CoStar Group, Inc. (CSGP) Q1 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the CoStar Group First Quarter Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rich Simonelli. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to CoStar Group's First Quarter of 2013 Conference Call. We're delighted you joined us today. Before I turn the call over to Andy, I have some really important facts for you. 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 Group's April 24, 2013, press release on the first quarter results and in CoStar's filings with the SEC, including our Form 10-K for the period ended December 31, 2012, 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 being broadcast live and in color over the Internet on www.costar.com. A replay will be available approximately 1 hour after the call concludes and will be available until May 28, 2013. To listen to the replay, call (800) 475-6701 within the U.S. or Canada; or (320) 365-3844 outside the United States and Canada. The access code is 287842, and a replay will also be available on our website soon after the call concludes. At this point, I'd like to turn the call over to Andy Florance.

The day after tomorrow is the second anniversary of our announcement that CoStar had entered into an agreement to acquire LoopNet. In that announcement, we stated that we expected to achieve annual cost synergies of approximately $20 million over the first 24 months following the close of the transaction, and we also stated that we saw the potential for significant revenue synergies through the cross-selling of each company's complementary services to the other's client bases. As you know, it took 1 year before we received permission from the Federal Trade Commission to close the acquisition. Tuesday of just next week is the first anniversary of our closing on the CoStar LoopNet merger, and I'm very pleased to report that I believe the actual results of the merger have clearly met and exceeded those initial expectations. We have achieved our goal of $20 million in cost synergies from the acquisition in half the time we expected. We have eliminated redundant or unnecessary expenses, and I am confident the result is a more efficient and better-managed company that is extremely well positioned for sustainable and profitable growth. I believe the excellent results that the new LoopNet management team continues to deliver prove that point. A skeptic might worry that these significant cost savings might hurt LoopNet's ability to perform. In the first quarter 2013, we achieved the highest quarterly revenue ever from LoopNet's Premium Membership. Since the merger, we have refocused LoopNet to its core strength of marketing commercial properties on the Internet. We have refocused on annual rather than monthly contracts. We have improved the pricing of LoopNet's products relative to their value, and we have refocused on firm-wide contracts rather than contracts with individuals. The result is a 219% increase in the organic growth rate of LoopNet's Premium Membership revenue from 5.2% in the quarter before the acquisition to 16.6% in the first quarter of 2013. The fact is that LoopNet's operation is enjoying $20 million in cost synergies while turning in dramatically better results. On the anniversary of the closing, I believe you'll agree with me, the potential for significant revenue synergies through cross-selling of each company's complementary services has become a reality. Through March 31, we closed 3,067 cross-selling deals between each other's client bases. These 3,067 deals cover over 7,000 users. These deals total $18.4 million in revenue synergies, which is a 26% increase from the $14.6 million I reported on our last investor call just 6 weeks ago. I reported a lot in that earnings call. An hour-and -- 90-minute call. Now here is how the $18.4 million in revenue synergies breaks down. The pure cross-selling of our 2 customer bases totaled $14.4 million, which is approximately $12.4 million in CoStar information services to LoopNet members and approximately $2 million LoopNet marketing services to CoStar customers. During these sales calls, we were also able to move LoopNet customers from monthly to annual contracts for LoopNet marketing, and in many cases, we added additional users at those sites. This resulted in an additional $3.9 million in new sales associated with cross-selling. The LoopNet customers previously only had a combined monthly commitment of $329,000 with LoopNet, so the conversion to 18.4 million in annual subscriptions in little more than 7 months of cross-selling is quite impressive, and I think you'll agree with that. This cross-selling activity has reinvigorated LoopNet Premium Lister revenue growth. After Premium Lister experienced a sharp 21% decline from its high in the third quarter of 2008 and flat revenue performance in the 2 years prior to the acquisition, post-acquisition, it achieved a solid 15% increase from the first quarter 2012 to the first quarter 2013. We believe we are just beginning to realize the potential cross-selling opportunity, with just over 3,000 deals closed off the initial lead list in excess of 100,000 LoopNet and CoStar users we consider to be best prospects. Additionally, the lead list continues to grow as we grow the number of CoStar subscribers, increase traffic to loopnet.com and grow the number of LoopNet members. In March of this year, we added a record number of new registrations to LoopNet and now have over 7 million registered users. In a year in which we have upsold more than 4,000 LoopNet users to CoStar for information to still grow the net new number of LoopNet Premium Members by 8,000 year-over-year -- so we're actually adding LoopNet Premium Members faster than we're converting them to CoStar, which bodes well for future growth. We raised prices on new sales of Premium Lister and Premium Searcher to better reflect the value these customers are getting for marketing and searching properties. We raised the new average sales price on Premium Searcher 57% from $47 per month in August of 2012 to $74 in March of 2013. So we just switched the digits there, I guess. We raised the average Premium Lister price from $75 per month in August 2012 to $96 in March 2013. We have created, and have been successfully selling, Premium Lister with an optional added feature known as National Distribution, which offers additional visibility for our clients' listings on SHOWCASE.COM and on over 200 newspaper websites across the United States. In March of 2013, nearly 4 out of 10 new subscribers to Premium Lister opted for this Premium Lister with National Distribution. The average new sales price in March 2013 for the National Distribution package was $116 per month, which is 54% more than the $75 per month we averaged on Premium Lister sales in August of 2012. At the same time we are increasing prices, we are focused on driving down LoopNet's historically high cancellation rates. LoopNet has historically had cancellation rates well over 500% higher than CoStar's. I have heard from hundreds of LoopNet users who clearly value the leads LoopNet generates and have an ongoing need for the service, so that convinces me that the high cancellation rates are about sales strategy errors, not about any weakness in the service. We believe that LoopNet has fantastic products, but that its historic reliance on selling to individuals on month-to-month contracts has led to these high cancellation rates. Reducing LoopNet's cancellation rate was, is and will be a high priority for management post-merger. To reduce the rate, we are focusing on selling our core rather than our weaker products; on annual contracts rather than monthly; and to firms rather than individuals. When we closed the acquisition last year, the overwhelming majority, or about 95% of LoopNet's contracts, were month-to-month. By March 2013, only 25% of LoopNet's new contracts being sold were month-to-month. 