CoStar Group, Inc. (CSGP) Q1 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the CoStar Group First Quarter Earnings Conference Call. [Operator Instructions] Your Hosting Speaker, Director of Investor Relations, Rich Simonelli. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Welcome to our first quarter 2014 conference call and we're delighted that you've joined us today. And we're delighted that you joined us today. Before I turn the call over to Andy, I have some really important information for you. I know many of you heard this before, but there a lot of new things that you want to pay close attention to. Certain portions of this discussion contains 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 23, 2014 press release on the first quarter results and with our filings with the SEC, including our Form 10-K for the period ended December 31, 2013, under the heading Risk Factors. All forward-looking statements are based on information currently available to us on this call, and we assume no obligation to update these statements whether as a result of new information, future events or otherwise. As a reminder, today's call is being broadcast live and in color on the Internet at costar.com. A replay will be available approximately 1 hour after the call concludes and will be available online for approximately 30 days. To listen to the replay, call (800) 475-6701 within the United States or Canada or (320) 365-3844 outside the U.S. The access code is 323568. I'll now turn the call over to Andy Florance.

Rich, maybe you can help me figure how the airplane seatbelt works.

You just clasp the buckle.

Welcome, and thank you for joining us. I'm very excited to talk with you today about the many positives we are experiencing at CoStar right now. We had a very strong first quarter of 2014. Revenue for the first quarter 2014 was $119 million. It's an increase of approximately 15% over the first quarter of 2013, as we continued to drive mid-teens organic growth. For the same period, EBITDA was $27 million, adjusted EBITDA was $37 million, which is an increase of 44% year-over-year and represents a margin of 31%. Our 12-month trailing renewal rate was a very high 93% and 98% for customers who've been with us for over 5 years. Our business is doing exceptionally well as sales continue to be strong across the United States, Canada and the United Kingdom. The investment we made in the expansion of our field sales force is beginning to yield results as we recorded our strongest ever net new sales month. During the first quarter of 2014, the United Kingdom continued its profitability and drive towards margin expansion. Our LoopNet team had a very strong first quarter of net new sales, and the LoopNet marketplaces experienced all-time traffic records during the quarter. Most importantly, I'm also very enthusiastic about the huge potential we have with Apartments.com and the amazing progress we're already making. The more I learn about Apartments.com, the more excited I am about the opportunity we have here. Our goal with Apartments.com is to help 10 million Americans each and every year, rent a better home. It's hard to believe that it's only been 3 weeks since the close of the transaction. It feels like we have accomplished more in 3 weeks than we typically accomplish in the first 90 days plus of an acquisition. We have leveraged CoStar, LoopNet, Lands of America, BizBuySell and Apartments.com's product design teams, and we're nearing completion of plans for a revolutionary redesign of the Apartments.com website. As redesigned, the new website provides a superior consumer experience, gives advertisers more effective options and leverages Costar's significant content advantages. We have 138 software developers already identified and organized. We're beginning the 42 swim lanes of the redevelopment project. We are leveraging developers with various content mapping, back end, front end mobile infrastructure, multi-family and marketplace expertise from LoopNet, CoStar and Apartments.com to accelerate the project. Project diagram looks somewhat complex. The cultural fit with the folks at Apartments.com is fantastic and the camaraderie between CoStar, LoopNet and the Apartments.com staff over the past 3 weeks and actually, the past several months, has been very positive and even better than in many of the other acquisitions we successfully completed at CoStar. I'm certain that the combination of CoStar multifamily information with Apartments.com's existing organic search strength and excellent brand recognition will form a powerhouse in the multifamily space. But when you also add LoopNet's vast marketplace experience and expertise at driving enormous amounts of traffic to websites, along with Costar's outstanding leading-edge technology capabilities, I believe the result will be a fantastic, winning combination that cannot be matched. We believe there's a $1 billion revenue opportunity for marketing multifamily properties in the United States. It's not a tough thing to believe and we are off to a good start in our effort to position Apartments.com as the undisputed leader in the multifamily marketing space . I believe reasonable initial investments will be dwarfed by future cash flows. LoopNet continues to be an excellent performer. The first quarter of 2014 was the second highest quarter of net new revenue we have had since the close of the acquisition. And the premier membership revenue continues to grow at approximately double the rate it was growing prior the acquisition. The first quarter 2014 saw the most traffic ever for CityFeet, LandAndFarm and BizBuySell. For LoopNet and BizQuest, it was their second highest quarter of traffic. These sites are all leaders in their respective categories and continue to expand their user footprint with high levels of user engagement. With the addition of Apartments.com, we now have over 17 million unique monthly visitors in aggregate, coming to all of the various marketplaces we have . I believe we have well over 100 million visitors to our sites annually. The sales and marketing plan we have implemented for LoopNet has led to significantly more paid listings. Specifically, since the close of the acquisition in April 2012, we increased the number of paid listings on LoopNet by 55%, which was one of our import initial goals for us. Registered users have also increased since the close of the LoopNet