Ladies and gentlemen, thank you for standing by, and welcome to the CoStar Group Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Rich Simonelli.

Thank you, operator, and good morning, everyone. Welcome to CoStar Group's Fourth Quarter and Year-end Results for 2012 Conference Call. We're delighted you have joined us. Before I turn the call over to Andy, I have some really important facts for you to listen to. 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 our February 27, 2013, press release on the fourth quarter and year-end 2012 results, and in our filings with the SEC, including our Form 10-Q for the period ended September 30, 2012, and our Form-10K for the period ended December 31, 2011, 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, whether as a result of new information, future events or otherwise. As a reminder, today's conference call is also being broadcast live over the Internet at www.costar.com. A replay will be available live and in color approximately 1 hour after this call concludes and will be available until March 28, 2013. To listen to the replay, call (800) 475-6701 within the United States or Canada; or (320) 365-3844 outside the United States. The access code is 279285. A replay of this call will also be available on our website soon after the call concludes. So with that, I'd like to turn the call over to Andy Florance. Andy?

Thank you, Richard. Thank you, everyone, for joining us this morning. U.K. folks, thank you for joining us this afternoon, for the year-end 2012 and our fourth quarter earnings call. I'm very happy to report that in the fourth quarter, and for the first time in CoStar's history, we crossed the $100 million mark in quarterly revenue. This was a 51% increase year-over-year. We also achieved our highest quarter ever of EBITDA with $20.5 million in the fourth quarter, which is an increase of 86% year-over-year. And with that, I'll turn the conference call over for questions, dial -- No, no, we've got a couple more pages. Our successful acquisition of LoopNet and the realization of the strong cross-selling opportunity between CoStar and LoopNet has been a key driver of these strong results. Our core CoStar Group information business is showing real strength. During the fourth quarter 2012, we booked $8.5 million in annualized net new subscription revenue and added 1,292 new CoStar subscriber customers. For the second consecutive quarter, that is a record number of new subscribers. 3 of our top 5 customers, CB Richard Ellis, Newmark Grubb Knight Frank and Cushman & Wakefield, renewed or entered into new multiyear contracts with us. In 2012, our fastest growing markets based upon total revenue were Los Angeles, with $1.9 million in net new revenue; followed by Dallas, with $1.5 million; Chicago's $1.5 million; Northern New Jersey was $1.3 million; Orange County, $1.2 million; and Charlotte, with $1.1 million. Our fastest growing markets by year-over-year percentage growth were El Paso at 297%; Charlotte again at 99%; Louisville at 61%; Columbia, South Carolina, at 53%; Omaha at 53%; Memphis at 52%; and good old Milwaukee at 51%. Our subscription renewal rates remain at all time highs on the CoStar side. Our 12-month…

Wow. Thank you, Andy, I think that was a new record. Just like when we used to present. Okay, I'll try to go fast here. As Andy mentioned, we're very pleased with our performance during the fourth quarter and full year. Ongoing progress with LoopNet integration has had a very positive impact on the financial results for the quarter and the year. Starting with CoStar Group's results for the fourth quarter of '12, the company recorded $100.1 million of revenue, an increase of $33.9 million or 51% compared to the $66.2 million for the fourth quarter of 2011. Full year revenues were $349.9 million, an increase of $98.2 million or approximately 39% over revenues of $251.7 million for the full year of 2011. Now looking at pro forma organic revenue growth. CoStar's organic revenue growth was approximately 11% for the full year of 2011 and has now grown to over 13% for the fourth quarter of 2012, mostly due to the strong cross sales of CoStar services into LoopNet customer base. While LoopNet's organic revenue growth was in the 10% to 11% range prior to the acquisition, it has now grown to almost 13% in the fourth quarter of 2012, helped by the site-level Premium Lister sales by the CoStar field sales force and the other changes that Andy outlined in detail. Therefore the overall pro forma organic growth rate for the company grew from approximately 11% in 2011 to 13% in 2012, and that growth was driven by the cross-sales efforts. As we have stated over the past few quarters, we believe it could take several years to systematically move through this massive pool of leads. And therefore, we believe we can maintain double-digit organic revenue growth in that range of 11% to 13%, or possibly higher, over the…

That was my line.