75% of the new subscribers for Premium Membership were signing up for longer-term contracts, with 51% signing annual contracts and 24% signing quarterly contracts. These customers are typically marketing listings for year-in, year-out, so we found very little resistance to going to these longer-term contracts. As of March 2013, quarterly and annual contracts represented 26% of all Premium Lister subscriptions and 23% of Premium Searcher subscriptions. We believe our effort is already working. Cancellation rates on Premium Membership have declined 11.5% from 6.1% in March 2012 to 5.4% in March of 2013. If everything else were to hold constant, I expect LoopNet's cancellation rates to decline materially over the next 12 months. I believe that the most significant competitor to LoopNet's paid Premium Lister product is free LoopNet Basic Lister. Last year, 69% of the listings receiving a marketing benefit on LoopNet were free listings, and only 31% were paid. Through a concentrated effort in marketing, sales, product development and more effective pricing plans, we have dramatically improved that ratio within the first year. By March of this year, we had increased the percentage of paid listings 23% year-over-year from 31% paid to 38% paid. We expect to continue to make good progress in this area. After a strong first year of combined CoStar and LoopNet, we're pleased to report our overall revenue for the first quarter 2013 was $104 million compared to $69 million in the first quarter 2012, which represents an increase of 52% year-over-year in our revenues. In the first quarter of 2013, we booked $13.8 million in annualized net new revenue, which is the most in our history and an impressive 27% quarter-over-quarter increase from the $10.8 million booked in the fourth quarter 2012. That $13.8 million first quarter booking is a dramatic 64% year-over-year increase over the first quarter of 2012 booking of $8.4 million. March was our highest overall sales month of all time. We added 1,126 new CoStar information subscribers in the first quarter of 2013. This is the second-highest number of new subscribers we have ever added and continues the positive trend of 3 consecutive quarters of adding record numbers of new customers. Adjusted EBITDA for the first quarter of 2013 was $25.7 million, which is an increase of $10.4 million or 68% year-over-year. Through the rest of 2013 and throughout 2014, I expect these margins to steadily improve and for us to reach our goal of 30% to 35% margins as we exit 2014. We are now 3 months into the launch of CoStar Suite and CoStarGo in the U.K. We already have 500 paying customers of CoStar Suite in the U.K. We've also had very good adoption and usage among the initial customers of CoStar Suite in the U.K. The average FOCUS user is paying 35% more to upgrade to CoStar Suite and Go. We're advancing upgrade discussions with a number of our largest prospects in the U.K., and based upon our early positive results, we expect to continue to report good growth in CoStar U.K. sales. Turning to the commercial real estate economy, the demand for commercial space increased in the first quarter of 2013 from 1 year ago for all property sectors. Demand growth for the industrial sector was exceptionally strong, and net absorption in the first quarter was more than double the year-ago levels. Property sales volumes in the first quarter were also up for all sectors, except for retail, which was down 17% from a year earlier and still suffering from a weak and uneven recovery in the growth of online shopping. Perhaps this sector will benefit from proposed Internet taxes. The office sector continued its long, albeit slow, march to recovery in the first quarter, with vacancy rates declining at 0.1% in the quarter and 0.5% over the past year to end at 12.2%. Over the past year, demand was solid at 58 million square feet and increased by 11 million square feet from the previous 12 months. That's real, positive momentum for the office sector. This recovery is broadly based with nearly every major market, except for Washington, D.C. and Los Angeles, recording positive net absorption in the first quarter. Office rents rose by 1.2% year-over-year, mostly in the metros with high job growth rates and fairly low vacancies. Office sales volumes are up 19% over 1 year ago, and the pace of sales is similar to 2005 and generally indicates a healthy market. A slow but steady commercial real estate recovery is exactly what I had hoped for, as it creates a sustainable growth environment for CoStar. This summer, we expect to release 5 significant product enhancements to CoStar's suite of services. In order to preserve our competitive advantage, I will not go into detail on these enhancements, but I can say that I believe that these are some of the most substantive product upgrades we have made in my tenure at CoStar, and they will further enhance our ability to drive LoopNet cross sales, U.K. sales and accelerate organic U.S. CoStar sales growth. I expect these product releases will launch a new dimension for CoStar by providing advanced software tools that connect our user community more effectively and make our information more valuable. It's been a truly transformative first year working with the team at LoopNet, and it was made possible by the hard work of our over 2,000 employees, especially the great team leading and driving fantastic results at LoopNet. We have built and continue to expand the largest platform of information, analytics and marketing services in commercial real estate, servicing a huge client base with nearly 200,000 paying subscribers and approximately $10 million unique monthly visitors coming to our websites in aggregate. I continue to believe we're on our way to reaching our goal of $500 million annual revenue run rate with 30% to 35% margins when we exit 2014. The word for the day is going to be "brevity" for me, and with that, I'm going to turn the call over to Brian Radecki, our Chief Financial Officer.