acquisition. In the first quarter 2014, loopnet.com registered numbers grew nearly 20% from the prior year to 8.4 million, which is a 45% increase since the close. Our testing of new broker advertising on LoopNet is showing some exceptional early returns. We have approximately 14 salespeople selling broker ads, among other responsibilities, and in their first 2 months, they've sold an average of about $12,000 each on top of other revenue they're generating. In these early stages, broker ads are generating just under 10% of LoopNet's sales growth. We are averaging about $457 per month per sale from the small sample size of new clients. We plan to continue to expand the number of salespeople signing broker ads as we move through the year. As I've discussed previously, we've made significant investments in growing our sales force in the latter part of 2013. We believe this larger sales force will increase revenue growth later this year and into 2015 and beyond. At CoStar, we now have 218 field sales representatives. In the first quarter 2014, our annualized net new sales of subscriptions services were $14.7 million, which is in line with the first quarter of 2013 and in line with our expectations, given the temporary disruptions, typically associated with a rapidly growing sales force. We are also investing in the expansion of the apartments field sales force and expect to increase the team from 85 field sales representatives before the acquisition, to approximately 140 in 2014. We've already hired approximately 30 of these new sales executives. Again, a lot happening in the first few weeks. Just like CoStar, we believe that the larger sales force will help us realize more quickly, the great opportunity ahead. We believe this will set the stage for proved growth in a few quarters once we get those positions fully-staffed and up the productivity curve. Turning to the U.K. Momentum from the fourth quarter 2013 has continued into the first quarter 2014, even in the U.K. remains positive. We have a great management team and great team overall in place over there. And as for the U.S., we're investing in increasing the size of the U.K. sales force by approximately 50% over where they were last year. Upselling and upgrading the CoStar Suite has continued. Over 20% of the client companies of our legacy product focus have now upgraded to CoStar Suite, and we're continuing to have success signing up new clients. And a new trend is becoming a norm, U.K., commercial property debt and equity investors are the outsized drivers and buyer of our U.K. sales in our CoStar Property product there. CoStar Suite usage is growing really well over the United Kingdom. In the past 6 months, it's increased from an average of 600,000 page hits per month to a record 1.1 million last month and the first quarter monthly average is about 1 million hits a month, so we're getting good usage of the new product over there. As we announced last quarter, after 2 years of building a comprehensive database for Toronto, CoStar has entered the Canadian commercial real estate market this year. Within the first few months, we've signed up more than 150 brokers. These brokers using the product are giving us high marks for the service. These new clients are brands such as our long-standing U.S. and U.K. clients, Jones Lang LaSalle, and Newmark, Grubb Knight Frank. We expect to sign deals with other large household global brokerage names in the near future. We have signed a number of peer Canadian brokerage firms such as Cityspace, Sg Real Estate, Durham Commercial Real Estate, Ashlar Urban Realty and Lennard Commercial. We've signed up retailers like driven brands and REITs like Slate Properties. Slate Properties is a great example of how Canadian REITs are investing in the U.S. and Canada. They are actively acquiring retail centers across the U.S. and office properties in the greater Toronto area. Prior to CoStar launching in Toronto, they had no universal solution to analyze and evaluate properties both in the U.S. and U.K. They signed up for CoStar data, and within 4 days of seeing initial demonstration, they were a client. Our Canadian sales team has presented CoStar to 55 Toronto companies and are getting a very positive reception. I have participated directly in opening markets in the U.S., England, Scotland and now, Canada . I believe that this is the best reception we have received and that revenue will ramp-up at a faster pace than in past international market entries. In one meeting we had last week with a major brokerage firm, the marketing director told us it used to take her up to 4 days to build a client presentation because she had to pull content from about a dozen different Toronto info sources and combine them into one format. With CoStar, she thinks she'll be able to turn out a more complete and professional presentation in the same day. The most common and consistent comment we're hearing from clients and prospects in Toronto is the product is amazing, what took you so long to get to Toronto? It's a great sort of complaint compliment by signal. As I mentioned a couple of quarters ago, we've been working for almost a year with Interbrand, a leading brand consultancy to optimize our brand portfolio. We believe that by undertaking this project, we can accelerate our sales growth across our entire family of products. As CoStar Group experienced dramatic growth in recent years, both through acquisitions and organic development, the number of brands in our portfolio seem to grow exponentially. The same was true at LoopNet, which brought almost a dozen distinct brands into our portfolio. Shortly after closing that acquisition, I was working on a slide to present our newly expanded brand portfolio to employees and investors and we put all the different logos on 1 page, about 30 in all. We instantly realized how confusing it must be for our customers. To our customers, representing a disparate array of brands, each with a different visual identity and verbal personality. For example, CoStar's thousands of customers that would benefit from our PPR subsidiaries' interpretive analytic reports, forecasting advisory services, but many of these customers were not even aware that CoStar offers such services from a sister company. Similarly, many of PPR's high-end analytic and advisory customers did benefit from CoStar's granular data. But the disjointed branding and different