CoStar Group, Inc. (CSGP) Q2 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the CoStar Group Second 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, Rich Simonelli. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to CoStar Group's Second Quarter 2013 Conference Call. We're glad you joined us today. Before I turn the call over to Andy, I have some really important facts for you to listen to. First, of all, certain portions of the 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 the CoStar Group's July 24, 2013 press release on second quarter results and in our filings with the SEC, including Form 10-K for the period ended December 31, 2012, as well as our Form 10-Q for the period ended June 30, 2013, which we filed yesterday. In each case, 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., and a replay will be available approximately 1 hour after this call concludes and available until August 28, 2013. To listen to the replay, call 1 (800) 475-6701 within the U.S. or Canada and (320) 365-3844 outside the U.S. and Canada. The access code is 297687. And a replay of this call will also be available on our website soon after the call concludes. So I'd like to turn the call over to Andy Florance.

Thank you, Rich. Welcome and thank you for joining us today. I think we have some very strong news to share with you today. CoStar's 2013 second quarter was our best quarter yet, as we achieved our highest ever net new sales quarter, our best-ever quarterly revenue and EBITDA results. Revenue grew to $109 million for the second quarter of 2013, an increase of $23.8 million or 28% year-over-year. Our annualized net new sales bookings in the second quarter climbed to $14.4 million, an increase of 49% over the same period last year. This is our second consecutive quarter of record annualized net new sales. In the second quarter of '13, we added 1,300 new CoStar information subscription customers, which is the highest number of new subscribers we have ever added in a quarter. Over the course of the last 12 months, we have added a total of 4,700 new clients, the most in our history during a 12-month period. In the second quarter of '13, our EBITDA increased 209% year-over-year to $25.3 million, a new high point for CoStar. Our EBITDA margin rose to 23% in the second quarter, up strongly from 10% in the second quarter a year ago. This shows our ability to flow a high percentage of every incremental revenue dollar sold to the bottom line. Some of the primary drivers behind our solid results are: one, continued strong cross-sales for our -- of our CoStar information services to our LoopNet clients; two, strong results from our LoopNet marketplace as we see higher average price points, longer contracts and more firm-level purchases; three, solid performance across all 20 of our product lines; four, cost synergies achieved in the LoopNet acquisition; and finally, continued recovery in the commercial real estate economy. We continue to grow the top line, and we are reinvesting in the business aggressively for future growth, while at the same time expanding our margins. We're hitting on all cylinders and building an even stronger platform for the 7.4 million registered members we've got, and our hundreds of thousands of paying commercial real estate customers. When CoStar acquired LoopNet last year, one of the core rationales for the purchase was the potential to sell CoStar's premier commercial real estate information to LoopNet's large commercial real estate community on the Internet. In the first year post acquisition, we have clearly delivered on that potential for cross-selling between the LoopNet and CoStar communities. Through the second quarter of 2013, the CoStar sales force had achieved $27.3 million of revenue synergies from our acquisition of LoopNet, which is an increase of 48% over the first quarter's cumulative total of $18.4 million. Of the $27.3 million in cross-selling synergies through quarter-end, $18.4 million of the revenue is from selling CoStar information to LoopNet users. This represents an increase of 48% quarter-over-quarter as well. $6 million in revenue synergies is attributed to selling an annual firm contract for LoopNet Premium Lister, where before the client was previously free or a paid individual user on a month-to-month agreement. Generally, the sale of the company that are done at the same time with the sale of CoStar services to the LoopNet firm. Revenue from this type of sale grew 53% quarter-over-quarter. Finally, $2.9 million of the cross-selling revenue was generated selling LoopNet Premium Lister to CoStar clients, which is an increase of 45% quarter-over-quarter. Overall, through June 30, 2013, we had cross-sold our products to 4,800 commercial real estate firms. We have closed approximately 31% of the 15,500 sales cross-selling demos we had arranged. We believe that we can continue to increase the close rate. The number of cross-selling deals we are closing has accelerated to nearly 600 per month. The 4,800 firms we have cross-sold to date represent less than 4% of the active CoStar and LoopNet prospects we believe are out there for cross-selling. I believe that we are nowhere near reaching the cross-sell potential from the merger yet. And at this point, I believe cross-selling revenue could be several hundred million dollars over time. Another significant factor to consider is the size of the LoopNet prospect pool. The LoopNet team has grown the LoopNet membership remarkably in the past 12 months. The number of LoopNet registered members grew by 21%, or nearly 1.3 million over the last 12 months; which is a robust gain of approximately 25,000 new members a week. We now have 7.4 million registered users, and the number of unique monthly visitors to loopnet.com has grown by 36% year-over-year to nearly 5 million. LoopNet's flagship information product is Premium Searcher. In the first quarter of 2012, before it closed the merger, Premium Searcher had annualized revenue of $18.7 million. Not only have we converted nearly that amount of information revenue by selling CoStar to LoopNet members, we also simultaneously grew LoopNet Premium Searcher revenue 27% to $23.8 million annualized. That depth and strength of the market really came as a surprise to me and is great news. The bottom line is, the pool of LoopNet subscribers we have to sell CoStar information services into is growing. Over the past 3 quarters, we have referred to approximately 100,000 prospects at LoopNet that are prime candidates for CoStar information analytics services. Our most recent analysis of LoopNet leads, using the same scoring system as last summer indicates that the lead list has increased substantially over the last year. In fact, the number of individual prospects has grown from 100,000 to 140,000 in the past 12 months. While we are very pleased with the strong success we have had over the past year, we remain focused on accelerating our sales momentum. We are taking steps to further educate our sales force, reallocate sales resources, improve marketing tools and deploy software solutions in an effort to accelerate our cross-selling and traditional selling activity. Extensive market research and experience leads us to believe that the commercial real estate community will pay significantly more for a high quality, more accurate information source. If you have followed the Loop CoStar merger for 2 years, you've heard me talk about the challenges a CoStar salesperson with normal training has in conveying the qualitative differences between 2 enormous databases like CoStar and LoopNet. I have also commented that post-merger, we plan to build software tools to automate those comparisons for our sales people and clients. I believe these tools will help our LoopNet clients more readily assess long-held views on where to find the best information solution. In turn, I believe that this will likely result in an even higher pace of CoStar information and analytics sales to LoopNet members. Our system team is making fantastic progress on these comparison tools that will reside in LoopNet, CoStar Suite, and CoStarGo. I expect they will be deployed on the third quarter of '13. The first comparison tool for the iPad is in beta, and I'm thrilled with what I've seen so far. A CoStar salesperson will be able to use CoStarGo to view any geography and be able to instantly show the prospect the multitude of listings that are only found in CoStar for that area. I believe it will be very compelling to our prospects that hate to think there's even one listing they're not aware of in their market. We plan for the comparison tool we are building into LoopNet to be only visible to the core up-sell targets. The software will help us to identify prospects and compare their results with what they could achieve if they upgrade to our higher-end CoStar information product. My hope is that these tools will help us achieve close rates in the 40% to 50% range. Although we are already achieving our best-ever sales revenue and EBITDA numbers as a result of the LoopNet cross-sell, I believe we can achieve even better results if we accelerate the transformation of our sales force structure to better address the larger opportunity we have. This transformation is underway and in the early stages. Around the time of the close of the acquisition of LoopNet, we had a combined sales force of approximately 325 total salespeople, with 131 in the field. From the outset, we knew we needed more field salespeople. Without a major disruption of the business, in the last 12 months, we increased the size of