After we got charged extra from NASDAQ last time for going long, I guess maybe I'll see if I can get a credit for that. Thanks, Andy. As Andy mentioned, we're pleased with our performance in the first quarter of 2013. CoStar's information analytics services continued to show strong growth, and the successful integration of LoopNet is obviously a huge contributor to the growth in our revenue and earnings. We've achieved over $20 million in annualized cost synergies 1 year earlier than the 24 months we discussed at the time we announced the acquisition. But of course, more importantly, as Andy discussed, revenue synergies continue to ramp up and have increased to $18.4 million at the end of the first quarter. So let's talk some numbers. Starting with CoStar's results in the first quarter, the company reported $104 million of revenue, an increase of $35.4 million or 52% compared to $68.6 million in the first quarter of 2012. As most of you are aware, prior to the acquisition, LoopNet and CoStar was growing at approximately 10% to 11%, respectively, year-over-year. The pro forma organic revenue growth for the combined company continued to accelerate in 2012 for a total of 12% year-over-year and now is over 13% year-over-year in the first quarter of 2013. As I've said many times, we believe we can maintain strong, double-digit organic revenue growth rates in this range or possibly higher, and of course, over a much larger and growing subscription base for many, many years to come, for the next 3 to 5 years. Due to the massive cross-sell opportunity, we would expect it will be a sustained and consistent pattern of double-digit organic revenue growth versus a short-term pop in the growth rate for a few quarters. Moving to EBITDA, it was $7.6 million in the first quarter of 2013 compared to $11.9 million in the first quarter of last year. This was impacted by a $15.1 million increase in stock-based compensation expense for the first quarter -- over the first quarter of 2012, mainly relatedly to performance-based stock awards. In February 2012, the compensation committee for CoStar's Board of Directors approved grants of performance-based restricted stock that would vest upon achievement of $90 million of cumulative EBITDA over 4 consecutive quarters. Sustained earnings growth, folks. These awards support the committee's goals of aligning management's incentives with increasing shareholder value by growing the company's earnings and are consistent with the 2014 exit goals we have been sharing with investors for quite some time. Based on the continued strong performance, the accelerated pace and success of the LoopNet integration and management's increased confidence that it is probable the earnings goals will be achieved in 2014, the company recorded a cumulative catch-up of stock-based compensation expense in the first quarter. We reported adjusted EBITDA of $25.7 million for the first quarter of 2013, which is an increase of $10.4 million or approximately 68% compared to $15.3 million for the first quarter of 2012. Adjusted EBITDA margins increased to 24.7 in the first quarter from 22.3 in the first quarter of 2012. Non-GAAP net income in the first quarter of 2013 was $13 million or $0.47 per diluted share, which is an increase of 59% from the $8.2 million or 32% per diluted share in the first quarter of 2012. We're very pleased with the strong earnings we achieved in the first quarter. I should note that this is the first time since, I think, 2008 that non-GAAP net income per share increased from the fourth quarter to the first quarter, because Q1 usually has seasonally higher expenses to start the year. Obviously, the significant revenue growth helped us this year. As a result of the cumulative catch-up of stock-based compensation expense, net income for the first quarter of 2013 was negative $2.4 million. Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all our non-GAAP financial measures discussed on this call to the GAAP basis results are shown in detail, along with definitions of those terms, in our press release issued yesterday, and are available on our website at www.costar.com. Or if you have any questions, you can just e-mail jcoleman@costar.com. That is J. Coleman, our general counsel, at costar.com. Cash and investments totaled $189.1 million as of March 31, which is $22.8 million higher than the total short- and long-term debt of the company, which is $166.3 million. So clearly, our balance sheet is in great shape. At this point, I'm going to give some operating metrics that highlight our strong performance in the first quarter of 2013. As Andy spoke earlier, we achieved a record high $13.8 million in annualized net new sales in the first quarter based on our ongoing success of driving sales of LoopNet Premium Lister products and the cross-selling of CoStar information services to LoopNet customers. I'd like to point out that we believe that this is -- these are great sales numbers, but actually understates the success. Net new sales of subscription services on annual contracts was even higher at $14.8 million. The higher sales of annual subscriptions reflect our efforts to replace the monthly short-term LoopNet agreements with higher-value, longer-term quarterly or annual agreements. In March, for example, approximately 51% of our premium member sales were annual, up from essentially 0 from last year. Revenue from subscription services on annual contracts was $76.1 million for the first quarter of 2013 or 73% of total revenue, up from 72% and 71% in the fourth and third quarters. So obviously, a nice trend there we'd like to continue to see. For the trailing 12 months ended March 31, subscription revenues totaled $283 million, up 16% from $243.9 million for the 12 months ended March 31, 2012. Renewal rates for annual subscription revenue remained high during the quarter of 2013. The 12-month trailing renewal rate for CoStar's subscription-based revenue was approximately 94%, which is consistent with the all-time high reported for the previous 2 quarters. Looking forward, as we see more annual LoopNet contracts becoming a larger part of our subscription base, it is possible, and I would probably expect to see that 12-month trailing renewal rate edge down slightly over time. We'll be watching that closely, and we'll continue to give you guys clarity on the trends as we move forward. The renewal rate for CoStar's subscribers who have been with us for over 5 years or longer was 98%, which was essentially flat with the first quarter of last year and down slightly from last quarter, but still pretty remarkable number. At the end of the first quarter 2013, the existing CoStar business had 100,864 