software platforms make it difficult for the customer to make that connection. Most of Virtual Premise's customers are large corporations and retailers who would take comfort in knowing that the company they're entrusting to manage thousands of leases and billions in rent payments for them is a large, stable provider like CoStar. But there's nothing in our Virtual Premise identity to make that connection. Last week, we inked a $240,000 deal with Jones Lang LaSalle to provide them with Virtual Premise. Virtual Premise will provide software to support and help them cost effectively manage their huge transaction flow, while taking their already excellent customer service level even higher. That deal only happened because of the combined strengths of the CoStar and Virtual Premise brand, but we just make it too hard for people to see it. In this case, it was the CEO of JLL and CoStar working one-on-one in making these connections. But with the rebranding, it will make it easier for anyone to see those connections. I'll give you one more example. I recall talking to one of my best friends and a client of 27 years who just started a new job running a large region for major brokerage firms. He called me up and said, Andy, I've just purchased the most amazing CRM system. It's awesome, phenomenal reporting. He suggested I come over and look at it right away and he thought it would be a great acquisition target for CoStar. I asked him what the name was, he didn't quite remember and then he came up with REApps, but we already own REApps. And then it became clear that our portfolio was lacking the connectivity when our best customers didn't know all the different things they were buying from us or what our different brand connections were. With Interbrand's help, we are realigning the CoStar Group brand portfolio in a way that more accurately reflects the many ways we help our customers, provide them with information and insight and connecting them to the communities they need to move their business forward. The new structure will also make it easier for customers to recognize and assess opportunities across our portfolio. CoStar Group will continue to serve as the parent brand that will play a strong, connective role across our portfolio as we realign our businesses under 5 primary flagships. CoStar will serve as the single flagship brand for information analytics and software, and we'll be migrating all other information analytics and software brands to support offerings under the CoStar flagship. For example, PPR will become CoStar portfolio strategy; Virtual Premise will become CoStar Real Estate Manager; REApps will become CoStar Brokerage Applications, making it easier for my friend to identify the connection; and Resolve becomes CoStar Investment Analysis . I believe these businesses will benefit greatly from closer alignment with the CoStar brand. We plan to continue to invest in LoopNet as the flagship brand for marketing, and we intend to leverage the LoopNet brand to expand our marketing revenue internationally, starting with the U.K. and Canada. Apartments.com will be the flagship for the apartment home rental space. BizBuySell will be our flagship brand in the business for sale market. And Lands of America, the flagship for the rural land market. I should note that these Internet marketplaces represent an important exception to this move to consolidate brands. The secondary and tertiary marketplace brands we own have viable shelf space in Internet and search results, so we need to keep them unique. We plan to unveil the new brand structure to customers in mid-May, so please don't tell anyone 'til then, along with the new visual identity that most closely connect from the lines of business under the CoStar Group umbrella. You can see a sneak peek of our new logo on the cover of our 2013 annual report and you can also see that we reused my picture from last year. While CoStar -- we saved over like, $500. While CoStar is not a cyclical business, we do grow faster and stronger commercial real estate markets. The outlook for commercial real estate in 2014 continues to be good. We see solid demand growth from tenants, rising rents and good capital flows in the real estate sector. The U.S. economy and real estate markets are on course for broad improvement in 2014, and the United Kingdom is doing really quite well in addition. Steady economic growth and job growth is fueling healthy demand across the major property types and because new construction is still low, that is outside of the multifamily sector, markets fundamentals and rents continue to make solid gains. The recovery has become even more widespread. Even the hardest hit housing-based economies like those in Florida, Arizona and Nevada are joining the standout Texas markets to lead employment growth. The broad base of the economy is supporting solid rent growth for a low inflation economy with year-over-year increases ranging from 1.7% for retail to 3.8% for industrial. After a strong 2013, when the commercial real estate sales rose by 24%, preliminary results from the first quarter 2014 show that real estate sales are on track to nearly match last year's totals. I'm very pleased with where we are and where we're going as a company, as we continue to transform digital real estate for commercial real estate. The implementation of our transformational business plan at Apartments.com is ahead of plan and I believe will result in a key catalyst to our future revenue and margin expansion. I also expect that the increased size of our sales force will allow us to generate more sales and penetrate more markets and customer verticals effectively and efficiently. This month, April 2014, is an important milestone for CoStar's management team and the company overall. As a group, we are very motivated and focused on reaching our first billion-dollar year in revenue. As we close out a $119 million quarter with strong sales growth and the addition of Apartments.com, we unofficially reached $0.5 billion year revenue run rate about now. I want to congratulate my 2,500 colleagues on such a notable accomplishment and it reinforces our confidence in our ability and motivation to reach $1 billion in high-margin annual revenues. With that, I'm going to turn -- an exciting part of the call winding down, I'm now going to turn it over to Brian Radecki, our very confident Chief Financial Officer.