our field sales team by approximately 37% to 180, all the while achieving our best-ever sales and revenue results. Many of these new salespeople were recruited from our inside sales team and have successfully transitioned to field sales roles. We are expanding our field sales management infrastructure to ensure maximum productivity from our expanding field sales team. You may recall, we have a team of financial services sales specialists that focus on institutional clients and prospects. These sales specialists are generally, dramatically more productive than our average salesperson. We plan to significantly expand this successful, vertically targeted program by initially adding 30-plus field sales positions focused on 3 to 5 non-broker customer verticals. These salespeople would focus on specific prospects and clients, such as owners or lenders, retailers, institutions or appraisers. Now that we have more than a dozen products in 6 major client verticals, it is much more manageable to train and develop a salesperson extensively and properly on how our services add more value to one client vertical, rather than to all of them. We also plan to structure our marketing and product design teams around our 3 to 5 primary client verticals. Our effort to solve -- evolve our sales force may cause some short-term friction, but we believe it will result in even better sales results over the intermediate and long term, and possibly the short term as well. It is our belief that this next stage structure results in greater client satisfaction, higher penetration rates across all our customer verticals, more effective marketing programs and more valuable products. I'll chat a little bit about LoopNet Premium Lister. In the 3 years prior to LoopNet CoStar merger announcement, revenue for LoopNet's core Premium Membership products have fallen approximately 11%. In the 12 months prior to the announcement, it had grown only a paltry 3%. During the 12-month period since the merger closed in the second quarter of '12 until the second quarter of '13, revenue in LoopNet's core business had turned around and grown 21%. So in the past year, LoopNet's new management team has taken their product from little revenue growth to substantial revenue growth, with a 600% increase in revenue growth rate. For LoopNet Premium Lister, LoopNet's flagship marketing product, the turnaround is even more dramatic. In the first quarter of '11, which was the last full quarter before the Loop and CoStar merger was announced, revenue for LoopNet's Premium Lister had fallen 21% over the prior 3 years and had fallen 2% in the 12 months prior to the close of the transaction. In the last 12 months, revenue in LoopNet's core business, Premium Lister, had strongly rebounded and grown to 20%. So LoopNet Premium Lister is 20% year up year-over-year. The turnaround is even more impressive at LoopNet when you consider that, at the same time, we removed 31% of the costs in the LoopNet business. I believe one of the fundamental changes driving success in that business is that the new management team recognizes the massive revenue potential of LoopNet Premium Lister and has given it the priority it deserves. Each month, approximately 5 million unique visitors from all over the country come to loopnet.com and view commercial properties. I believe it's a great service with the ability to help connect the right buyers with the right properties in a way no traditional offline method could ever do. LoopNet makes a huge difference to the owner or broker that gets a deal done through a connection made in LoopNet's massive community of buyers and tenants. We have also made a number of tactical adjustments to how we sell core LoopNet products that are directly contributing to driving our strong results. We increased Premium Membership, average revenue per unit of new sales 57%, from $56.47 in the second quarter of '12, to $88.65 in the second quarter of '13. Overall, Premium Membership ARPU is up 10% year-over-year from $66.04 to $72.90. Prior to the merger, 90%-plus of LoopNet Premium Lister subscriptions were inefficiently sold to the individual on a month-to-month basis via inside sales. The typical commercial real estate property takes more than a year to sell or lease, so a 30-day marketing program did not make a whole lot of sense to us. We have changed that, and the second quarter of '13, 48% of all Premium Memberships sold were on annual basis and 24% were quarterly. At this point, we've now eliminated the monthly option altogether. This means that the average contract term has gone from 1 month prior to the merger to approximately 7 months now, and that the average new LoopNet contract value has moved from $56 at the merger to $620 today. We found that when a broker was subscribed into LoopNet, only 20% of the brokers in that broker shop were subscribed into LoopNet Premium Lister. A major reason is that if a broker was in a 10-person shop, say, the LoopNet sales force was trying to reach each broker, one by one, to sell them each a month-long contract. Theoretically, in a worst case scenario, that could require 120 sales per year at $56. We have now clearly shown that a much more efficient way to sell LoopNet is to reach out to the principal of the firm and sell the firm an annual contract with volume pricing covering 100% of the firm's brokers. This means we only need to make 1 sale, not 120. We believe that these longer-term firm-level contracts will reduce churn. In the past, year, we have reduced cancel rates on LoopNet premium members 10.7%, from 6.1% in the second quarter of '12, to 5.48% in the second quarter of '13. I believe it will go down further. In the 3 years prior to the merger, only a minority of product design and software development resources were allocated towards enhancing my favorite product, LoopNet Premium Lister. We changed that and made it top priority at LoopNet. We are making significant progress on 2 product enhancements to LoopNet's marketplace that we expect will launch this year or, at the latest, early next year. First, we do not currently give brokers the opportunity to market their services to the millions of monthly visitors interested in commercial real estate that come to LoopNet's website. Not only have we received feedback from brokers that they would like to have this opportunity, but in fact, we've received complaints that they cannot get this opportunity. We are designing and building a new product that will enable brokers to market their service to the tenants or buyers looking for properties in areas they specialize in. On the residential companies -- on the residential side big companies like Zillow, Move and Trulia earn tens of millions of dollars annually from similar product offerings for their brokers. Second, brokers and prospective tenants spend a significant amount of time driving from building to building touring available space to see which ones are a good fit for their needs. They need to do this because there's such a wide range in the quality of spaces within buildings. If an owner has a higher-quality space they are marketing, it is in their interest to make sure brokers know it's great space, even if the broker has not had time to drive out and see it. We are going to make this easier for owners to accomplish by offering walk-through video advertising on our website. We are very well positioned to offer this service, as we have infrastructure of a nationwide team of field photographers we've trained to film walk-through videos. We expect to offer LoopNet Premium Listers the opportunity to purchase walk-through videos later this year. Now let's go across the pond to U.K. We launched CoStar Suite and CoStarGo in the U.K. just 6 months ago. We have had a very positive reaction to the products, with strong uptake. And the second quarter sales result was our best ever for the U.K. operation. Since beginning of the year in the U.K., we have sold 200 firm-level subscriptions of CoStar Suite. About 60% of these sales were from new customers and 40% from upgrades to existing customers. A number of owners have subscribed, including one of the largest property companies in the U.K., Grosvener Estates. Another notable new institutional client in the U.K. is Citibank. Prior to the U.K. release of our CoStar services, only about 12% of our U.K. information revenue was from commercial real estate owners and institutions. Since the launch of CoStar Suite and CoStarGo, we're seeing 40% -- not 12% -- 40% of our sales coming from owners and institutions. This is a large customer vertical, so we believe that delivering products that are appealing to them indicates significant upside potential in our U.K. operation. Our profile is definitely growing throughout the United Kingdom, and we're getting positive feedback from users and prospects alike. We conducted a survey of CoStar subscribers and our newsreaders in the U.K., 78% of CoStar Suite subscribers told us that they believe that we have better data than our closest competitor. And it was only a couple percentage points going the other way. So this was dramatic shift from earlier surveys. I believe we are now the clear #1 provider of commercial property information services in the United Kingdom. The survey also provided an indication that there is a large market for us to target. So far, we've upgraded about 5% of our U.K. client base. We believe that we can, over time, up-sell most of the remaining 95% of the clients still on our old FOCUS system and, hence, be confident of significant growth potential over the coming years. Toronto, Canada