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…

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…

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.