That was your line. But just to convert that for you, that means that Q4 2014, a $125 million quarter. So not $500 million for the year but $125 million quarter by '14. Now more than ever, we believe this is an achievable benchmark that sets us on a realistic path for the long-term $1 billion in high-margin revenue. As always, I look forward to sharing that progress with you in coming quarters. We'll now open it up for questions now that we've closed the last chapter of War and Peace.

[Operator Instructions] And our first question is from Brandon Dobell. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: I had like 3 questions but I forgot them all. A couple quick ones. From a commercial real estate brokerage point of view, how concerned are you guys about kind of the middle of the market? Small firms are obviously doing quite well, large firms are taking share. How exposed are you to firms in the middle, which seem to be where you find the most trouble or most attrition these days?

Well, we've been seeing that trend for over a decade now. So looking at brokerage rankings back -- in various city levels back 14 years ago, there used to be a middle-tier [indiscernible], they've been disappearing consistently. So obviously, we're getting good traction with the majors with those big renewals. And significant growth on the CB side associated with growth in their business. And then a lot of these LoopNet conversions we're getting are actually the smallest players. So the biggest single category we're getting is the 1-man, 2-man shop, so we're doing fantastic there. The 20-person shops on the LoopNet side are actually the slower conversion point. So it's sort of been our operating environment for a long time so we're not terribly concerned about it. We obviously work with those mid-level clients, try to help them progress, but not a big factor. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Okay. And then as you look at the upsell, cross-sell kind of conversion opportunities, what's your strategy around people who initially push back or don't do anything? Is there kind of a hey-we-keep-coming-back-at-them kind of mentality? And what's been the kind of most common reason you've heard from people who don't want to do anything different versus what they have? I guess, what's reason right now, especially LoopNet users?

Yes. It's a fantastic question. So there is a decent pool of several thousand folks who we -- our sales people went and met with and tried to show the benefits of upgrading to CoStar Property. The ones who -- typically, where you get the slower sales cycle is with the 5- to 20-person firm. We are seeing those close, they're just taking a bit longer. Also we're going to get a chance to get 4, 5, 6 bites of this apple because we keep putting out upgrades of our software on the CoStar property side. We're bundling them together to have a number of interesting new features in each release so that gives us a reason to go talk to these people again. And then remember, we're talking to these people virtually every single day because they're in one of our websites everyday. We know who they are. We're tying the CRM systems together. And we can send marketing messaging to them. And again, this thing where -- it's really hard to understand for me, I imagine it's hard to understand for anyone on the call, but even though we're the same company and we're connecting these databases, they don't get that we've got twice as many listings in CoStar Property. If they got that, I believe that 60% of them would end up upgrading. We have time to basically move to that conclusion, especially with automated comparisons when they search online. So we are -- we sort of have a mantra at CoStar, which is, eventually they're going to buy. And we've always had that and we don't ever really go away. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Okay. And then a couple quick ones for Brian. Should we think that the extra stock comp or incentive comp, does that change how we think about the share count? And I guess, my broader question, as you guys keep generating a lot of free cash, should we expect further delevering or do you think you have the right capital structure right now for the business?

Yes. So basically, on the performance shares, yes, I mean, eventually -- I think, there are 300,000, 400,000 or something like that. So those will come into the share count when we earn them. So that will come into the share count when we earn them. Essentially right now, I mean, I believe if we continue to achieve the earnings targets we've set out here for '13 and in '14 that we've discussed with you guys many times and you guys know how confident we are in that, we'll meet this performance goal at some point in that time period. So yes, that'd come in then. And then the second question was -- remind me. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Just using free cash for delevering, buying back stock or how do you think about the capital structure right now?

