Ladies and gentlemen, thank you for standing by and welcome to the CoStar Group’s First Quarter 2009 Conference Call. Today we have CoStar Group’s Chief Executive Officer, Andrew Florance; Chief Financial Officer, Brian Radecki; and Communications Director, Tim Trainor. At this time all lines have been placed in to a listen-only mode. Later we will conduct a question-and-answer. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Trainor. Please go ahead.

Thank you, operator and good morning everyone. Welcome to CoStar Group’s first quarter 2009 conference call. Before I turn the call over to CoStar’s Chief Executive, Andrew Florance, let me state for the record 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 included, but are not limited to those stated in CoStar’s first quarter 2009 press release, which we issued yesterday and in CoStar’s filings with the SEC, including CoStar’s Form 10-K for the period ended December 31, 2008 and CoStar’s Form 10-Q for the quarter ended September 30, 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 on our website at www.costar.com/investors. Thank you for joining us. I will now turn the call over to Andy.

Thank you Mr. Trainor and welcome everyone to CoStar Group’s first quarter 2009 conference call. I’m very pleased to once again report that CoStar Group completed another profitable quarter earning $6.1 million in the first three months of 2009. This represents a 21% increase from $5 million in net income in the first quarter of 2008. First quarter 2009 EBITDA also increased year-over-year to $14.4 million a 25% increase compared to EBITDA of $11.5 million in the first quarter of 2008. Being able to report year-over-year growth in quarterly net income in the middle of a very challenging economy is a testament to the strength of our business model and certainly something that all of us here at CoStar Group are proud of. I’m pleased to report the company continues to enjoy a very strong financial position. CoStar Group completed the first quarter with no debt and very large cash reserves. Because we identified deteriorating market conditions more than two years ago, we have focused on growing earnings, expanding our EBITDA margin, and significantly strengthening our balance sheet, which remains one of the company’s greatest assets. We increased our cash balance by $8.9 million in the first quarter of 2009 for a total of 20, $233.5 million in cash, cash equivalents and investments on hand. The majority of these assets are in cash or invested in U.S. Treasury or other U.S. government money market funds, putting CoStar in a very secure and strong financial position. Commercial real estate market conditions have continued to weaken in the face of unprecedented job cuts and deteriorating credit markets. As a result many of our customers have experienced severely declining revenues and slowed their purchasing activity. Many commercial real estate companies and related companies have failed. Despite the current environment renewal rates for CoStar…

Thank you, Andy. I think we just set a record, we did. It was 35 minutes. So, I think in ten years of doing earnings call that was 31 since 31 minutes and Andy’s shortest script, he cut it back from a 100 pages down to 50. It’s good, thanks Andy.

You’re welcome Brian.

As mentioned, as Andy mentioned we are continuing to manage the business well in this very difficult economic environment. Despite U.S. GDP falling over 6% in the fourth quarter of 2008 and the national unemployment rate raising 8.5% in March, CoStar achieved another strong quarter of earnings and cash generation in the first quarter of 2009. Our net income for the first quarter of 2009 increased 21.1% a $6.1 million or $0.31 per diluted share from five million or $0.26 per diluted share in the first quarter of 2008. EBITDA which is our earnings before interest, taxes, depreciation, and amortization for the first quarter of 2009 was $14.4 million an increase of 25.2% compared to EBITDA of $11.5 million for the first quarter of 2008. Reconciliation of EBITDA and all non-GAAP financial measures discussed on this call to GAAP basis results shown in detail on our press release issued yesterday is available on our website at www.costar.com. Revenues in the first quarter of 2009 decreased approximately 900,000 compared to the first quarter of 2008. These revenues included unfavorable impact of foreign exchange rate fluctuations of approximately $1.6 million on our international revenue. On a functional currency basis U.S. revenue in the first quarter of 2009 totaled $47.1 million, which is a 1.6% increase compared to $46.4 million in the first quarter of 2008. International revenue totaled £2.9 million in the first quarter of 2009 compared to £3 million pounds in the fourth quarter of 2008. International operations contributed approximately 8.2% of total revenues in the first quarter and international subscription revenues account for approximately 88.8% of the international revenues in the first quarter of 2009. In Q1 of 2009 non-subscription based revenues, which is ad hoc revenue that is mostly related to services to facilitate the buying and selling of…

All right thank you. (Operator Instructions). And our first question comes from John Neff from William Blair. Please go ahead. John Neff – William Blair & Company: Hi guys.