Thank you, Andy, I appreciate that, I guess. So the $0.5 billion, I guess, so when you look at the midpoint of next year's or next quarter's guidance, it's over $0.5 billion, so $476 million, so approaching $600 million already. So look at that. And the call, is not even over yet. We just upped the numbers. As Andy mentioned, we're very pleased with our performance in the first quarter of 2014. On the heels of an outstanding annual result in 2013, we reported 26% growth in annual revenues. 2014 is off to a great start the, growing organic revenue in the midteens, expanding EBITDA margins year-over-year and closing the Apartments.com acquisition. The company is clearly positioned for sustained, long-term growth. CoStar's information analytics and online marketplaces continue to show strong revenue growth and the ongoing success of the LoopNet integration an d cross selling efforts continue to be a big contributor to growth in both revenue and earnings. Today now, I'm going to primarily focus on the year-over-year comparisons for the first quarter of 2014, which is prior to the Apartments.com acquisition, and then I'll focus on our outlook for the remainder of 2014, which incorporates the Apartment.com business into our results. Starting with CoStar Group's results, for the first quarter 2014, the company reported $119.1 million of revenue, an increased of approximately 15% compared to $104 million last year. This revenue growth was driven by strong information services performance, strong revenue growth from LoopNet in all of our marketplaces. EBITDA increased $19.4 million to $27 million in the first quarter of 2014, up 7.6% or as my boss' favorite headline is, 255% from the prior year. He loves that stat, sorry. It kills me. We reported adjusted EBITDA of $37 million for the first quarter of 2014, which is an increase of $11.3 million or approximately 44% compared to the $25.7 million last year. Adjusted EBITDA margins increased to $31.1 million in Q1 of 2014 from 24.7% last year. So that's a 6.4% increase year-over-year on a $476 million run rate, that's pretty significant. Net income from Q1 of 2014 was $9.7 million or $0.34 per diluted share, which is an increase of 12.1% from a net loss of $2.4 million in the first quarter of 2013. Non-GAAP net income of Q1 was $19.8 million or $0.69 per diluted share, which is a 52% increase over the $13 million or $0.47 per diluted share from last year. Reconciliation of our non-GAAP net income, EBITDA, adjusted EBITDA and all non-GAAP financial measures discussed on the call today to their GAAP basis results are shown in detail, along with definitions for those terms in our press release issued yesterday and are available on our website at www.costar.com or just e-mail rsimonelli@costar.com. Cash and investments was $245.6 million as of March 31, 2014. Short-term debt totaled $148.8 million as of March 31, 2014. On April 1, 2014, the company entered into a credit agreement of $625 million, which includes a $400 million term loan facility and a $225 million revolving credit facility, each with a term of 5 years. Initial borrowing under the revolver is $150 million, so the total new debt outstanding on the company after we closed the acquisition is $550 million. The new debt was used in combination with cash on hand to fund the Apartments.com acquisition and refinance the existing debt. We expect approximately $14 million in total interest expense for this year. At this point, I'm going to give some additional color on a few metrics to highlight our strong performance in the first quarter of 2014. We achieved $14.7 million in net new sales of subscriptions services on annual contracts in the first quarter as a result of our ongoing success driving the sales of our information, cross-selling analytics and marketplace services into the business. This result is in line with the sales for the first quarter of 2013. Last quarter, Andy and I spoke at length about the great progress on expanding our field sales force, which now include 218 reps. It's possible now, we'll be welcoming approximately 85 reps from apartments, which will also be growing this year. Based on our aggressive hiring at the tail end of 2013, about half our reps have less than a year with us. We remain very focused on training and developing all these new sellers to bring them up the productivity curve as quickly as possible, which is typically 6 to 12 months. So while we're training and developing these new reps, I expect sales trends in the first half of 2014, as I talked about last quarter, to be somewhat lower than the prior years and then begin to ramp up in the second half of this year and really ramp all the way through 2015 as productivity increases throughout the sales force. Remember, half the sales force is new and they're learning from the other half of the sales force who's had experience, and that takes time and energy. Throughout 2013 into 2014, we have continued to deliver nice sales numbers while undergoing this significant transformation, and I will expect to start seeing strong returns from those efforts later this