is just a 90-minute flight from our headquarters in Washington, D.C. The Greater Toronto Area has a population of 6 million people, is the fourth largest city in North America, behind lovely Mexico City, New York and Los Angeles. CoStar markets that are similar in size to Toronto generate $10 million to $25 million and more in revenue annually on very high margin; so these large markets are valuable. The majority of major commercial real estate firms in Toronto are already CoStar clients in the U.S., the U.K. or both. We are unaware of a competitor with CoStar's capabilities in Toronto. We believe this market has significant earnings potential over time, so we've invested several million dollars over the past 18 months building what we believe is the most comprehensive database of commercial real estate information available for that market. Our Toronto research team has built a database with details on 1.3 billion square feet of commercial real estate and 55,000 properties with 200 million square feet of available space. Based on the number of properties in the database today, Toronto, Canada is the seventh largest market of CoStar's North American markets. We expect to launch our service in Toronto before year's end. While it represents a substantial revenue and leverage opportunity in the intermediate term, we do not expect Toronto to generate meaningful revenue in the first year, as none of our major markets have historically done that. It's usually in years 2, 3, 4 that they really start to pick up. Turning to our software development and product enhancement efforts, we've invested approximately $5 million over the past 2 years into the first of a series of significant broad product enhancements for our core CoStar Suite and CoStarGo products. We expect to release the first of these enhancements in the fall, and we believe that they will enable us to increase customer satisfaction and achieve even better sales results. We have built a new query interface for CoStar Suite that builds on the huge success we have with CoStarGo. Our clients have told us they love the visual, intuitive interface that CoStarGo offers, so we've built that into our web environment. We have updated our interface to give our web products greater visual appeal. We have built a very robust lease valuation tool that a broker or owner can use to enter the myriad of parameters of a lease and determine the true time-adjusted cost or value of that lease. We believe that this will empower our brokerage clients to provide more insights to their clients and accelerate the decision-making process without having to spend extensive time and spreadsheets calculating lease values. We also believe that this tool could become the standard lease value calculation tool and thereby become the preferred method of communicating lease proposals between brokers and owners. We have built a new, expanded analytics product that we believe will help us penetrate even deeper into the owner, banking, investor verticals in commercial real estate. We have even built an analytical tool into CoStarGo, which allows a user on a mobile platform to generate dozens of realtime market stats on CoStarGo in the field. We expect to release our full, new, multi-family properties module with this next release of CoStar Suite and CoStarGo. We have invested millions of dollars over the past 2 years building, what we believe, is the most comprehensive database of multi-family properties in existence. Multi-family real estate is one of the largest components in commercial real estate, and is in an area in which we have not historically provided complete service. We are now tracking information on 290,000 apartment communities with 5 or more units, for a total of 16.8 million apartment units. We are capturing information, such as building details and quality, effective rents, concessions, occupancy levels, ownership, property sales, unit sizes and mixes, images and many other details. This data can be queried and analyzed in the product to provide valuable analytic insight and information on market trends. We believe we can sell this new service to an array of banks, investors, brokers and others with multi-family loans and investments. In total, the new search interface, analytics tools, mobile analytics, lease valuation tool and multi-family product are expected to represent one of the biggest product releases we have ever made. We're very excited about it, and we anticipate it will position us for a strong fall sales season. Equally important, we believe that these product enhancements will give us a tailwind in our efforts in United Kingdom and Canada. In addition to our flagship services at CoStar and LoopNet, we have nearly 2 dozen brands and product offerings. We are hearing a clear message from our clients across these products that they are aware we own all these brands, and they prefer to use them as one integrated whole. They see the potential benefit of seamlessly moving data from CoStar to Virtual Premise to LoopNet to Reaction Web to REApplications, on to Resolve or to PPR at COMPASS. Such integration would give them greater insight to the market and streamline their operations. They're not just looking for CoStar data tied into one of these various products, but they want one web site with everything integrated. We see the potential value and we're responding to that demand. We've hired a strong firm named Interbrand to help us in organizing, updating, streamlining and optimizing our various brands. We expect to complete this study by the first quarter of 2014. This work with Interbrand is expected to help us to set priorities and formulate a strategy and timeline for integration of various software platforms in '14 and beyond. Beyond CoStar and LoopNet, a number of our other services are doing quite well: BizBuySell, #1 site in the Internet for buying and selling businesses; Lands of America, #1 for rural land; Land and Farm, REApplications, Virtual Premise and PPR all hit record revenue levels in the second quarter of '13. One of the strongest standouts in this group is Virtual Premise, which turned in 52% revenue growth year-over-year in the second quarter. Virtual Premise is our real estate project and lease management solution for commercial real estate. Virtual Premise signed or upgraded services to major retailers in that period, including: Texas Roadhouse; Robert Half; Kelly Services; Hibbett Sports; Schwab -- Charles Schwab; Polo; Michael Kors; Sony; Abercrombie & Fitch; U.S. Bank; Genuine Auto Parts; Motorola; Goodyear; BBVA; Regions; Bank, State of Georgia; and Talbots, among some others. So congratulations are in order for all of these market vertical teams. Finally, real estate market conditions, briefly. We're seeing a continued broadening of the recovery in the office markets. This recovery is no longer concentrated in tech and energy markets. It's slow but steady commercial real estate recovery, which is a very good operating environment for sustainable growth for CoStar. The strength in office job growth support 25 million square feet of net absorption in the first half of '13, up 5 million square feet, or 23% from last year. Office demand growth is widespread, with over 1 million square feet of net absorption year-to-date in 8 metros: including Atlanta; Boston; Chicago; Denver; New York; Orange County; San Francisco; and San Jose. So it's a nice, broad, healthy spread. This demand growth, plus a relatively modest 5 million square feet of net completions allowed vacancy rates to fall to 12.1%, which is okay. Improving occupancy is beginning to generate increasing rents, a welcome change for our clients who earn revenue based on commissions from leasing or selling space. Nationally, gross asking rents are up an average of 2% year-over-year. Which is modest, but the highest growth rate since the recession ended. Office sales volumes year-to-date is up 10% versus a year ago, similar to 2005. As investors search for return, the sales volume growth has been concentrated in the secondary markets, such as a Seattle or Denver. Rent and demand growth in the apartment sector continues to be solid, but slowing in many markets. Property sales for the first half of '13 are running 13% above year-ago levels for the same period. The fundamentals, rents and occupancies, are generally increasing, which should support equity values on average. Recently, the potential for increased interest rates did send shock waves through both equity and lending markets. However, we are expecting a relatively slow pace of interest rate increases, so the impact upon real estate is likely to be tempered because other factors, such as improved rents and net operating incomes will likely offset the impact upon the commercial real estate market. So I'm very proud of our results and the progress we have made in the first half of 2013. I'm really excited about the second half of '13 and beyond, as we launch some exciting new technology that I believe will provide significant additional value to our clients and appeal to our prospects. I believe this quarter is clear proof point that we are on our way to reaching our goal of $500 million, or $0.5 billion, annual revenue run rate with 30% to 35% margins when we exit '14. I think Bryan will point out adjusted EBITDA margins, but we'll see where we go there. And we are well on our way to doubling the size of the business over the next 5 years on even higher margin rates. At this point, I'll turn the call over to Brian Radecki. And Brian, I took about 15 minutes of your time, so if you could do it quickly.