Good morning Mr. Neff.

Hi John. John Neff – William Blair & Company: A few questions for you and then I can get back in queue for some others. But the, last quarter the guidance range was $201 million to $207 million now 198 to 203, is that all due to foreign exchange and what does it assume exchange rates continue as of when, the end of the quarter or where they stand today?

John, I didn’t change those. As I reiterated it and what I did was consolidated it. When we came up with and provided our initial calendar year 2009 revenue guidance in February, we assumed that the U.S. dollar would strengthen versus the pound over the course of 2009 because that was the trend for the prior six months and there was no sign of it stopping. We’re really not trying to forecast exchange rates, really just kind of reiterating the same thing and I consolidated them to make it simpler for people because I think there is some confusion around that. John Neff – William Blair & Company: Okay. So, it’s purely a reflection of the UK correction of the business.

Correct. John Neff – William Blair & Company: Okay. So, it’s really just due to FX?

Correct and we confused you in order to avoid confusion. John Neff – William Blair & Company: What were the net annualized subscription bookings in the quarter?

Do you have the number?

John, I mean they are obviously negative because revenue growth is negative. So, we haven’t really talked about that, the last few quarters we’ve been focusing on more some of the operating metrics. John Neff – William Blair & Company: Okay. And then you mentioned bad debt expense, DSO’s are creeping up a little bit, but what’s going on with bad debt expenses, has that been keeping pace and where does that stand at the end of the quarter?

Yeah it’s up slightly over the fourth quarter, it’s right about where we thought it would be, we kind of assumed we’d have $0.5 million or a million more in bad debt this year and right now it’s right around where we thought it would be so. Hasn’t really gotten significantly worse but obviously in this environment you’ve got companies that are struggling and some of them that are just going out of business. John Neff – William Blair & Company: Okay, and then the quick question on the Showcase then I can get back in queue? The new individualized contract pricing, 49.95 a month, roughly 600 a year. How does that compare to the average enterprise annual subscription price?

If you take the average enterprise agreement it would be, it would be just slightly less than that, so you’d have some enterprise agreements that would be slightly more and some will be slightly less. But on average the new individuals slightly below that enterprise agreement level. You get more benefits if you are in enterprise, so for instance you get the company website and you don’t get that if you are an individual subscriber, you get, your listings on Showcase and you get a broker page, but if you are a firm subscribing, you get a firm website, broker pages for all your brokers plus all your firm listings on the site. So, they’re not entirely similar, there’s slightly, there is little more benefit especially associated with the enterprise agreement. John Neff – William Blair & Company: These enterprise agreement, is it $900 on average or is it.

I only have the numbers for it, what above stand to on a per person basis and it’s just slightly more than the individual cost and that reflects the benefit of the firm website and the fact that firm has a tougher time, managing, collecting, and posting all their listings up, then does a individual broker. So, I think there’s not a lot of competition between the two. John Neff – William Blair & Company: Okay.

There’s some but not a lot. John Neff – William Blair & Company: Great, thank you.

Welcome.

Thank you. And our next question comes from Jon Maietta from Needham and Company. Please go ahead. Jonathan Maietta – Needham & Company: Thanks very much.

Hi Jon. Jonathan Maietta – Needham & Company : Hi Andy, hi Brian.

Hi Jon. Jonathan Maietta – Needham & Company : Andy the first question I had was it, I don’t think you talked about the analytics offering at all this quarter, could you just maybe talk about those processes of refreshing that offering?

Sure. That remains a significant focus for us and we are toning down our discussion of it so that when we release those products there will be something of a surprise in nature and depth and scope to our competitors. So, we are, our development teams are working on that and we’re continuing to grow our capabilities there. We think it’s a $50 million to $100 million potential revenue add over 5 years plus but we are discussing, we are not discussing the details about it as much now. Jonathan Maietta – Needham & Company : Got it fair enough, okay. And Andy just a point of clarification, you had mentioned I think that you would either you, CoStar or the markets will typically see a rebound couple of quarters ahead of the vacancy rates peaking, was that correct or?