year. Obviously, we had a strong March, but we want to see another 3, 4, 5 months of strong sales. Revenue from subscription services on annual contracts was $91.5 million for the first quarter or 76.8% of total revenue, up from 73.1% a year ago. For the trailing 12 months ended March 31, subscription revenue from annual contracts totaled $342.4 million, up 21% from the $283 million 12 months ago, 12 months ended March 31, 2013. So essentially, at the end of the first quarter, we had approximately 77% of our revenue coming from annual subscriptions. We continue to make progress upselling LoopNet subscribers on annual contracts, and we have increased the proportion of our revenue coming from annual subscriptions by about 6% since the LoopNet acquisition closed. The remaining 23% is primarily made up of marketing services including LoopNet's Premium Membership on monthly or quarterly agreements, as well as revenue from advertising across both platforms. The renewal rates for annual subscription revenue remained very high during the first quarter. The 12-month trailing renewal rate on CoStar's subscription services was 93% in the first quarter, in line with the previous quarter. As we've discussed in the last few quarters as we continue to introduce more annual LoopNet contracts in the subscription base, it is expected to cause the 12-month trailing renewal rate to edge down slightly, possibly 1% or 2% over the next year or so. The renewal rate for CoStar subscribers who have been with us for 5 years or longer continues to remain at an astounding 98%, which is consistent for the past few quarters. As we move forward and begin to report financial results, which include Apartments.com, we'll relook at the metrics we're currently providing in order to make sure we're giving appropriate insight into the newly acquired marketplace. As Andy discussed, we're deep into the planning and integration of the Apartment.com team. We believe we have a great opportunity to accelerate the growth in that business. First, we have to carve out the Apartments.com business in technology and infrastructure from its old parent company and bring that into CoStar's data centers and technology environment. That's expected to take several quarters, but the work is already underway and that will come with some small incremental capital expenditures. Secondly, as Andy discussed, we'll be dedicating additional product design development teams from across CoStar to complete the redesign of the Apartments website and mobile applications. This is a large software development effort and will likely involve additional resources investment and some software cap. We also expect to eliminate some small non-core apartment services that are expected to impact revenues by $2 million to $3 million this year. In terms of selling and marketing, we've already started making some investments that we believe will drive increased revenue growth later this year, into 2015 and beyond. Obviously, I included synergies already. We're expanding the apartment sales force, just like we're seeing at CoStar, and we believe that will set the stage for improved growth in a few quarters as we get those positions staffed and up the productivity curve. In addition, we've made some additional marketing efforts to support this. As many of you on this call know, prior to the Apartments.com acquisition, CoStar successfully integrated 20-plus acquisitions in the digital real estate space since I've been here. As you can see from all the activity Andy and I discussed this morning, we are fully engaged to maximize the growth opportunities and ensure the success of the Apartments.com acquisition by applying all of our successful experiences from these prior acquisition, some just like LoopNet. Now, onto the outlook. I'll discuss the second quarter outlook and the full year of 2014. Our guidance takes into account recent trends, growth rates, renewal rates, which may be impacted by economic conditions in commercial real estate or the overall global economy, among other things. Our guidance on the impact on foreign currency fluctuations on our top line results remain consistent. We do not attempt to predict foreign exchange rates or fluctuations on our guidance and we assume little or no volatility. Actual results may vary from these estimates. We're providing the outlook reflecting our current expectations as of today, April 24, 2014. Based on the April 1 closing date for the Apartments acquisition, our outlook includes the impact of the Apartments.com acquisition for the remaining 3 quarters. As we said when we announced the acquisition, we expect the Apartments deal to be accretive to 2014 non-GAAP earnings and adjusted EBITDA. Our outlook includes purchase accounting adjustments, as well as various fees and expenses associated with closing the transaction and integrating these companies. For the full year 2014, we now expect consolidated revenues of approximately $560 million to $570 million, which takes into account revenue from Costar's existing business of $490 million to $498 million, including our first quarter. So we've