subscribers, up 5,908 from 94,956 in the first quarter of 2012, an increase of 3,671 subscribers in the fourth quarter of 2012. The total number of subscriber sites for the existing CoStar business increased to 20,868 in the first quarter of 2013, up from 18,507 in the first quarter of 2012, an increase of 657 sites over the fourth quarter of 2012. The LoopNet Marketplace continues to be the premier website for marketing commercial real estate. The number of LoopNet Premium Members in the first quarter increased to 83,943, up 8,114 compared to the first quarter of 2012. The average revenue per paying subscriber, or ARPU, for Premium Members was $69.08 for the first quarter of 2013, up 5% from the first quarter of 2012. By comparison, the average selling price for new premium customers in the first quarter of 2013 was approximately $75, up from $57 in the first quarter of 2012, reflecting the higher-value site-level agreements we're doing and the price increases we've implemented in the quarter. As Andy said, LoopNet registered members, including basic and premium, totaled 7.1 million as of March 31, up 22% from the first quarter of 2012. And field and HQ AEs increased from 174 in Q4 to 179 in Q1 of 2013. Total reps, though, were down 17 from last quarter and totaled 338 at the end of the quarter, mainly due to some -- less inside sales. Now I'm going to discuss our outlook for the second quarter and full year of 2013. Our guidance takes into account recent trends, revenue growth rates, renewal rates, which all may be impacted by economic conditions in commercial real estate or the overall economy. Our position on the impact of foreign currency exchange rates and fluctuations on top line remains consistent. We do not attempt to predict the foreign exchange rate fluctuations. Our guidance assumes little or no volatility to the current rate. Actual rates may vary from these estimates. Call your doctor if your head is feeling lightheaded or dizzy. Oh, sorry, that was something else. Based on the continued strong sales performance of our core information, analytic and marketing services, we are raising our revenue and earnings guidance. We expect revenue for the second quarter to be in the range of $105 million to $107 million. And for the full year, we now expect $428 million to $432 million, which is an increase of $4 million from our prior guidance. As I stated on our last earnings call, we are taking steps to deemphasize or continue certain products and services, and the expected impact on this year is included in our revenue and earnings guidance. In terms of earnings, we expect second quarter fully diluted non-GAAP net income per diluted share of approximately $0.50 to $0.53 on 27.9 million shares. For the full year, we expect $2.12 to $2.22, an increase of $0.04 compared with our prior guidance. Rich is cheering me on as I'm taking a little coffee break, because he's going for the record. He's got the stopwatch on. As discussed earlier, we recorded additional stock compensation expense in the first quarter, mainly due to the performance-based stock awards. Moving forward, we expect to recognize approximately $7.5 million to $8.5 million per quarter in total stock comp expense, which includes the additional expense associated with the performance-based awards. If the performance criteria for those awards is met, the actual number of performance shares issued will depend on a couple of factors based on share price, vesting date, taxes, et cetera, et cetera. We currently estimate the outstanding share count will increase by about 250,000 shares to 300,000 shares upon achievement of the performance goal and the vesting of the shares, which, again, we currently expect to happen in 2014. I'd like to speak in a little bit more detail about our forward-looking revenue estimates. As we discussed on the past few calls, we have been deemphasizing certain products, and we do plan to stop selling others at the end of the year. Currently, those offerings that would stop at the end of the year would impact Q1 of 2014 revenue, taking that sort of run rate down $2.5 million to $3 million, or that equates to $10 million to $12 million of annual revenue in 2014, which we discussed on the last call. So that's for the analysts. You need to take a look at sort of your models in the first quarter 2012 revenue. Recently, I've been getting some more questions about sort of my longer-term view on the business. It's funny, I was waking up in the middle of the night, thinking about this the other night. And as I look back on our growth rate, both organically and through some of the strategic acquisitions we've done, we've essentially doubled the size of our business over the past 5 years. Fourth quarter of 2007, we were at about $50 million, and the fourth quarter of last year, which we just closed out, we were at about a $100 million run rate in revenue. Although our revenue base is much larger than it was 5 years ago, I think it's reasonable to believe that we can accomplish the same thing over the next 5 years as far as revenue growth rate goes. This would put us at about a $200 million quarter by the fourth quarter of 2017, or an annualized run rate of about $800 million, or $700 million annualized run rate in 2016. And again, I think we can do this at fairly high margins. While this seems like an aggressive goal, I think it's achievable given the strong organic revenue growth we are seeing and any potential strategic accretive acquisitions that may be funded through our stable cash flow. However, as always, actual results can vary. If your head feels dizzy, call your doctor. We continue to believe that the potential revenue opportunity for CoStar is massive and that our track record shows we have the operational depth, cash flow and market position to take advantage of these opportunities. In summary, I'm very pleased, as you can tell, with the first quarter 2013 results, which provide some insight into the revenue and earnings potential of the combined business moving forward. Revenue growth is strong, and we expect to see margin expansion through the remainder of 2013 and into 2014. And based on the revenue and earnings results for the first quarter, I believe we're well on our way to the medium-term goal we've shared with you on the previous call of a $500 million annual run rate, that's $125 million Q4 2014 revenue quarter, with adjusted EBITDA margins in the 30% to 35%. As always, I look forward to sharing that progress with you in the coming quarters. And now, as you think I'm going to open up for questions, Andy just signaled to me that he wants me to turn the call back over to him for a few more pieces of commentary. Andy?