Yes we, I mean really have a sample set of two cycles, but there appears to be a pretty strong correlation where our market performance tends to pickup about a quarter or so before vacancy rates shift directions or hit their peak. So, I mean that’s generally because people can sort of tell right before the vacancy rates hit the peak that the markets are turning and vacancy rates are pretty much the driver of the income and the rental rates and the values outside of capital market costs. Jonathan Maietta – Needham & Company : Got it okay. And then Brian as you think about kind of revenue linearity over the course of this year just given the nature of the subscription model does it become tough to go sequentially negative three quarters in a row, four quarter in a row, barring, you know, a dozen larger customers falling out in one quarter.

Yeah I mean barring anything major, which still happens at some of the large financial service firms I mean, I think we, we are anticipating the renewal rate to decline a little bit, I think you are going to see the second quarter is going look a lot like the first quarter. And I do think as you get into the third and fourth quarter because of the subscription based model, I do think it is get harder, but I definitely think that the second quarter is going to look a lot like which is what we have expected for a long time now the first quarter.

And you have sort of hit a plateauing here so you know sort of a decline in the rate of decline. Jonathan Maietta – Needham & Company : Yeah, and then just a couple more quick ones. The million dollars in incremental legal expense that was probably on the press release was that is that incremental to the guidance that was provided on the last quarterly call or was that already taken through the earnings guidance?

I’m going to read my prepared statement from my legal council here and I anticipated this question so I had him giving it to me right before the call started. During Q2 we have increased discovery related legal cost depositions, document productions et cetera connected with our lawsuits against LoopNet in the Europe and California. We also have a trial scheduled in June on one of our anti-piracy cases. For Q3 we anticipate while our preliminary injunction hearings in July on our California case against LoopNet and continuing discovery costs on our New York litigation against LoopNet. But I think this is, and again we have to see how these things pan out so that was my prepared statement. I think that it remains to be seen. I think what’s happen is some of the costs maybe accelerated, they’re coming sooner so of course you have to wait and kind of see how those things pan out. So, it’s definitely it’s an increase in Q2 which is, which is I didn’t originally anticipate, but I think it’s baked into the kind of that dollar to dollar five range that I had already given for the year, so I’m not really coming off of that. Jonathan Maietta – Needham & Company : Got it, okay. And then just the last one from me. I was wondering if in addition to the renewal rate that you guys published do you also track kind of dollar renewal rates. So, if you had X amount of dollars coming up for renewal this quarter what percentage of those actually renewed?

Well the renewal rate is based on dollars not, you know, sites or paying subscribers. It’s based on the dollars renewing that’s essentially what it is, obviously if you actually looked at, if you look at those three metrics the sites only decreased slightly the revenue decreased slightly 2.8% but the paying subscribers dropped a lot more. So, it’s only dollars renewing it, it wouldn’t be fair to say if we lost a client that was paying us $10 million a year that, we only lost one client, a small percentage of our clients. So and then, but the two by chance tend to be fairly similar. Jonathan Maietta – Needham & Company : Correct

The sites and dollars, the sites and dollars will track much closer than the paying subscriber number. Jonathan Maietta – Needham & Company : Okay got it. Okay thanks very much.

Yeah, you are welcome.

Thanks John.

Thank you. And our next question comes from Brett Huff, Stephens Incorporated. Please go ahead. Brett Huff – Stephens Inc. : Good morning Brian, and good morning Andy.

Good morning Brett.

Hi Brett. Brett Huff – Stephens Inc. : Question on just Andy may be you could give us some color on how the conversations are going just from a value proposition point of view both when you all are pitching new business, and or when you are pitching cross sales just so that I get a better sense of what are the things people are focused on and what seems to be working?