included some upsides from our first quarter there and revenue from the Apartments business from April forward, including some nice growth for them, plus on top of that, $3 million or $4 million of synergies realized in 2014, partially offset by a small reduction in $2 million to $3 million, as I mentioned earlier, of non-core revenue as I talked about. This revenue range equates to 27% to 29% annual revenue growth, which follows our 2013 reported revenue growth of 26% and follows a 30-plus percent year, the year before that. For comparison, in $3 million to $4 million in expected revenue synergies for this year, comparing that to sort of LoopNet, that is higher than what we recognized in the first 9 months of the LoopNet acquisition, so it's -- I'm putting lots of expected things in there and we've only owned the company for 2.5 to 3 weeks. So, I believe it's a pretty strong range, which really, like I said, we're including growth for them and synergies on top of that. We expect revenue for the second quarter in the range of $143 million to $145 million. When we announced the acquisition, we stated we believe we can achieve $20 million annualized synergies over the next 24 months. This estimate includes both revenue in cost synergies. Just like we achieved at the LoopNet acquisition, there's potential for significant revenue synergies throughout the cross-selling of both platforms and customer bases. So obviously, we hope that, that number is bigger as time goes on. In terms of earnings, we're raising our guidance range for 2014 fully diluted non-GAAP net income per share to 3.05% to 3.15% per share based on 28.8 million shares. We currently assume a 38% tax rate to approximate our long-term effective corporate tax rate. Just like the revenue, our guidance includes CoStar's existing business with the guidance we gave in February, 6 weeks ago -- wait, let me read that again, 6 weeks ago of $2.92 to $3.02 per share. We added some upside from our strong first quarter. We added the impact of the Apartments acquisition for the last 3 quarters of this year. We had a little higher interest expense, the impact on the acquisition to interest expense for the debt of $0.18 and investments we're making in selling and marketing for the remainder of the year, which represents about $0.19 per share and $9 million. As shown in our guidance table at the back of our press release, we are increasing our estimate for adjusted EBITDA by about $15 million to a range of $171 million to $175 million of EBITDA. The increase is primarily related to the impact of the Apartments acquisition. I'm going to add a little bit. So just make sure everybody's clear, I didn't line item all the cost to carve out the business. We did process payroll on day 1 of CoStar. So if you understand what a carve out looks like, they didn't have any other owned payroll processing accounts payable, they didn't have their own server rooms, so CoStar has to move and bill all that. So there's a lot of other expenses in here, but I didn't want to line item out the $50,000 for payroll, the $5,000 for granola bars and the $400 for plant service for the new things. So there are some other costs associated. The core CoStar business continues to go strong, most of the additional costs are on Apartments for this year. So for the second quarter of 2014, we be expect non-GAAP net income per diluted share of approximately $0.69 to $0.73 based on 28.8 million shares. In summary, I'm very pleased with CoStar's financial results for the first quarter of 2014, which clearly shows strong organic growth and margin expansion. As Andy mentioned several times, I believe the opportunity in the multi-family space is massive and we believe we can make the investments in the business now that will drive further growth and get the Apartments growth rates up to the CoStar business and LoopNet business and possibly higher, and market share gains moving forward. Like the acquisitions we have done for decades and specifically over the past few years, we believe the Apartments.com acquisition significantly increases Costar's addressable market in the digital real estate space and allows us to leverage our industry-leading assets and information analytics and marketplaces to accelerate revenue growth at high incremental margins. We continue to believe the consolidated company is operating in a multibillion-dollar revenue opportunity and we are focused on executing to capture that opportunity. Based on the growth trajectories of the combined business today, as well as the expected synergies we expect from the businesses, we believe we can deliver on our long-term goal of achieving a run rate of $800 million of annualized revenue at a 40-plus percent adjusted margin in the fourth quarter of 2016, 1 year earlier than previously expected. And since -- I'm going to adlib again here. Since Andy just let the cat out of the bag, we believe we could actually reach $1 billion with the current platform today, somewhere around the fourth quarter of 2018. And if you want the model, just e-mail Andy at costar.com, and he'll send it to you.