We'll turn the call over to questions.

Oh, okay. Questions. We're going to take questions.

[Operator Instructions] And we will begin with the line of Michael Huang. Michael Huang - Needham & Company, LLC, Research Division: Just a couple of questions for you guys. So first of all, so I think you had mentioned that March was your best month ever. Was that -- so drill into that a little bit. Is that due to the ramp in sales productivity, or is there something else that's driving that? And how is April now trending versus March? I mean, are we going to see another record month on top of March?

It's probably a little early to talk about April, but for March, I think what happened was the cross-selling is doing well. CoStar Property sales generally are doing well. And then across the broad array of subs we have, everyone was performing reasonably well. So it's basically the consistency of the production across Resolve, our applications, Virtual Premise, Lands of America, LoopNet, CoStar, the U.K. Everyone was performing well, and that basically took us up to a fantastic number. Michael Huang - Needham & Company, LLC, Research Division: Great. And can you guys run through the sales headcount numbers again? I was slow in writing that down. And then maybe with respect to that, what kind of assumptions are you making kind of around sales productivity, a ramp given the significant add that you're making around the field sales? And what does that imply to annualized bookings growth rate through the year?

I'll start and give you the numbers again, and I'll let Andy give a little commentary on that. So from Q4 to Q1, we moved from 174 subscription field and HQ reps to 179. So up 5 in the quarter. And obviously, our goal is to continue to ramp that and ramp down the inside sales. So inside sales is down about 17. So total for the quarter, we were at about 338 total sales reps. So the key numbers, we obviously want to continue to increase our field and HQ reps, and sort of that transition for less inside sales and more in the field.

Yes, so we'll take it to about 215 in the field by the end of the year. And we have a lot of good-quality sales reps on the inside and we'll continue to take advantage of that. And we also expect some improvement in productivity per rep as the year goes on because basically, they're getting the hang of the LoopNet cross-sell, the PL sell, and we're continuing to give them training and support there and trying to get those close ratios up. So it's pretty solid right now. We're also trying to look at some key markets where we may not have had a field sales presence in the past, and our analysis shows that we think it would be pretty productive to do that. So areas like, just randomly, like Tampa, Orlando, had a lot of potential, and I want to try and capture that.