Well, it’s, a lot of the same value proposition is that it has always been, it is cost reduction. So I think the bigger firms are more focused on the fact that our products cut their costs in total and provide a high quality service for their folks at the mid size and smaller firms it’s revenue generation that they are focused on as much as anything. So being able to produce a more powerful, more professional presentation and generate leads off the Internet is working and the appraisal side of the world, they’re actually likely to see a little bit of an up tick in appraisal volume and in fact the cancellation rates there are haven’t even come off of historical highs, their cancellation rates are very, very low right now. And those folks it’s just critical them in terms of productivity. It allows them to do appraisals much more cost effectively so they really need it to make their margin goals. And a big overriding challenge is the fact that some of these firms it’s not unusual that these firms are seeing their revenues down in excess of 40% right now. So that’s the challenge we’re getting through. Brett Huff – Stephens Inc. : Okay. And when you, can you give us more of a sense of cross sale, you’ve never given us really data on sort of what the cross sale numbers where in terms of numbers of firms that you’ve cross sold additional products into and/or sort of the average dollar amount? Could you give us any even qualitative sense of that, is it more or less or steady versus couple quarters ago or can you give us any color on that?

I could say that because our Showcase and a larger volume of smaller sort of smaller contracts, the cross selling activity is slightly lower because the other side picked up. So we’re at probably 45% of the sales of each month, little more than 45% of sales each month is cross selling products. I don’t have hard data on the number of firms or any given time period. I think it’s remained fairly constant. It’s basically half of what the new sales activity is and I would imagine that it is probably similar in terms of number of contracts. There’s a lot of new markets to add on, they add on additional services, be it Showcase, be it COMPS or Tenant, and then there is a lot of new user growth. So right now there is a lot of musical chairs going on in the industry and you might have a firm failing and then other small firms in the market picking up. The brokers who are at that firm and they will add a license here or there and we couldn’t consider that cross selling. So there are already clients, they pickup a broker here from sales firm and they add two seats and begin paying us incrementally more for those additional seats.

And Bred I think, when I look back at that I would say historically over the past decade it’s always been around 50%. So as Andy said I think it may be it’s down to 45%. I think that’s because we’re getting a lot of these newer Showcase type people and which I think we talked about a couple of quarters ago that was what we anticipated to happen. But it’s typically around that that 50% plus or minus 5% and it is exactly what Andy said it’s people adding new geography, either new products and services, upgrading the suite. I think we have a very successful track record for decade and a half, two decades of getting people in kind of on a basic service and after they see the value on that, up selling them and it’s something we’ve done for decades and I would anticipate a lot of these sales that we have today will do the same thing over the next decade. Brett Huff – Stephens Inc. : Okay, and then one last question again sort of bigger picture, in the, I don’t know how you want to talk about them, but in the secondary and tertiary markets that are relatively newer to your geography spread. I remember looking at your slide there is that pyramid of early adopters, middle and then late. Can you give us color on how that’s going has the economy made that harder? Have you found that the characteristic of those markets are making it easier or harder to penetrate right now and/or how many markets you feel like you are being very successful in or you can give us a sense of that?

I think it’s safe to say and I think different markets during different phases and cycles and it’s no different than the larger market. So, you know like a Boston would have been extremely successful for us right off of the bat, whereas Philadelphia was a slow bloomer, but is a now extremely successful market. So it may have Philadelphia probably took us couple extra years to get going but is now extremely successful. The same thing is true with these 200 new markets. Some have come on really quickly like Richmond, Virginia and then others are much slower and it could be something like Grand Rapids where the economy there is just not very robust and there is not lot of demand for anything there. So, I would say that the majority of the markets are current, of the small tertiary markets are in the top of the pyramid still, they are in the early stages. And a smaller percentage, maybe 20% are moving into the mid part of the pyramid. We know that traditional moving into owners and smaller brokerage firm space. But we have a strategy that we hope to deploy within the next quarter or so for these smaller markets that we think will accelerate the growth in the smaller markets that we’re really quite excited about and think it will be, I think it’s a very strong strategy that we’re not going to talk about. Brett Huff – Stephens Inc. : Okay, and I do have one last question. I guess do you have any color on specifically that, I think it’s round numbers 20% that are of customers that are owners, bank lenders, banks, REITs, stuff like that any change in how that’s looking I assume it’s not getting better, I know it’s getting worse but...