Yes, I mean, that's something we're going to evaluate each quarter this year and talk about with the board. I mean, obviously, we just closed the deal. Cash flow is obviously even stronger than we thought. It's hard to imagine $29.6 million in the fourth quarter. So that's something that we're going to evaluate and we'll get back to you guys on. I mean, obviously, we're sort of open to the discussion on all of the different various levers that you can pull in the capital structure. So we'll evaluate that and update you guys as the year progresses.

And at this point, given our workload, we have no short-term plans or even intermediate plans to do any significant acquisitions, but looking at our 2-decade track record, it's quite likely something could come up in the next several years that might impact our decision about capital structure.

And our next question is from Brett Huff.

It's John Campbell in for Brett Huff. So if you guys could just provide just maybe a little bit more color on the U.K. market and just, I guess, profitability, near-term, in general. I mean, last quarter, you guys said that you've hit some pretty major milestones in the form of like database migrations and whatnot. And then just given you guys have seen some, I guess, nice success in the recent launch, I mean, is it fair to say that most of the investment and incremental spend should be just kind of tapering here and are we just any closer to that profitability inflection point near-term?

Yes, so I'll take a shot and let Brian jump in as well. We spent -- it's not dissimilar from what happened in the United States. So as we were ramping up in the United States, we invested, made significant investments into research ahead of subscriptions building up to cover that fixed cost nut. We were doing that in the United Kingdom over the last 4 or 5 years where they had 18 researchers and we ramped it up to probably 170 from 18 to build up the right quality of data. The nice thing is we now have credit for that in the marketplace. They're saying we definitely have the only outstanding source of data in the marketplace. That 170, probably about 50 of those folks are temporary employees and that will come on back down midyear. So down to a stable state somewhere in the 100-and-some zone. Also the software developers that we search and we're allocating a lot to the United States, the United Kingdom, along with a generous markup under GAAP rules, those folks are now moving over to other projects and other priorities in the United States. So that spend is coming way down. At the same time, we began moving off the initial install towards betas and trying to build a reference set to actually selling the product in February. And we have some promising early results in some of the product. I have a lot of confidence. I feel the sales team is making some good progress and I think we'll get some good sales number this year. And I think we will be able to, and as we move out of '13 into '14, start to show a return of investment, the same way we did in the United States after a big investment.

And just the short version of that is that essentially, you've got a lot of costs dropping off, we're increasing the revenue and sales. Obviously, the Giles promotion, that's focusing them on sales. My expectation would be that they will get to breakeven in profits over the next 12 to 18 months. So they'll still be a little bit negative this year but they will be positive next year and be contributing to EBITDA. So they should get to breakeven again in the next 12 to 18 months and be positive in '14 is the expectation and there's nothing less than that.

Okay, great. And then just my next question is back to the future Loop cross-sells. Can you guys just give us any kind of information or direction as far as when you might -- when we might expect that next release of leads?

When we might release more leads to the sales force?

Right.

They're now actually -- once we increase the territory set and define a bigger territory set and did those teams, we actually released the whole set to them probably, I don't know, maybe 2 months ago, 3 months ago. And there's still 100,000 folks in the pool. I think we still have, very approximately, 94,000 we have not met with. So we have full employment over here at CoStar sales.

Okay, great. And then just the last question here. Andy, I think you said in mid-February, you guys closed about 2,500 cross-sell bills. If you could just maybe parse out how many of those were CoStar cross-sales to Loop users?

It was $10 million worth, and I -- do you have an actual number for that? I think it was 1,500, something like that. I don't want to give you a wrong number.

Yes, I think it was around 1,500 and we can follow up with the exact number on that.

I'd take an estimate of 1,500. We began focusing on the Premium Lister sales to CoStar, I think, probably about 3 or 4 months after -- I think 4 months after we started focusing on selling CoStar to LoopNet. And so that's just still ramping up.