What else is new? Thank you, Andy. I'll try to see if I can make up some time. I'll pick up the pace here. As Andy mentioned, we're very pleased with our performance in the second quarter of 2013. CoStar's information analytic services continue to show strong growth, and the successful integration of LoopNet continues to be a big contributor to the growth in our revenue and earnings. EBITDA margins continue to expand, driven by accelerating revenue growth. Additionally, as Andy discussed, revenue synergies continue to ramp up and have increased to $27.3 million since the acquisition. Now let's talk some numbers. Starting with CoStar's revenue results for the second quarter of 2013, the company reported $109 million of revenue, an increase of $23.8 million, or 28%, compared to $85.2 million in the second quarter of 2012. Along with strong core information services performance and the continued progress on cross-selling efforts, we saw strong revenue growth from the LoopNet marketplace and the verticals. On the pro forma basis, which takes into account LoopNet's pre-acquisition results, year-over-year revenue growth for the combined company is accelerating compared to pre-acquisition growth rate and continues to move up towards the mid-teens, which we talk about frequently. We reported adjusted EBITDA of $32.6 million for the second quarter of 2013, which is an increase of $12.2 million, or approximately 60%, compared to $20.4 million for the second quarter of 2012. Adjusted EBITDA includes the impact -- excludes the impact of stock-based compensation and other items. Adjusted EBITDA margins increased to approximately 30% in the second quarter of 2013 from 24% in the second quarter of 2012. This is consistent with our stated medium-term goal of achieving the $500 million revenue run rate, and 30% to 35% margins by the end of 2014. Clearly, I'm pretty excited about the fact that we're able to demonstrate that level of margin 6 quarters earlier than expected. While adjusted EBITDA margins may move around a little due to timing of marketing and other investments -- and I'm sure of stuff that Andy hasn't told me about yet -- our second quarter results demonstrate the potential for continued strong earnings and expanding margins. Gross margin of $76.9 million in second quarter of 2013 was up compared to $57.1 million in Q2 of '12. Gross margin percentage was 70.5% in the second quarter of 2013, a 3.6% increase year-over-year, compared to 66.9% in the second quarter of 2012. Earlier this year, I indicated that I expected to see the number eventually climb to 70% mark at some point in the future. Well, let's say the future is now. And again, this demonstrates the strength of the earnings power of our business model as we continue to grow revenue, dropping it to the bottom line at high incremental margins. Non-GAAP net income for the second quarter of 2013 was $17.2 million, or $0.61 per diluted share, a 64% increase from the $10.5 million, or $0.39 per diluted share, in the second quarter of 2012. Net income increased to $8.3 million in the second quarter of 2013, compared to a net loss of $6.7 million in the second quarter of 2012, which included costs associated with the LoopNet acquisition. Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all non-GAAP financial measures discussed on this call to their GAAP basis results are shown in detail, along with definitions for those terms, in our press release issued yesterday, which is available on our website, on the Internet at www.costar.com. Cash and investments totaled $211.8 million as of June 30, up $22.7 million from $189.1 million last quarter. Cash flow remains strong and cash and investments are nearly $50 million higher than our short-term and long-term debt of $161.9 million. Clearly, our balance sheet is in great shape, and Charlie sleeps well at night. At this point, I'm going to give some additional color on a few numbers that further highlight our strong performance in the second quarter of 2013. As Andy noted earlier, we achieved a record high $14.4 million in annualized net new sales in the second quarter, based on our ongoing success of driving sales of our information analytics services, LoopNet's Premium Lister product and our cross-sell efforts. I'd like to point out that we believe this is -- that this great sales number actually understates our success. Net new sales of subscription services on annual contracts is even higher at $16.1 million. The higher sales level of annual subscriptions reflects our efforts to replace the short-term LoopNet agreements with higher-value, longer-term and, hopefully, higher renewing contracts. Revenue from subscription services on annual contracts is $80 million for the second quarter of 2013, or 73.4% of total revenue. For the trailing 12 months June ended 2013, subscription revenue totaled $296.4 million, up 17% from the 12-month period ended June 30, 2012. At this point, approximately 72% of our revenue is coming from annual subscriptions, while the remaining 27% is primarily made up of the marketing services, including LoopNet's Premium Members on monthly or quarterly agreements, SHOWCASE revenue, as well as revenue from advertising across both platforms. As we continue to progress in up-selling LoopNet subscribers to 1-year contracts, we expect an increasing amount of marketing revenue to be included in our subscription revenue metric. The renewal rate for annual subscription revenue remained very high in the second quarter. The 12-month trailing renewal rate for CoStar's subscription-based revenue remained at approximately 94%. Looking forward, as we see more and more annual Loop contracts becoming a part of the subscription base, it is possible to see the 12-month renewal rate edge down slightly, possibly 1% or 2%. We plan to watch this closely and expect to continue to provide clarity on the trends as we move forward. The renewal rate for CoStar subscribers who have been with us for 5 years or longer was consistent with last quarter, and remained at a high 98%. In a previous call, I discussed ongoing patent lawsuits in which LoopNet and CoStar were sued for patent infringement by CIVIX, a firm that owns several patents, but does not have a real business of its own other than to sue technology companies for patent infringement. I guess the legal term for this is very, very technical. Jon Coleman, our GC who is sitting here with us, tells me they call them patent trolls. Sounds scary. CoStar has filed its own lawsuit, seeking a declaratory judgment against CIVIX. These cases, as well as another lawsuits CIVIX filed against LoopNet involving another patent, are now pending. CoStar intends to defend itself vigorously against CIVIX' claims and believes neither the company nor LoopNet has infringed the CIVIX patents, and the patents are invalid. Jon Coleman is shaking his head, yes. Outlook. Now I'll discuss the outlook for the third quarter and full year 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 by the overall global economy. Our position on the impact on foreign currency. Exchange fluctuations on our top line results remains consistent. We do not attempt to predict the exchange rate fluctuations and our guidance assumes little or no volatility to the current rate. Actual results may vary from these estimates. Call your doctor if you have a headache. Based on the continued strong sales performance of our core information analytic and marketing services, our sustained high renewal rates and the significant cross-selling results we've achieved to date, we are raising the revenue and earnings guidance. For the full year 2013, we now expect revenue of approximately $134 million to $138 million, which is a $6 million increase to the midpoint compared to prior guidance. We also expect revenue for the third quarter of 2013 in the range of $10 million to $12 million, which factors in the usual slower summer months. Also, due to the cost and revenue synergies materializing from the LoopNet acquisition and our ability to grow revenue at high incremental margins, we expect the full year 2013 non-GAAP net income per diluted share of approximately $2.31 to $2.36, based on 28.1 million shares, an increase of approximately $0.16 at the midpoint compared to prior guidance. For the third quarter of 2013, we expect fully diluted non-GAAP net income per share of approximately $0.61 to $0.63 based on 28.2 million shares. Additionally, to restate a key point from our last call, we're taking steps to deemphasize or discontinue certain products and services and expected -- the expected 23 -- 2013 impact is included in our revenue and earnings guidance I just talked about. Currently, we expect to stop offering certain services at the end of this year. Therefore, the first quarter of 2014, our revenue run rate would mechanically go down by $2.5 million to $3 million to account for this. As a result, Q1 2013 revenue would be flattish, or possibly up $1 million or so, compared to the fourth quarter of this year based on current estimates. After the first quarter of 2013, we expect year-over-year growth to continue in the mid-teens range. Essentially, all of this equates to $10 million to $12 million lots of revenue in 2014, all of which we discussed several times on prior calls. This is just something that should be considered by analysts and investors in their forward-looking models. Also in 2014, we expect our weighted average shares to be approximately 28.7 million. In summary, I'm very pleased with the second quarter 2013 results, which provide insight into the outstanding revenue and earnings of the combined businesses, and even higher potential moving forward. Revenue growth is strong, and we expect to continue to see high margins through 2013 and beyond. Based on the revenue and earnings results for the second quarter of 2013, I continue to believe we are well on our way to the goal I first shared with you in early 2012, of $500 million in annual revenue run rate by the end of next year, with adjusted EBITDA margins in the 30% to 35% range. We also remain focused on the longer-term goal of building the business. I shared with you last quarter, in doubling it over the next 5 years and growing our revenues to $800 million of annualized run rate exiting 2017 at even higher margins. We continue to believe the potential revenue opportunity for CoStar is massive. And as with our track record, as it shows, we believe we have the operational depth, cash flow and market position to take advantage of these opportunities. As always, I look forward to sharing our progress with you on these goals in the coming quarters. And let's open it up for questions.