Yeah, when you go through a list of who some of your bigger cancellations are they, they are the names, there is some bigger owners or banks or lenders or commercial real estate investment banks. So, but big picture that looking at where the reversals come from the brokerage reversals are slightly less than they, than they are as a percentage of our revenue and the owners and mortgage folks and institutional investors are slightly higher than they represent as a percentage of our customer base. And then I think retailers are slightly higher than they represent part of our customer base. And then appraisers and governments remain very low at the cancellation level. Brett Huff – Stephens Inc. : Okay, thank you.

Thank you. And our next question comes from Jim Wilson of JMP Securities. Please go ahead. James Wilson – JMP Securities: Thanks. Good morning guys.

Hey Jim.

Hi Jim. James Wilson – JMP Securities: Let’s see, I wonder I guess just to continue one little further part of the new customer question. I’m guessing it’s too early but are you seeing any interest or sales to real estate private equity opportunity funds or anything starting to crop up that you might see as the vulture share eventually attack in the commercial real estate shift of assets?

Well, I mean, you’re right to pick up on the fact that some people are who are fresh capital are going to begin acquire assets now moving forward are probably going to end up making a real killing over the next decade a la Sam Zel then look at what he did in the past cycle. So, I think we are beginning to see some of that, but we’re probably, they’re forming right now. We are hearing a lot about it now and some of them are basically people who are traditional commercial side investors who are just found themselves distressed. The vulture funds to raise capital but you’re beginning to see and you saw the Vornado equity offering with a label of distressed opportunity funds kind of thing. So, it’s beginning to pickup and I think and we’ve been waiting for that and I think that’s probably something we’re going to see this quarter, next quarter. One interesting little segment we’re seeing some revenue come from is engineers, who are looking to go into buildings and certify them as energy star. We had a great sales month in London last month on the basis of these engineers looking to go in there and get ready to capture some of these conversions to more energy efficient buildings and in the U.S. I think it will even bigger market with all the stimulus dollars going into retrofitting buildings, someone’s got to do that and CoStar has the all the information as to which ones are green, which ones are not and who is who. So I think that will also drive some unusual revenue. James Wilson – JMP Securities: Okay, and then I guess my second question, that’s great, on kind of your overview and five year outlook on the analytic side. I was wondering since as part of your guidance at the beginning of the year to be adding research staff sort of how, how that’s progressing, are you in quarters away ahead of a 12-month curve or how should we kind of think about that?

Yeah I think I mean we have actually just begun I mean, it seems like we had talked to you guys yesterday but that process just kind has begun at the end of the first quarter so I think we are up. I don’t have the exact numbers with me but 10 or so researchers I think we plan them being up 50 or 60 this year. So I think we’re starting that process and it will probably be fairly gradual throughout the year, so that’s just kind of beginning now. James Wilson – JMP Securities: Okay. All right, great. Thanks.

Thank you Jim.

Thank you, and our next question comes from Vance Edelson of Morgan Stanley. Please go ahead sir. Vance Edelson – Morgan Stanley: Hi, and thanks a lot. First just following up on a recent question could you provide a little more color on the pricing environment? It sounds like at least for Showcase competitors are charging more, which is good news for you. Elsewhere what are you hearing from customers in terms of their ability and their willingness to pay given the macro environment? So in other words regardless of the value proposition to their own business, how is the pricing environment for your services?

I think that on the Showcase front we’re a new entrant there and we have the advantage of having a major piece of our cost base is covered through our other profitable product areas so this is sort of a product for us which has incremental margin, we think we’re cost advantaged here so we can take a significant share and generate good earnings out but with a more competitive price points. It’s more a competitive positioning issue for us. Most of the folks, can afford to pay aren’t really on lead generation in a down market they are willing to pay for it. You’ve got a clear segment of the market which is probably, 40% of the folks out there right now who are down to only essential expenses or have moved below essential expenses, and for those folks it is just tough to sell them anything or renew them on anything and then you’ve got another segment of the market, as Jim Wilson points out folks who are beginning to come in as vulture investors who have are very flush, hedge funds or very flush to come into this space. Pricing is not an issue with those folks and then another thing that when the, silver lining in a negative cycle is many, many, many of these larger firms get really serious about cleaning out overlapping expenses and they rely more and more on CoStar group in a down cycle like this and they are very, they want to get a fair price but they are looking to save five, ten times as much out of their internal operations by going to a CoStar group. So they are less price sensitive and ultimately we come out of the cycle with a stronger relationship with those bigger firms. Vance Edelson – Morgan Stanley : Okay.