$1.25 each.

Now, as I've been here for 17-plus years going 18 years and we've done 20-some deals, we've obviously equated a little over a deal a year and we've obviously done a couple of deals in the past couple of years. So if you really want my personal opinion, I'd be shocked at 2018, in 5 years from now, if we haven't done other accretive acquisitions and we get to $1 billion sooner than that. And as you'll calculate from your models from my 2016 exit rate and the 2018 rate, that equates to midteens growth on a business that's getting much larger each year. So clearly, I'm confident in where we're going. And with that, I'd like to thank you all. We look forward to sharing our progress of these goals on you in the coming quarters, and I'll open it up for questions.

[Operator Instructions] And we do have a question from the line of Brandon Dobell, William Blair. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: A couple of things. First, our focus on, let's call it the core business, for a second, the net new sales figures you guys gave, maybe some color about what's driving that. Is it cross-sell for existing customers? Is it adding new customers? I guess I just want to understand, I guess, the basic components of that and how we should think about those major components contributing to increase net new sales as you work through the balance of this year?

It's actually across the board. We've had 1 or 2 months where virtually everything is performing well and we're getting contribution, both from the U.K., from Virtual Premise, from LoopNet, from CoStar. It's a blend of new and upsell accounts. Both U.K. and U.S. are in this mode of upgrading people from a low-end platform to a high-end platform. In the case of U.S., it's LoopNet information, CoStar information as in the in U.K., it's focused to CoStar Suite. So that's continuing. It's both -- it's in the brokerage area and the debt and equity area. There's a decent amount of inter brand-related sales like the Jones Lang LaSalle sale with Virtual Premise. One of interesting things we're seeing is that as we bring in these newer salespeople in the field, they are selling a disproportionately higher percentage of LoopNet. So they're selling the newer folks are looking at all the different things they can choose from to sell and they're selling about 50% more LoopNet per person than the traditional salespeople. So I like it -- I like what we see in terms of it being all cylinders and not one big driver. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Maybe to take that last point there, Andy, one step further. Is there any concern among the team that, as you add more salespeople, they kind of find the path of least resistance to new customers, but that path entails a lower average selling price. So therefore, relative to the size of business, that you've got to run faster in sales force headcount to get the same incremental dollars added in that new sales because they're focusing on, again, the products that are $200, $500 a month, as opposed to the multi thousand dollar products in the core CoStar database?

No, I wouldn't say that. I don't think that's the case. So in that general sales force, they've always had the option to run the spectrum from $295 a month to count on up to these multi thousand dollar accounts. The bulk of sales have always occurred around that $500, $590 a month of sale. And as I mentioned, newer things like the broker ads, they're coming in exactly $590 a month. So we're seeing a lot of annual business coming into LoopNet and a lot of business pricing at the $590 at LoopNet and pricing of the $590 a month in the CoStar. So really, the only stuff that comes in consistently at a $1,000 of month is the -- officially $1,000 a month is debt in equity sales. Newer markets where you are bringing on a Jones Lang LaSalle Toronto, those come in about $1,000 a month or those bigger numbers. So it actually it's pretty good and overall productivity numbers are looking fairly solid and there's no discussion. I'm hearing zero discussion of anything that looks like salespeople struggling to find room to sell because of the growth of the sales force. There's -- they're not bumping into each other in any way, shape or form. And as we bring in Apartments.com, the size of that market -- if you look at the size of that potential market in year 1, we're really focusing on probably 6 or 7 markets we think have exceptional growth potential and we don't want to grow that sales force too quickly. But as we go into 2015, we will definitely be doing more integration between these sales forces and giving them even more in their toolkit to sell. And then we think all of these products are pretty good price points there -- the ROI on field salesperson across all these products looks really good. So we're happy with what it looks like and improving what these ROIs look like across these businesses by different approaches to how our packaging contracting and selling them. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Okay. I know you had spoken of Apartments.com for a second. I think it's pretty clear to me how you guys can make their business better, like faster growth, more salespeople, better tech investment, those kinds of things. What do you view as the opportunity for what Apartments does well or does in general to make the core CoStar's side of the house or the LoopNet side of the house better? So that -- is there a 2-way flow of things that make both institutions or organizations better or is it you bringing CoStar competencies over to the Apartment side?