So the 3 pieces, real quick, is $10 million of annual contracts, information services to Loop customers, $1.7 million of Loop marketing service to CoStar clients and then in addition to that, we had another $2.9 million successfully converting about 900 customers on annual site level PLs. So sort of total synergy revenue of $14.6 million, which converts to a total of like 1,500 or so customer -- paying customers. So pretty strong numbers at a short period time.

Yes. So using it as a rule of thumb on the average price, you come out to about 1,550.

Next question is from Bill Warmington. William A. Warmington - Raymond James & Associates, Inc., Research Division: The long question for you on the fourth quarter annualized new contract revenue, $8.5 million that you reported. Now I seem to remember there were some onetime items in the fourth quarter that were likely going to depress that a little bit. And I just wanted to know -- you already covered the Grubb & Ellis as being one thing that could have done that. But I also wanted to ask about the RMS contract, to try to get to, I guess, what I would call a more normalized, what that number would have been without the RMS contract.

When Andy mentioned that, he was talking about just the CoStar business, so I think I put in mine it's the $10.9 million was the fourth quarter number. So that's a $10.9 million. And that accounts for everything. I would say that there was enough things going in each direction with Grubb & Ellis and RMS and everything else, so I actually think that the $10.9 million is a pretty good number. And that's up 26% year-over-year, so that's a great number. William A. Warmington - Raymond James & Associates, Inc., Research Division: And then your thoughts, and since we're 2/3 the way through the first quarter, your thoughts on where the annualized net contract revenue is likely to come in for the first quarter? Does it come in, in that basically $12 million to $13 million a quarter level? Or are we still going to be below the $12 million level?

Well, I'm not sure I want to give guidance on the fact that we're 2/3 of the way through the quarter, but that number was $10.8 million. If I read back the last 4 quarters, it was $10.8 million, $9.3 million, $7.9 million. So it's been growing. I'm not going to give a projection on that, but obviously we gave pretty strong healthy guidance for the year at 21% and 23%. In the first quarter, we do have sort of the resolution of the Newmark Knight Frank Grubb thing, we've got a lot of stuff in there. And then we will be -- we've already started, as Andy mentioned, to deemphasize some of these services. We don't sell some of these services in our sales groups anymore, so they're just on the Web. So throughout the year, we're sort of overcoming that and we're still going to come up with, I think, a very strong organic growth number. So we're excited. I think it's, like I said, 20% -- 21% to 23% revenue growth is a pretty good year. William A. Warmington - Raymond James & Associates, Inc., Research Division: And then I wanted to ask about -- you gave some detail on the organic growth at 13% for the CoStar piece and just under 13% for LoopNet piece. You've given some additional detail in the past. I just wanted to see if you could give us any additional color on those numbers?

Yes, I mean -- they're great numbers. So we closed '11 at around 11% and so obviously, taking it up over a 13% is a great year, especially on a much bigger base. Again, a lot of that is the strong cross-sell, I mean, that we talked about in the LoopNet base. You got $10 million come in. Again, LoopNet prior to the acquisition, growing in that 10% to 11% range. Again, all the efforts that we've done and all the things that Andy talked about getting that up to almost 13%. So I think it was a sort of great organic year. And I've said this many times to people, as we've explained to you guys, that this is a huge lead list that we've met with 6% of barely, this is something that's going to roll out over years. This isn't a onetime pop and a big number and growth rates are going to go up by 3% or 4% or 5% and then dip back down. And because you got the bigger base, you actually have to produce another 1.5% to 2% every single year. So I feel very confident over the next few years in the medium term with this cross-sell opportunity being able to stay in that 11%, 12%, 13% range, even though the base is getting much bigger. And maybe we can do better than that but I think it's -- we feel very confident in that. And I think that's why we feel confident when we talk about $125 million fourth quarter of '14 or $500 million run rate. Going from $100 million in the fourth quarter this year to $125 million, I mean, I think it's a great goal.