Hope that helps. Vance Edelson – Morgan Stanley : Yes, that answers it thanks. And then I may have missed it but what are you thinking in terms of uses of cash considering the healthy cash balance? Could you just give us an update on your thinking there?

We are, continuing to evaluate at every Board meeting the options there for buyback, dividend and the like. Obviously in this very unusual environment we like to have a window to when the vacancy rates stabilize that’s usually our strong point, we like to be, have a clear vision of that position of strength as we make such decisions. And there is a fairly robust set of opportunities out there for acquisitions that become more reasonable as the market moves on. So we think there are some interesting things out there that could be uses of cash that would be accretive to the company and strategically valuable. Vance Edelson – Morgan Stanley : Okay, that’s great. Thanks a lot.

Thank you.

Thank you and our next question comes from John Neff, William Blair. Please go ahead. John Neff – William Blair & Company: Hey, guys thanks for the follow-up. Brian I just want to make sure I understood the timing. You talked about the $100 million annualized EBITDA as being a long-term target. I wanted to see if that was in anyway anchored to the previous not expectation but exiting 4Q ‘10 in terms timeframe, in determining the timeframe?

Yeah, I think we are still focused on it. I mean that is the long-term goal and I think Andy and I stated last quarter I think as we, as things clarify at the end of this year and early next year if conditions improve, that could still be doable. So I think obviously it’s fairly long-term it’s out there, it’s a couple of years away and we’ll just see how it goes each quarter. John Neff – William Blair & Company: Okay and then you mentioned Andy good color on the sort of the reasons or rationale for cancellations. I think you said 3% of the cancels fell into sort of a data quality issue...

Yes. John Neff – William Blair & Company: And I was just wondering if you could give us a little bit more color on what were the concerns that were voiced about data quality and how seriously you take those?

Well, obviously you’d like the number to be zero, but the, what we attempt to do as a business is obviously impossible to do perfectly in tracking the large to manageable moving marketplace in a pretty wild, wild west environment. So as things go 3% cancellation for data is very low, we are not entirely happy with it and it would be it would be something that we, we are increasing the size of the research staff to continually improve the quality of the data right now. We think that as we come through the year and get that research staff the number of people managing portfolios up by 50 plus people, we can probably pull that cancellation first from 3% per data down to 1.5% per data. You will never get it to zero because there will be somebody who has purchased the product for some sort of function that requires perfect, perfect data and maybe data we don’t collect or maybe they are trying to get, they are trying to sell elevator maintenance and they need to know precisely the number of elevators in every property and the speed or something we just don’t have that data. So it could be a market where they are, perhaps the researcher causing it or it could be something where the expectation for what we could provide was simply not realistic. But big picture it’s that, pretty good number. I’d say that in our operating history there have been probably two different periods where the number was probably dramatically higher than that and so we probably had a period or two where we were in the 10%, 12% so 3% is pretty good.

Hey John let me just add a few things to that, 3% is actually a very, very low in this type of environment when you track discreet data as we do that, that’s moving as fast as it is, but I would just like to make sure to reiterate we’ve got almost 900 researchers, we are looking at adding 50, 60, 70 this year to improve the data quality even more. What we add this year will be more than more researchers than anybody else out there, just what we add this year forget the 900 we already have. So I think it’s always comparable to what’s the next closest person out there, I think it’s not even close, our data quality is heads and tails so much higher than anything else out there. And that’s why you see the DB agreement, you see the Cushman & Wakefield agreement I mean it just, it speaks for itself. John Neff – William Blair & Company: Great. Thank you very much.

Great thanks guys.

So with that we are at an hour and almost 15 minutes we are going to wind up our first quarter call. Thank you all very much for joining us, and look forward to updating you on our progress and performance at the next quarterly earnings conference call.

Thank you, and ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.