC bounce again in second quarter of ‘09.

Correct. Every second quarter you’ll see a very similar number for ICSC between $700,000 and $800,000. Vance Edelson – Morgan Stanley:

No, it’s actually -- I would actually focus on the fact that the number of firms coming on, the net firms coming on is actually fairly stagnant about the same number, which is a second highest we’ve seen ever. So, the number of net new firms come out, a second highest ever. I think what happened as much as anything as in the United Kingdom would be integration of our shop property product into our general information product. Our retail product was integrated to our general product as well as we were cleaning up with the acquisition of these 12, 13 different companies being blended together in the United Kingdom, we are getting a lot of consolidation going on. So, you got the screen data office information products being superseded by the focus office information product, the shop property information product being encompassed into the focus information product. So a lot of that’s going on in the U.K. that dropped those counts and then the other thing that’s going on which is sort of somewhere between the subscription revenue product and the one off revenue product, but we’re counting it in our authorized user account. The market for lower cost for sale information, our CLMS product, that market is weak. People who are traditionally paying us $29 a month, it’s our lowest cost product of all. People are paying us $29 a month for information only on fore sale properties, particularly like in the California and Florida, those folks are going away. So, if you have exposure to low end fore sale players, that’s weak. Now the good news is those folks -- where there’s those folks falling off, they are probably in eight of our average authorized user value. So, I think the number was weak but its elements of it in the United Kingdom were purely mechanical and then if you had to choose some reduction area it would be CLMS because of the low value. That’s CLMS to be under the same kind of pressure until Fannie Mae and Freddie Mac stock comes back up to what it was last year.

And just you know I mean that the CLMS is barely over a $1 million in total revenue and it’s not subscription based, it’s pretty ad hoc, so I think we have very, very little exposure in that area, as a company. Vance Edelson – Morgan Stanley: Okay that’s helpful, and just a final follow up on the sales force question earlier with a total number of sales reps down just a bit. Could you provide a little more color on the decline there? Is that entirely voluntary departures or are you doing any kind of trimming of the lower performers for example?

The company will always look at trimming folks who -- which is just not a good fit for them, that will happen. So that’s probably the normal process that goes on and then I think we’ve got -- part of it is we are proactively trimming people that perhaps would be more successful somewhere else. The third is probably people that understand that’s on the rise and that there is probably people who are voluntarily choose to pursue other options and typically those folks go into brokerage working for our customers. So, I’ll say that for the voluntary left, they’re all probably CoStar users now.

Yes and if you look at that number it’s still fairly consistent, it only dropped by a few bodies and then we didn’t want to have a bunch of new training class while we are brining in a hundred and some people for advanced training in July.

Correct.

Your next question comes from Jim Wilson with JMP Securities.

Two questions; so the first was as you’re finding new customers and signing people up on Showcase, have you any success or what would be your strategy or the opportunity trying to kind of cross sell them, other CoStar products and do see levels of interests a little early in those kind of discussion?

Jim, I’m waiting with bated breath for exactly that. So, initially a lot of our primary focus is going into our best existing customer base and selling them Showcase as an add-on to the existing contract and that is the complicated reasons that would be to them, potential cost savings to buy Showcase. Secondarily, we’re going into the 10,000 best potential new prospects for who don’t currently buy anything from CoStar Group and we’re going in using a marketing hook, a lead generation hook in the form of CoStar Showcase and our hope would be that maybe they initially weren’t thinking about information product, but once we got in them and began to develop the client relationship with them on the Showcase side, they find value in it, we get our reps could establish a relationship with them and we could begin a cross sell, up-sell process using the marketing as the entry point, instead of the traditional attack using the information. I’ll tell you right now, in an environment where people are a little more anxious, it’s absolutely serendipity that we have the ability to switch from saying, we can help you with information products that enable you to efficiently handle high volumes of transactions, we can switch our pitch and our sales force too, we can keep your lead flow coming in the door using Showcase to capture, the tens to thousands of business searching for commercial on the web, so we’re shifting to a revenue increased story off of an efficiency streamline story and it’s great from that perspective and they’re receptive.

Okay. Good. And then my other question is, had the total growth, revenue growth hit a quarter, how much came from existing customers adding new markets and products and how much came from, new customers?