Next question is from Suzi Stein.

You talked about the fact that you've achieved $18 million of the $20 million of cost synergies. And I guess the $20 million always struck me as kind of a low number. But how much over the $20 million do you think you can go? And I guess, more specifically, what are you experiencing in terms of savings that you didn't forecast prior to the merger?

Yes. Suzi, it's Brian. So yes, I think, we actually spent quite a bit of time prior to the merger. So I think most of the things that we expected to come in have been coming in sort of as expected. I think they've just come in much faster than we expected. I think we've done a great job on the integration. I'd mentioned it on prior calls. I mean, we renegotiated insurance and we saved $0.5 million, $0.75 million. We still have other contracts, data agreements and things that they sort of signed up for that are already sort of in the pipe that will fall off. And that's why when I talk about the $18 million, I think we're essentially already at the $20 million with things that we already have sort of in process that will fall off. So the question is what can that be? Can it be a couple million dollars better than that? Yes, I think it can continue to get better. I don't think I'd put that in my guidance right now. I think we want to keep working through it. And the one thing that we talked about prior to the acquisition is that this deal, the $20 million or plus more than that of cost synergies wasn't the core driver behind the deal. What we always talked about was we thought we had multiples of that on the revenue side. And having already captured $14.6 million, I think we're sort of hopefully proving that concept out. And I think that's the true value in the deal is that, if you can do that number and you can sell on that lead list for the next 3 to 5 years and continue with double-digit revenue growth, and you look at lots of other peer companies and they're all in the single digits. I'm seeing like great quarters for companies with 3% and 4% and 5% organic growth rates. And I truly do believe we'll continue in these higher growth rate ranges. So we're pretty excited.

So then I guess the other question is just as you think about achieving these revenue synergies, you talked about the retraining and redeploying and I guess hiring of sales people to do that. How should we think about modeling selling and marketing over the longer term? So how long do you think it will remain at sort of an elevated level? And when does it normalize and what does it normalize to? If you're willing to talk about that.

I mean, we can't -- it's difficult for us at this point to tell you what's going to happen in '14 with that sales force, or '15, because we're going to want to get further down the road and get a better feel for what's working. But we are going to be seeing a fair amount of revenue -- we believe we're going to be seeing a fair amount of revenue growth here, a much larger customer base. We now have the ability to operate more efficiently in the field with a bigger scale. We are emphasizing more in-the-field sales presence. So we're going up towards the 200 field sales people mark with a reduction through attrition on some of the centralized sales. And then we'll evaluate it again there. And it's always going to be based upon what kind of return are we getting on each sales person. Are we getting a phenomenal return? We can look at that and feel pretty good about where we are at this level, and we'll evaluate again at the end of the year.

And just in dollars, Suzi, to give you a little color if you're talking about modeling it, obviously, it's going to grow in dollars because you're paying out sales commissions and we all expect to have -- I mean, I would hope we pay out lots of sales commissions, I'm sure there's a lot of sales people are loving to hear that, based on these growth numbers that we're talking about. So in dollars, it's going to grow but I do expect to see efficiencies and see it reduce as sort of a percent of revenue as you move forward. So hopefully, that will help you with your model a little bit.

Next question is from Marc Fuller.

Just kind of a quick question here. I'm trying to understand in terms of, so this quarter, you sold $10 million in annual contract value information services to LoopNet, who had previously only had $160,000 commitment? And then last quarter, I believe you said you kind of had sold $4 million in that to people who had previously committed $37,000? Is that right?

That is -- the $10 million number is since the merger. So we began the cross-selling probably, I don't know, 2 months after -- aggressively doing the cross-selling 2 months after the merger, something like that, July, August timeframe. So the first number, it's a cumulative number. So the first number of $4 million is where we were when we did the last earnings calls and we have incremented to $10 million since that last earnings call. So it's not a $10 million per quarter. It's cumulative.