[Operator Instructions] And we go to the line of Will Marks of JMP Securities.

I guess I wanted to ask about the balance sheet. And you talked about your pristine balance sheet, but cash keeps growing. So what do you plan to do with cash besides let it build?

Excellent question. I just bought a new mattress. [indiscernible] $5,000.

I'd like to apologize for the fact that Brian is a little punchy on the results. So as you know, it's been building very quickly off the LoopNet acquisitions -- off the LoopNet acquisition. So as always, we are addressing what we believe is a huge market opportunity. And also, as we've mentioned in the past, there are other opportunities for acquisitions over the next year or so, and we're constantly evaluating that. Right this moment, we're focused on achieving the synergy potentials from LoopNet, along with a lot of organic product initiatives. But generally, we would not look at this level of cash as being excessive, and we'll watch that question as we move over the next year or 2 and balance questions like when and how much the debt we should retire.

Right. And I know I've heard you on the road talking about some of the smaller U.S. players. Are there any large overseas, Asia, Europe competitors, buying opportunities?

Obviously, I don't want to -- I have to be careful not to mention anything specifically. There are -- I think, the seas are changing, and there's some pretty interesting things. If you go back 10 years ago -- I believe just roughly, at the back of a napkin -- 10 years ago, there was probably about $500 million of market cap with publicly traded companies providing real estate services on the Internet. And today, your -- before we come out of this year, it will probably be at $22 billion of market cap globally, with some substantive players, be it residential or commercial in China, Australia, France, United Kingdom, the U.S. So I think that over the next 5 to 10 years, I think there's some wildly interesting opportunities. And we're not going to be looking in anything that is small or very small. But we're intrigued by some of the opportunities out there, and we think there is some interesting stuff. It's usually a little bit bigger. But we're -- right now, as you can see from the earnings call and all the things we've talked about, we have some good things going on, and we want to focus on doing that well and not getting ahead of ourselves.

And next, we go to the line of Andrew Jeffrey of SunTrust.

Brian, just could you clarify a little bit? As I go through the 10-Q and look at your MD&A, the discussion of the LoopNet revenue contribution -- which I think you said this quarter was $14.8 million -- if I just back that out from the revenue growth, it implies CoStar organic revenue growth that would have decelerated to just under 11% in the second quarter versus the first quarter. Is there something that I'm missing? Or some mechanical or other adjustment that needs to make -- needs to be made to get to the true underlying organic revenue growth?

Yes, I mean, I think what you look at is prior to the acquisition, both companies are growing at like 10%. Both CoStar and LoopNet, the core information services, are all now moving up and accelerating into the mid-teens. The LoopNet business is growing, obviously, at the -- in the high-teens in 20% in some product areas of LoopNet. Obviously, their businesses, their core services, are growing at 20%. Some of the other ones are growing in the mid-teens. So they're definitely growing a little bit faster than CoStar. But CoStar continues to accelerate. And of course, the majority of the cross-sell is really going to be attributed to sort of selling the information and analytics. So the $27 million, $18-some million of it is really selling CoStar services to the LoopNet client base. So both companies are growing, accelerating into that mid-teens area, which is where I think we'll be for years and years to come.

But is it accurate though that LoopNet contributed $13.2 million in the second quarter a year ago from 1 month of operations -- sorry, from 2 months -- and that this -- from 1 month, pardon me. And that this quarter, you had it -- no, I was right the first time, 2 months. And this quarter, you had it for 1 month, and it was $14.8 million. I guess there's some crossover in the way that you're reporting the...