I think it’s probably very similar to what we’ve seen in the past, although I think Andy and I probably would expect that number to start coming more towards from our current clients kind of skewing our historical average of little bit, which as always said has been about 50/50, because of showcase, because as Andy said we are targeting our best clients first. So I think as you move towards the back half of the year, that number might move a little bit more towards current clients, but I think in this quarter it was probably about the same we have seen for past decade.

So I would anticipate that over the next two quarters, that would probably be our -- the highest the ratio ever goes skewing towards revenue growth from existing customers. Jim Wilson – JMP Securities: Okay good and part of that is going to be I guess maybe your existing customer base or probably the bigger and stronger players in those markets and probably obviously therefore financing better shape and it’s easier for them to spend money than the small guys who aren’t doing so well.

That’s certainly true. You look at the -- we are fortunate that our core customer base is at the upper end of the pyramid and they are benefiting to some degree from the leading out that’s going on where a lot of the smaller entrepreneurial folks have started up in the last year or two are losing their nerve. CB Richard Ellis or a Jones Lang Lasalle, premier brand, when the transaction volume goes down 25% those premier brands can go coach business from the marginal players and keep their shares stable and as we are seeing so that the easiest ones are sell to right now.

Your next question comes from Chris Mammone with Deutsche Bank

Just a back to the quarter revenue growth; I know your currently at the lower end of the range announced. I guess could you expand on maybe what factors maybe beyond on showcase could help you, maybe get back to the higher end of that range in the back half of the year.

Well, I would say that, yes so we are at basically the middle of the range and the guidance and similar to what we had last time and I would say that anyway look at it, showcase appears to dramatically exceed our expectations and that would move us up to the upper end of the range if it continues to do that the way looks like it’s doing, if that goes, else you are looking at your more traditional business, but it is where it is. I think right now we have I would say the highest number of pending demonstration, sales meetings we’ve ever had as a company and I would not be surprised if -- I think we’ve got something like two thousand sales presentations schedule for July and begin of August which is by far the largest number we’ve ever had and that’s showcase.

Well, Chris, we actually fell like here one of our major national customers -- we basically just flow that data through to you the day that we brought online. So if you were already an institutional customer that subscribed to the first 80 markets, since we added the additional 80 markets they just showed up. So its more of the same way for that national customer. Every single day even in our oldest shows like Washington DC, we’re discovering new, more and more building, so we probably add a couple 100 buildings a month that we discovered in Washington every single month and those buildings just flow into the information system for all the clients in Washington automatically and we don’t charge for them. The same thing is true as we add Reno in Nevada into the network for the institutional national customers, it just grows in. Now, some customers were they don’t subscribe for the whole country, for example that would be CB Richard Ellis's and that mega deal we did with them ,the $100 million plus deal, that would be specifically were they want to step up and get all those markets in one step. They’re our biggest customers and they are now onboard with us 80 markets and I know that our major accounts team is moving through. There are other customers and one of the other top two players out there, one of the semi-peers to CB actually express interest in doing a similar kind of deal what CB did, so we are sort of moving through it, but it’s probably relatively early stage on that.

Our final question comes from Michael Grossman with MFS Investment.

Just looking at your balance sheet with 200 million in cash and generating kind of $50 million to $60 million a year in free cash flow and it doesn’t sound like giving your 2010 EBITDA target, you know that your going to be making any kind of major investment in the interim period, what do you plan to do with the excess cash here, it’s kind of bring the whole I guess at a pretty low interest rate right now on the returns?

Right. The interest rate certainly it’s not existing out there right now and in real terms it is negative. So the -- obviously the -- it is exactly the kind of problem a CEO likes to wrestle with which is too much cash and we are at each quarter, every board meeting we are looking at the options, alternative share buyback dividends and the like in the boards considering them. In the uncertain environment I think the board expressed a view that they wanted move slower rather than quicker and in making a decision of what to do there and we also cannot rollout the potential acquisitions where a CoStar Group quite the operations of another company and create or make significant cost cuts and come up with some very accretive acquisitions and those acquisitions could potentially both domestically and internationally run anywhere from $50 million to well in excess of $100 million. So we like to have the strong balance sheet to continue keep those options opened.

Great. Thanks.

Thank you. I want to thank everyone for joining us on this second quarter 2008 conference call and again I want to thank to staff for turning out an outstanding performance in the second quarter and giving us a really good quarter. Thank you.