And Mike, I think as you increase the field number, I think we're seeing increased productivity from our current base. But of course, your layering in some newbies, so that -- they're, of course, not producing as high. So I think for this year, I think we could see some increased productivity, but again, it might be -- that could be offset by some of the newbies. I think this will help us as we continue to move along and into '14, then, obviously. As that headcount goes up and those people start ramping up, continue to accelerate growth rates the way we've seen the last couple of years. Prior to the acquisition last year and even this year, we continue to see acceleration.

And next, we will go to the line of Brett Huff.

Can I dig in a little bit to the cross-sale numbers? In the past, you've given some helpful data on how many people you've contacted or reached out to, however, of the 100,000. How many people have -- the number of contracts or users gone from -- buying CoStar from Loop prospects and then vice versa? Can you run through those as -- in sort of tandem? I know you've already given us the revenue numbers.

The -- as we go, the numbers on unique demos is getting a little more challenging as you demo different people in the same shop, but it's basically 8,000 to 11,000, probably in that range right there. So a firm number would be 8,000, but I think there's probably some contact occurring that we're not catching that moves a little bit above the 8,000, as high as 10,000 on up. So, and the second part of your question was -- I wasn't quite sure.

How many people have you -- how many actual contracts have you sold CoStar -- selling CoStar stuff to the Loop prospects? And then same number for Loop to CoStar, to get the total of 3,000-and-some-odd that you...

So the total count.

Yes.

I don't have that right here. Do you have that?

Yes, Brett, we have to follow up with you on that. I mean, I don't have the breakout of the 2, but as you said, you've got the total numbers on those. And I think what you're going to see on the cross-sell is that we're going to continue to give those numbers. But again, as you move forward, it gets harder and harder because is a demo, was it originally a LoopNet, is it a CoStar prospect? Did you do 1 or 2 different people in the shop? So I think we're going to continue to give as much clarity on that. Clearly, the 18.4 is a great number, and we have a lot of clarity on that. But again, as you move forward, next year, the following year, the following year, it gets harder and harder to break out and label it from one to the other.

I've got that number. So the site -- the sites with a CoStar sale but not purchasing a PL was 1,683. CoStar sale and purchasing PL, these are LoopNet conversions, info sales to LoopNet customers, was 584. So that's the 1,683 plus the 584. CoStar buying a PL site, 51, and a PL site alone is 749. So -- and I'm not sure that clears it up a little bit, but it's mostly CoStar info sales in the 2,200 range.

That's the 1,683 plus 584?

Yes.

And then the Loop to CoStar is 51 plus 749?

Basically, yes.

Okay. And does that 749 include the upsell, meaning not selling Loop to CoStar but just increasing the price or extending the contract on Loop? Or do you have that number as well, or is that included in those?

I am not certain. We'll have to follow up with you on that.

Okay, all right. On quarter-to-date cross sales, I don't think you talked about that. So you told us mid-Feb, you've now told us to the end of 2Q. Did you -- in your commentary, I didn't think I heard how's things looking in the past 2 months since the quarter closed.

Yes, I think the 18.4 is obviously, since February, it's the end of the quarter. I think we kept giving numbers as of the date, so we were trying to cut them off as the quarter closes. So you went from the 14 to the 18 in a, what is it, 6-, 7-week span. So I think the pace is continuing to do well and accelerate. And then we're just going to give quarter-end numbers now so that we're not giving you guys numbers as of February 20 and April 20.

There's nothing unusual about the pace from that number to now.

Okay. In terms of U.K., it sounds like things are going well there. And Andy, the number you gave us of 500, just explain what that is again?

Sure. That's basically -- remember, we went out there and we see the market giving, I think, roughly 10% of our customer base access to CoStar Suite who were at the higher end of our fee structure. So the people paying a reasonably fair price for FOCUS, we gave them CoStar Suite and CoStarGo. We got a tremendous uptick on that -- or adoption of that service. And I don't have the exact number here, but to give you an idea of roughly what it looks like, I was checking it, and of about 1,000-some people given access to CoStar Suite, they were running around 700 active 2 months after they'd received it, which means -- that's just phenomenal. I mean, that's better than the adoption I think we've ever seen here in the United States. So the salespeople were not allowed to start selling the new product until January, February, and -- because we wanted them to focus on that adoption. They began doing that. And they've sold 500 units of the CoStar Suite user licenses, individual seats. And that would be a combination of people who are using FOCUS, paying on average 35% more to get CoStar software interface, the Analytics, the mobile platform, and brand-new customers who had not prior been our customers signing up there. So we're getting a good -- we're getting a good takeup over there, and we've got some new leadership over there, which is -- and that leadership, I think, is doing quite well. But the real story will work itself out over midyear. Third quarter, fourth quarter, that's when we should see results.