Sure. Yes, I mean what it is, is that there's some deferred revenue adjustments in there. And then it's probably where you're looking at the synergies coming in, and you're attributing it to either CoStar or LoopNet. I mean, overall, we view the business in sort of one -- as one-in-one segment in the commercial real estate, and we really report our stuff geographically, U.S. and U.K. So I guess it just depends on which place you're allocating the sales force. I mean, my view is, we have one sales force. That sales force sells CoStar. It sells LoopNet. So obviously, as long as we continue to produce record sales results, to me, it doesn't really matter which side of the business it comes from. So a lot of it's just allocations.

So look at the net new as the best indicator?

100%. I mean, and I would say that, if you look at that, that's definitely what I'm looking at.

Okay. And then housekeeping question. Could you give us the number of subscription client sites at the end of the quarter? And also, I may have missed it, the number of premium LoopNet members?

Sure. Subscription client sites were about 21,770 and Loop Premium Members were about 84,320, both of them up pretty significantly year-over-year.

Brian, is that number just CoStar property?

CoStar subscriber sites.

Right.

21,770.

And one of the challenges there is that 21,000 subscriber sites gets a little less meaningful as you look at -- the number is probably dramatically higher when you look at all the other combinations.

Correct.

Sure. I understand and appreciate that dynamic. And then Andy, a high-level question. You noted that the CRE market recovery seems to be gaining some momentum. Can you talk about where you think we are in the cycle? And if we see a full-blown recovery, what does that mean for CoStar's sustainable organic revenue growth? Is there still an incremental tailwind to come as the recovery matures and expands?

Yes. I mean, for sure, you're -- if your dealing with a 12-hour clock with the beginning of the recovery. 6:00 in the -- 6:00 on the clock would be the height of the next -- top of the next cycle. We're probably at quarter after, at best. So we are -- I mean, the industry is looking at it saying, clearly things are improving. So we're in the phase where people are saying, "Okay, now I'm admitting things are clearly improving." But there are so many things that people out there would look at and say, "Ouch, this isn't quite right." So rents are still relatively soft. On an inflation-adjusted basis, rents have not really moved up in quite some time. And you've got this low deliveries, but the demand really hasn't been massive. I mean, I was looking at these good absorption numbers, but they're not massive. And one would expect in a full economic recovery you would get absorption numbers orders of magnitude higher here. And when that happens, with the absolute complete lack of supply, except in multi-family, I would expect you'd get some significant rent growth and some significant NOI growth, which is good news because you're going to have interest rates come up, which is going to leave people that bought buildings for a 4% yield feeling silly. And so it's going to be a balance between those 2. But I would say that there's a lot of room for significant tailwind here. But again, CoStar makes money from different segments of the market when things are going to hell in a handbasket and CoStar makes money from a different segment when things are going well. We definitely prefer when things are going well. That's where we make the most money. But we're definitely in the early, early, early phases. Like most people, I'd say, probably -- sentiment is that probably half the industry would say we're still in the downturn. And they haven't realized that we're coming out of it yet. It's a long answer.

Your next question comes from the line of Brett Huff from Stephens Incorporated.

One numbers question, and I think I just missed it: The number of salespeople, and I don't -- and I can't remember if, Andy, you said -- talked about that or Brian you did. Can you guys just run through what you said again? I apologize.

Sure, yes. I mean, we've got about 180 in the field. We've got about 100 or so inside sales reps. In total, we've got about 335. So that's been pretty consistent the last few quarters. We would expect obviously to continue to work on getting that field number up -- field numbers up pretty significantly year-over-year. But we're going to continue to try to grow that over the next few quarters and really through next year.

And I just saw 10 in the lobby that just started today.

Okay. And so what's the -- so the total -- so just, wait -- run -- so 180 plus 100, and then 335? I don't -- I missed that.

Well the difference is just in the verticals and advertising reps in the U.K. and a bunch of other ones. But the key numbers, which we talked about is about 180 or so in the field we know, which is up pretty nicely compared to when we closed the deal. And then sort of 335 in total. And again, I think -- we've been talking about this for the past 3 or 4 quarters. I think the total number is, plus or minus, in sort of the range that we'll be in, but it's just more and more, getting more in the field is obviously an important factor.

Okay. And then on the cross-sales, obviously you had cumulative cross-sales in an annualized metric, were up 50% again, and they were up about 50% last quarter, too. Tell us about how that continue -- I mean, other than we're all recognizing that it's -- sort of your revenue is sort of a layer cake, in that once you have a certain amount of revenue, it just continues. It doesn't go away, you don't have to resell it. We get that. But tell us about the -- how it's increasing so much so quickly? Just more color on that would be helpful. I think people are trying to figure if we're nearing a peak on Loop sales? Or we still have a lot more to go? Is sustaining this 50% sequential increase the kind of thing that we can continue to see or what's the trend there?

Well, you have to imagine, I think about this a fair amount. One of the -- one of the challenges is we've got a large sales force just scattered all over the United States. It's one of our greatest strengths, and it also is like a large ship. It turns slowly. And when you have an opportunity like this to cross-sell these 2 massive audiences, and they really are massive, it requires a lot of training. You got to take both of these prospects for your products and get them to change a long -- a decade-long-held belief on which information product is right for them or what marketing solutions are good for them. You also have to simultaneously change the deeply-ingrained, well-practiced behaviors of the sales force. Both these groups have got to change some behaviors and do some learning, and that's take -- I didn't expect that to happen overnight. So what's happening is, the sales managers, the salespeople are getting -- are learning more about how to communicate the differences and benefits of the services, and you're starting to see that take hold, and people are getting better at it. So initially, you might have had 20% close rates and now you're moving up to 37% close rates. And the thing I'm the most excited about is, this whole automation thing. These are massive databases. They're geographically dispersed databases. They're very -- they're not very homogenous. Like you can call a building lots of different things. So it's very difficult for a sales person to walk in and talk to someone who's been using LoopNet for 10 years and say, "Hey, this information system is twice as powerful as the one you've got from LoopNet." Well, the LoopNet person felt LoopNet was great. And they're right, but the other one's even greater. So the automated tools take something that almost nobody can do, and makes it really easy to do. And then right there, boom. You can look at a neighbor and say, "In this neighborhood where you, Mr. Broker, are practicing, here are 20 properties that you would not find in LoopNet because they're only discovered from our field research and our people calling in the research center, and you need to upgrade from our LoopNet information product to our highest end product to take advantage of that." These people cannot stand it if they think they're missing one listing, and these new automated tools will help them get there. I was in England last week, and I was talking to a client in a focus group, and I had forgotten that we had put one of those automated tools in our system, in our retail information solution on the web in the U.K. And the broker was saying, "You know, I feel like I have to buy all these things from you. I was buying your shop properties, like the e-mail distribution, but this little box kept popping up telling me there were more properties in your other higher end system, FOCUS, so I had to go buy that." And it just reminded me that the automated tools work. And my belief is that you will see our sales force get more and more productive over the next 3 or 4 quarters in doing this cross-selling. You've seen that we're only addressing in the LoopNet group, it's only 5% we've gotten to. And so I think we'll see progression here over the next 3 quarters if we do this well, and if we achieve what I think can be achieved. We also -- we're just putting a round of price increases through on LoopNet Premium Searchers who had not had a price increase in like 5 or 6 years and, basically, are paying the same price they were paying like in 1970 or something. And of that group of people who are intense users, long-term customers of LoopNet, we have not demo-ed 80% of them. So 80% of the people I would think were the very best prospects have not yet been met with. So I think we will be able to see continued traction here. And I wish I could train the whole sales force faster and develop better sales tools faster, but it just has taken a year, and it'll take a little bit longer.