Yes, so got that. So then the difference would be kind of 120,000 to $6 million, right? 120,000 can bring you to $6 million for a total of $10 million?

Yes.

And just real quick, this is Brian. The total amount was $4.6 million. As Andy said, we didn't start some of the other pieces, the LoopNet marketing services, existing CoStar clients. So some of that's just starting. If you just look at in total, you're going from your $4 million to $14.6 million. And again, the $14.6 million was in total so the $4 million is included in that. So that should give you a little bit better color on those numbers.

Got it, got it. Okay. So that makes a little more sense. Okay. And then just a quick -- I think I missed it, but what were the redundant services you were cutting that are included in that $5 million to $7 million?

Yes. I mean, right now, we're deemphasizing several services. I don't know, I won't get into a ton of detail on it, but I think Andy talked about Property, COMPS and Facts. We no longer sell-through our sales force, it's still available online. So those would be a couple of things. CoStar had some services, CMLS and e-COMPS that are no longer being sold on the web. So there's several -- I mean, we've been evaluating this since the deal closed. So we've actually been doing this, we just -- I'm not sure we've talked specifically about it til now. So there's several services that we're just no longer selling.

[Operator Instructions] We do have a question from Todd Lukasik.

Just a question on the first quarter revenue guidance. I guess, $100 million this quarter, $101 million at the low end for next quarter. If you assume the net new sales kind of came in through the quarter, barring some kind of seasonality or other decline somewhere else, it seems like $101 million is a pretty easy bar to hit. Is there something going on there with seasonality or lost revenue otherwise that would account for that?

No, no. I mean, if you look, I did the same thing last quarter, essentially I raised it up $1 million over what we did and gave it a $2 million range. So I think it's just me being consistent and conservative. Obviously, I feel very comfortable with the low end of the range. So it's just more -- that's just more the way I guide. I'd rather be conservative on the guidance than be aggressive. And in the first quarter, we will have sort of workout of the Newmark, Knight Frank and some other things in there. But essentially, I think -- obviously, we expect pretty strong numbers for the year, so I'm pretty confident in that range.

Okay. And then 100,000 prospects, and I think you mentioned you pitched 6,000 so far. How many do you think the sales team is pitching per quarter? Is that sort of around 4,000, 5,000 or what's a good number to think about there?

That's a good question. Hang on one second. He's got the calculator out. Yes, about -- roughly about 5,000.

Okay. And then at this point, is the entire sales team sort of ramped up on the sales pitch and I guess, were they in the fourth quarter, or is there still some expected efficiency you get out of the sales force from here?

I do expect an efficiency gain from the sales force from here. So again, while the initial result exceeded our expectations, I am now in this weird place where I'm like, that wasn't good enough, we can do better. And I look at the nature of our sales presentation to these folks at this point and I see so much room for improvement. We began working on that really hard at the sales conference. And I expect that we can achieve higher close rates and it will take -- you're dealing with 2 audiences, both ingrained with 15-year behavior. So you've got the CoStar sales force who've been doing a particular kind of sales pitch for 10 or 15 years. And when they go into that LoopNet upsell situation, they have to completely change up their presentation and do it differently than they normally do it. That takes some behavior modification, which will probably take us a total of 12 months to really get them into. At the same time, they're going in and meeting with people who have really perceived something a certain way for 10 or 15 years, and you've got to reach them. So I think each quarter during 2013, you'll see improving close rates as we get better at this.

[Operator Instructions]

I think we're going to go ahead here at 4 hours and 20 minutes into the call to take the chance to wrap it up. Thank you very much for joining us today on the call. We do apologize for running long, it is my fault. We'll try to keep it a little brief next time, we had a lot of things we wanted to talk about. But thank you very much. We look forward to updating you on our progress with the next quarter conference call. Thank you.