And that -- are we still thinking breakeven sort of midyear '14? I think that's what we had talked about.

Sure.

Okay. And this is the last question. Thinking a little bit further down the road, you guys have started talking about Fusion a little bit. And I think the strategy is to kind of layer in modules or layer in functionality over time. Are some of the 5 that you talked about but didn't want to give us too much detail on this summer, Fusion modules? Or how do we think about -- I guess the question is how do we get comfort that Fusion can be an additional revenue growth driver beyond Loop? And how soon will we get modules in the field and get data back from you that those are -- that the uptake is sort of good enough to keep driving revenue up?

Well, we're -- so first of all, I want to tell my competitors, get your pens out, start writing. So the -- we're talking -- I mean, they're related to Fusion and they're some of the things -- things we've talked about, but they were talking mid-summer. And you would see -- you expect to see some impact on our sales bookings numbers in the later part of the third quarter and fourth quarter. And I would expect they would have an overall impact on where we're going there. But we're going to keep it kind of vague just to make sure that we keep the initiative on what we're doing.

Next, we will go to the line of Will Marks.

First one to ask, because -- I don't think you mentioned mix of business in terms of brokers and other banks, whoever. Can you just give us an update? Has that changed much since this LoopNet integration and the additional selling to LoopNet customers?

Sure. I don't have specific numbers right here on that. What I will say is that we have put a lot of effort on these LoopNet conversions, we've made that a priority, and those are going to be disproportionately brokerage. And I have noticed that the initial phases of the cross-selling, we swung to an all-time high-end new customer pickup as opposed to that normal ratio of 50% upsell, 50% new customer pickup. So we're moving in that towards a lot of pickup of new brokerage firms, which I'm very excited about that, that sort of strategic customers who helps solidify your information base. I know that we're still getting good traction in the banks, but just when you look at the -- these big increases in the booking numbers, those are going to be disproportionately brokerage that shifts the ratio. So I think banks are still moving at the same level as they've been moving in the past. Now this, too, will change, and I would expect that in '14, you'd probably be shifting to -- back towards an even blend of banks and brokers as we bring more product to market that would appeal to folks doing financial analysis.

Okay, that's helpful. One other question on the guidance. You guys have consistently been raising guidance over the last year or so, yet that goal of end of '14 hasn't changed. So I guess I'm just wondering, is there -- I hate to keep asking for more, but is there upside to that? Probably not on the margin side, but maybe on the revenue side?

Yes, I'll take that question. So we put that goal out there, and I just talked about maybe some new goals of doubling the company again over the next 5 years. They are aggressive goals, and we put them out there 2 or 3 years ahead of time. So we set aggressive goals so that we can reach to get there. Again, if you look at sort of our trajectory and pace of where we are, again, when I forecast ahead, whether it's 1 year or 2 years or 5 years, obviously, I don't forecast ahead with record sales numbers every single month like we had in March. And it's funny, I was sitting around with our Senior VP of Sales, John Stanfill, last night, talking about this. We project, obviously, good, achievable growth, which I think is in a similar range to that we're at. So I think if you sit there and you forecast ahead the quarters, we are deemphasizing some products this year. There's a couple of products we plan on canceling at the end of the year, which will have a $2 million or $3 million sort of step-down in revenue in the first quarter next year, and then you go back to sort of normalized growth rates. You're still going to get to something in that range. So we're obviously running the business for the long term, and so I don't -- I'm not going to expect to move that number. It's still a goal. I mean, I haven't given 2 years of guidance to people. I've given 1 year of guidance, which is 2013, and I think a goal to get to the end of next year, which I still believe is -- like we actually have to perform. If I talk to John Stanfill and tell him that he's got to do 300 to 400 net news for the next 8 quarters, that's not chump change. Like that is actual, real work. And to move your sales force from 170 to 215 in the field and increase your managers and everything else we have to do in that time period is real work. So I think it's still an aggressive goal...

Pay them for real work.

But, yes, that's what Andy said. I won't say what Andy said if you didn't hear him, but I think it's still an aggressive goal that -- I'm not going to come off of it, because if you actually look at it, there's still a lot of work to get there. But clearly, with what we're doing in the cross-sells, the numbers that we currently are doing, we're comfortable with that. Realistically, I will come out with that number's going to stay the same until I come out with my guidance for '14, which is, "Guidance is guidance, goals are goals."

Next, we will go to the line of Todd Lukasik.

Just a quick one, Brian. I think in your commentary -- well, in the press release, I guess, you guys have $13.8 million in annualized net new sales. I think you also mentioned $14.8 million in your commentary. I was just wondering what the difference was between those numbers?