And just to add on to Andy's short remark. And I keep saying this, and I think I'm going to keep beating this drum. This isn't a -- I mean, someone said to me that we had a "blowout" quarter. It clearly was the best financial quarter we've ever had and sales quarter. I mean, obviously, you can't expect that every quarter. Q3 is typically sort of slower in the summer months. But I think year-over-year, I expect progress. I'm not sure I would expect every quarter to have the same quarter-over-quarter results. The other thing though is that, what we've been saying this is a massive opportunity. This isn't something that we're just going to sell into this quarter, next quarter or next year. We're going to be selling into this for the next 5 years, possibly 10 years. I mean, I truly, truly believe that it's hundreds and hundreds of millions of dollars, and it comes in over time. It just -- you can't get to everybody fast enough. You can't demo everybody fast enough. And obviously, we continue to do all the things. Increasing the size of the field sales force and automated tools, everything else that Andy said. But people should look at this as a long-term thing. They shouldn't be looking at it as a short-term thing. I think year-over-year, we will grow the numbers. Again, I wouldn't expect massive every quarter.

Okay. And then one last question. Andy, you talked about the leads going from 100,000 to 140,000. I think you also alluded at least maybe in your answer to my question before about your thinking at least maybe they're segregated a little bit more? One is, folks in the Loop segment that might get CoStar stuff, it sounds like maybe you've got another segment now, too. Can you just fill us in on how that number expanded and what segregations do you think about them?

Yes. I expected -- when we closed the deal, we started actively going after folks who were buying Premium Searcher and trying to upgrade them to CoStar property. I expected Premium Searcher to contract. I really thought as you had 180 sales people, clearly, the Premium Searcher universe trying to pull people out and off to the CoStar end, so you'd see it contract. It grew. And the site traffic grew. And the registered members grew. And the unique monthly visitors grew. So the pool of people engaged in LoopNet is growing much faster than we're pulling people out of it and moving them up in the information, which is fantastic. Again, the 3 segments: the first hardest focus rationale prior to merger was selling information to people who are using LoopNet as an information tool. And that one's the most mature of our sales process. That one's the $18 million. That one's going great. And that's the one that's going to get the most benefit over the next 3 or 4 quarters. We think that will accelerate more. The second group is, as we go out to meet with someone to up-sell them into CoStar info, they still need that separate value proposition of advertising on the Internet, but they usually have just 1 or 2 people in the shop buying these marketing packages. The salesperson, while they're trying to up-sell them into the information sale, says, "Guys, you shouldn't buy a LoopNet for 1 or 2 brokers, for marketing clients for 1 or 2 brokers. You should buy it for the whole firm. You get a much better value." And that's the second component. That's the -- what was it $6.8 million?

Yes.

And that one's been growing -- one that grew a little bit faster. That one's growing faster as well because it's easy for the salespeople. It's a no-brainer. And then the one that hasn't even begun to rumble yet, the one that is still in the early, early stages is selling LoopNet advertising into the CoStar group. That one's only -- I forget the number, $2.9 million?

Yes. Only 45%.

And that one grew 45%. That one -- and that one, we haven't yet begun to really put as much effort into the training on, but I have a lot of confidence in that one. So that one probably is one that will accelerate in '14 or later '14. I don't know if I answered your question, but...

Yes. And it just sounds like that the answer, from going from 100,000 to 140,000 is that the contraction in the Searcher didn't happen. That, that's growing. Is it also because you're data mining more? I mean, you now know what kind of leads make sense or what prospects you're converting to leads? I mean, is that also a part of it?

I -- yours truly can spend 10 minutes in the spreadsheet and fire out more leads than these people can get to in the next 3 years in under 10 minutes. So it's not the data mining. It's the fact that with recovering commercial real estate, with better SEO on the LoopNet side, with better customer experience in the LoopNet side, just more people are gravitating to LoopNet. The LoopNet brand is really strong. It's the preferred. It is the place to go for tenants and buyers, and there's millions of them. And it's just growing. So you got 2 different worlds. LoopNet is all about the tenants and the small investors, and CoStar is about the hard core commercial real estate professionals. And as the pro-sumer base at LoopNet grows, that just gives us more people to upgrade to the hard core professional system.

Your next question comes from the line of Michael Huang from Needham & Company. Michael Huang - Needham & Company, LLC, Research Division: Just a couple of questions for you guys. So first of all, not sure if I missed this -- I mean, you had talked a little about kind of the field sales and how that's ramping. But did you throw out a number for what you would expect growth to be in that group by end of next year? What's your assumption so far given the massive kind of -- and perhaps even better-than-expected lead base that you could sell into?

Well, remember, we're shifting our resource allocation from inside to field. But I would like to see us come out of this year at 225 salespeople. And I would like us to, at a minimum, to be at 250 in '14. Now remember, we're also going to move to more customer vertical selling orientations. So what you would see is, where right now you might have 8 salespeople in Washington D.C., next year you might have 12 sales people in Washington D.C. but 2 focusing on owners, 1 focusing on lenders, and 1 focusing on retailers, and the rest, general. So we're going to -- we're generally looking for 250-some middle of next year, end of next year. 225 this year, which is very aggressive.

Yes, 225 is aggressive. I think our original goal is to get up to 200. So if we can get above that, that would be great. And obviously, there'd be a lot of new people and a lot of training. So I mean, I think the productivity of them, you will start to see it as you move into next year. I think that will help continue to grow. And as Andy said, we start to look at the different client verticals. And it's not just with the sales force. It's with the product releases that Andy talked about. This is where -- you look at all these verticals where we're less than 10% penetrated, which we've got great clients and great prospects. This is where, over again, not -- this isn't just about 1 quarter. This isn't just about next quarter. It's not just about next year. It's where, over the next 5 to 10 years, I think we can continue to penetrate and go from single-digit to double-digit penetration levels because now we're focused with the sales force, now we're focused with the marketing plans, now we're focused with the services and the software that meets the needs of those various client verticals we've been talking about. So I think these are things that we're doing are not short-term. They're for long-term. And I think everybody sees the potential that we have. Michael Huang - Needham & Company, LLC, Research Division: Got you. And so the vertical orientation of the sales force, I mean, is that beginning now or does that begin at the beginning of 2014?