Sure, yes. That was a -- I told my VP of Finance that, that would be a question. So the $13.8 million is sort of all-in net new bookings for everything. So that would include like monthly services, things we're canceling and stuff like. So there's -- the $14.8 million is just annual contract bookings. So it doesn't include monthlies, it doesn't include quarterlies, it doesn't include the stuff we're deemphasizing and stuff like that. So there's a drag and a difference on that. Obviously, once we get through the deemphasizing of some of these things and we move to more and more subscription-based, those 2 numbers will get closer as we go into '14 and into '15. But that's why there's a difference there now. I think the main point for putting that out there is to highlight the fact that we're moving more people. This is one of the main goals we talked about prior to the acquisition, was that CoStar was, at that point, 93%, 94% subscription-based services, and LoopNet was 0 or close to 0. So this is just highlighting sort of that -- how we're moving towards that goal, which will help improve their renewal rates. Again, it could tick our renewal rates down a little bit, but overall, I still expect 90-plus percent in strong renewal rates. But I think this is just highlighting that we're moving towards that goal, which should be a very positive thing for both revenue and earnings moving forward. Obviously, the more you have subscription-based business, the better your model is.

And lower volatility in the business.

Correct.

Right. Okay. And then just a question about deemphasizing the products, discontinuing some products and services beginning early next year, $2 million to $3 million in quarterly revenue you talked about. What's the margin associated with those products? Or should we be thinking about cost savings when that revenue comes out of the business?

Sure, yes. I talked about in the last call. I think the numbers haven't changed for this year, it's like $5 million to $7 million with associated EPS impact on that. I didn't really give guidance for next year, except I'm trying to make sure that people know -- I said again last quarter, $10 million to $12 million, which is $2.5 million to $3.5 million in the quarter sort of step-down because we plan on turning some things off at the end of the year that we've already started to deemphasize. So again, that will have sort of those impacts. Again, long term, we actually think that we can then come back over the next few years and sell services to those people on subscription and annual contracts, which are much higher-renewing and more profitable and they're on -- and they'll be on the right service. So again, I mean, as I look out into -- as those things stop in '14, and especially as we get out into '15 and '16, as you look to my longer-term guidance I just talked about of doubling the company, I think that comes with, of course, much higher margins. So that's sort of the goal there, is...

And if you look at the specific products we're talking about, they are not profitable today. And if they are profitable, they're only marginally profitable. And if you were to forecast them out over 10 years, they would require massive amounts of effort in order to get to de minimis profitability. So when we shut them down, we will not take team x and eliminate them and see an immediate cost savings. What's happening is that people that had been putting their efforts into those products have been re-tasked and are selling things like Premium Lister, which is a very profitable business, instead of focusing on selling something that's less profitable like Property Facts or Property Comps. And the software development teams and the product managers that have been supporting those less profitable products are working on very important products like -- well, very important products that we're going to -- enhancements to the core system that I think will be dramatically more profitable and are very high margin. So it's a realignment of who's working on what, and it's an avoidance of additional costs.

And one more thing to note. I mean, in simple terms, from the sales side, if you're paying a salesperson to do a sale every month versus to having them sell something on an annual subscription basis, you're paying them 12x a year versus once a year. Then, of course, that gets into a 90-plus percent subscription thing. So when these things happen, I think the longer-term profitability impacts are really where you see them over, let's say, a 5-year period. Obviously, what initially happens, you pull $2.5 million to $3 million out of your quarterly revenue and you don't necessarily see a ton of costs coming off. So -- but again, in the longer term, I mean, we've modeled this out. I mean, it's not even close. It's not even a close decision. It's a very easy decision, actually.

A caveman could make the decision.

Okay. And then just last one for me. Can you just give us an update on Toronto? Is that a market that's still being researched and the database being constructed, or is that a market you guys are actively selling in now? And are there any plans for other markets in Canada?

You must have a camera in my office, because I have a post-it note on my computer that says Toronto. The -- I've been watching the data. Obviously, it's a major North American market. It's no mean feat to get a high-quality database for that market. And I believe we're now approaching that point where we have the database that would be commercially successful up there. So we are going to -- the timing's not precise, but sometime over the next 3 to 6 months, we'll begin rolling out the product in Toronto, and we would expect to see some revenue in 2013 from that. But again, it won't -- as you -- if you've been around for a while, you know that when you open a new market, it doesn't move the dial for 1 year, 2 years. We're investing in that and some other initiatives, which will eventually yield a result.

There's no plans right now for additional markets. Again, I think we have a very, very specific operational plan this year and financial plan this year and next year, getting to these goals and targets that we've laid out for people. So I think we're very focused on that. And obviously, in the longer-term 5-year time period, there probably would be more of it. But right now, we're focused.

And realistically, as you may know, I'm not very good at boondoggle. I've been working at getting better at that, and what I'm going to probably to do is launch Toronto in January just to make sure that it's a miserable experience.

[Operator Instructions]

Okay. With that, because we're almost at the sub-hour point here, so we will go ahead and wrap up the call. Thank you very much for joining us, and we look forward to updating you next quarter.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.