That probably begins fourth quarter. Michael Huang - Needham & Company, LLC, Research Division: Okay. Got it.

I mean, we had a little bit of that now, we have probably -- we have a little bit of that going on right now. But it will be -- it will pick up in the fourth quarter, first, second, third quarter. Michael Huang - Needham & Company, LLC, Research Division: Okay, got you. And I guess, when you -- obviously, you've seen some pretty strong kind of bookings performances over the past several quarters here. As you release kind of the next version of CoStar, what does that do to bookings growth rates? I mean, is it possible that we could see even further acceleration than kind of what we're seeing right now, which is pretty impressive?

Well, the -- I mean, absolutely. So one of the things we're trying to do with these enhancements, we've got some great customers, we've got great market position, and we want to give our clients the products they deserve and make sure that we're doing what we can do and increase customer satisfaction. So I'm looking forward to, hopefully, in the third or fourth quarter, having our customers feeling really good about CoStar and LoopNet. And -- but I think, inevitably, it will make it easier, again, to up-sell people in the information side. I think it will help the multi-family. It will help us reach people that prior wouldn't have had a value for our systems. It really didn't cover their segment of real estate. And then also the LoopNet -- the new LoopNet product opportunities, I think, are huge. Like I have said before, and it may happen or it may not happen, but I think the broker advertisements in LoopNet could one day be bigger than the property advertisements in LoopNet. So I think that -- so the answer is yes. The stuff could absolutely -- and they could be any one of the 3 or 4 things we're doing. But we're also -- we've got a full pipeline. So we've got additional stuff we're trying to do in '14 and '15 as well. And I was really quite pleased with Virtual Premise. And as we integrate that, and I think that will be very attractive to the retail community.

And hopefully, people got the thread which we've had in the last few calls. And Andy talked about it now is that, we're operating and hitting on all cylinders, while we're still investing in the business, while we're able to grow the margins. And this is a long-term business model. This is where you drop in $0.70, $0.80 from the top line to the bottom line, where we can still invest in multi-family retail, software development and all the different areas that Andy talked about. We still invest in Toronto. So I think we're able to, as a larger company than we were a few years ago or 5 years, 10 years ago, we were able to balance investments and still growing both top and bottom line. And we're laying out a lot of investments that, I think, over 2014, 2015, will continue to allow us to grow in the mid-teens for 5, 10-plus years. Michael Huang - Needham & Company, LLC, Research Division: Got you. And last question for you. Can you talk a little bit about the improving sales productivity and kind of the impact that has on conversion rates of the Loop base? Brian, so when you're thinking about 2014, and kind of what you've laid out for exiting 2014, what kind of assumptions have you made around conversion rates of kind of the Loop leads that you're going after? Is there an assumption that we're going to see an aggressive improvement there? Or have you held it pretty constant with kind of what you're seeing now?

What I usually do when I look in through my crystal ball is, I don't project blowout quarters, and I don't take all the most aggressive assumptions. I mean, I think people have been watching us for years. But I do challenge the assumptions. So I mean, I think that I look at where we are at today with those conversion numbers and where we are with the sales force, and I try to come up with sort of realistic goals to get to. And then, as always, we like to do better than that. I don't think it's a secret that Andy and I are both pretty aggressive guys. We like to do better than what we put out there. But we do put out some pretty aggressive goals. When I put out the $500 million run rate over 1.5 years ago -- which is still 1.5 years away, so it was sort of a 3-year goal -- I had a lot of people telling me, "No way." And now, I have people telling me like, "Okay, that's done." Which is not done. We still got another 1.5 years ago. What's the next thing? So I think that We try to put out reasonable goals. And Andy and I always strive to do better than them.

Your next question comes from the line of Todd Lukasik from Morningstar.

Just a question. I think last quarter you mentioned that March was a particularly strong month for the annualized net new sales. I was wondering if there were any differences across the months of this quarter?

Which was our best month?

April.

I think April was our best month ever. So I guess stronger in April. And I'm not sure about June.

Yes, those have been pretty much all very strong.

Yes, they're pretty much -- I mean they're -- what I would I say, Todd, is that March was our best month ever, followed by April as our best month ever. But it's not...

April was stupid.

But it's not -- but they're not significant enough through the quarters. I mean, I think that it sort of averages out through the quarter. So it's not like we're getting 80% of our sales in 1 month and it drops off the next month. It's pretty consistent from quarter-to-quarter. But obviously, we've had some really, really good record months. We are coming in the summertime, which is typically slower. And we have a lot of stuff happening in the fall as far as product releases and ramp-up of the sales force. But we're pretty excited about where we are and where we're going.

Okay, great. And just a point of clarification, the annualized net new sales, $14.4 million, and I think you mentioned, Brian, the net new sales under annualized contracts was -- I think it was $16.1 million, if I heard you correctly?

Yes.

Okay. So that difference -- I mean, do we expect those numbers to converge at some point over time? And I'm wondering if that point in time would be sort of second quarter of 2014 after you've gone through this process of deemphasizing or discontinuing the products in the first quarter of next year?

I think there will be a difference for quite some time and, probably, forever. I do think they may get closer. And the reason why is because, essentially, what this is, is -- one of the big differences is you're converting out the LoopNet client base. I don't actually expect that the LoopNet client base will ever get to the CoStar 90-plus percent on annual contracts. I mean, I think there's always going to be a bigger piece of their client base that stays on something less. And that's the big difference in the 2 numbers. So I don't think they'll ever become exactly the same. There'll be a difference. And I do think it will continue to close, but then I think it will stay like that. I think the subscription one is obviously what the majority of the business is driven on. So what that sort of shows is that you're driving the business sort of -- at sort of higher rates. I think that implies a positive momentum moving forward, is the way I'd describe it.

Okay. And then last question for me. I think you talked about 5% of the U.K. having switched to the -- I guess, the new technology where they can get CoStarGo. I know you guys released CoStarGo a while ago in the U.S. and that requires the subscription to the full suite of products. Do you have a similar percentage for the U.S., in terms of what percentage of your subscribers get all 3 and have access to CoStarGo versus ones that just get kind of one-off products?

We do not off the top of our heads, my -- I'm going to give you a broad range guesstimate. I would say 50%, 60% have access to Suite.

Okay. And is that still -- are you guys still seeing an upgrade opportunity there? Or has the focus really moved to the cross-sales and things like that?

We are definitely seeing up-sell opportunity there and I hate to -- I mean, to get specific, one of our very best customers over 2 decades, approaching 3 decades, would be Jones Lang LaSalle. We're close partners and work very closely together. There are a number of Jones Lang LaSalle's in the United States does not have our Suite product. So like there's still a lot of revenue upside potential there.

And at this time, there are no further questions.

Great. Well, thank you all very much for joining us for the second quarter '12 -- '13 earnings call. And we look forward to updating you on our progress next quarter.

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