No. There's -- there is a couple of things that stand out from Apartments.com. I mean, I won't be able to list them all roughly back but there are some nuances in their marketplace designed things they focus on, and in a way they take that to their customers. So they really bring a lot of their marketplace strategy back to quantifying the actual leads deliver the way Google gives you a natural conversion rate on your SEM campaigns. So they really try to quantify for their customers the actual lead flow they're pulling in. I think that's very viable across all of our marketplace platforms and even useful for our peer brokerage, CoStar Property platform. The other thing I really like about the firm, that comes back our way is, I like their high touch, continual sort of customer connection on the advertising side. If you bring Brad Long's approach to a high-touch customer service into the LoopNet's side of the market, I think that will re-energize -- like now, like -- not like LoopNet needs to be reenergized. LoopNet's certainly doing great. But when you bring that sort of Apartments.com customer focus and high touch continuously, quantifying for the customer face-to-face, to kind of results they're getting for their marketing campaigns from us. When you bring that asset to and that culture to the LoopNet sales process, I think the LoopNet sales process lights up. So I think that's exciting. And then, there are -- these folks have been thinking a lot about how to improve their marketplace and there are some good ideas that they bring to the table. So it's a good mix. And CoStar, LoopNet and Apartments, they're very different organizations, and they historically, very different organizations. And if you can tap to the strengths of each, you'll end up with a pretty strong mixture. It's a nice melting pot. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: It's a nice melting pot. All right. Then final one for me, you mentioned the branding changes I think 30 down to a smaller number. With either from a technology point of view, sales point of view, and get -- maybe an organizational point of view, what's that going to look like for you internally? Is -- does the branding stuff make it easier for the sales guys to sell? Or does it allow you to reduce the number of platforms that you have to support internally? I guess I'm just trying to figure out that in what you guys would see internally, or what your employees would see internally versus what we're going to see externally.

Right. I think some of it is subtle but important so as the employees see these more logical naming of the products in connection to the product that reminds them that we're 1 team and that we have to put the customer first and then it's about delivering the best results to the customer, not maintaining the nuances of some old -- older brand or strategy that's now outdated, in the context of 1 unified company. So for instance, without a doubt a customer who is investing in apartment buildings, wants to be able to have 1 log in to access anything PPR can do for them, anything CoStar can do for them, anything LoopNet does for them and anything that Apartment.com does for them. So our -- we are on the central theme here is to eliminate limited software platform and get down to fewer and fewer software platforms, 1 password for the customer across the whole family, be it Virtual Premise, be it real estate manager, be it our CRM solutions across the whole premise. So the fewer platforms, more focused on the customer not the brand delivering the value and tighter integration between these different product areas and it does make it easier for the salesperson to increase the confidence of the salesperson that this is one of the products I carry and the salesperson may not be able to sell our risk analytics product to somebody with their level of experience or product expertise, but they have a good relationship with the prospect they can develop the interest than bringing a specialist. And I think having it all in one common brand gives them greater confidence in doing that. So I think they'll be -- it's an expensive process. I tell you, if you look at the rebranding, and you look at the different treatments visually and you look at the taglines, it's obvious. It couldn't be more obvious and I've been living in the new brand now for about 6 months even though it's not released and I go back and I'm proactive [ph] I'm confronted with what our reality is today. This what the new brand looks like, and I can't believe how bad but we have today looks compared to where we're going. So that's way too long answer for you. I apologize.

Next question is from the line of Brett Huff, Stephens, Inc.

One housekeeping question, Brian. You mentioned a metric 6% and 23% relative to Loop, and I just didn't understand what that metric was. Can you just reiterate, I apologize, to ask you to do that, you just reiterate what that meant?

6% and 23%?

Yes.

Was that talking about the -- I think I was talking about the adjusted margins increasing by 6% from 31% to -- 31.1% to 24.7%. So this is talking about the fact that adding 6.4% of EBITDA, $176 million run rate is a pretty large number year-over-year.

And then the -- I know that we're not calling out the Loop cross sales specifically anymore. But I do think there is a question that we've been asked a lot is, give us a sense of the Loop cross sale performance, whether it's -- the conversion rate still sort of mid-30s or just give us of maybe a qualitative view on -- should -- did that taper? that should ask the that taper in 1Q?

I don't fit believe it did taper. So to be honest with you, I did not have numbers from this month on that. But my sense of it is that it would not have tapered. It would've continued to increase. So we hit a point, maybe about 3 months ago, where I was seeing significant improvement in the sales force's ability to give this up upsell conversions. I think it's just part of the sales force culture now and it's north of that -- it's probably in the upper 30s on conversion rate. The interesting thing is, I also see them beginning to be good at going into a firm who's been using LoopNet very pleased peacefully, like there was a big firm in the big firm in Seattle who had a huge firm in -- not in Seattle, huge firm in Salt Lake City that had been purchasing LoopNet ad hoc, individual accounts for years and years and years across a hundred different brokers. And the salesperson went in there, and his first -- has successfully upsell them to a bigger purchasing plan on annual agreement across all the brokers in that firm and then they're already migrating into moving into, now moving them up to the CoStar information contracts. So I think they're actually getting better at it and the sales force is coin-operated in that if there's money to be gotten. That's where they go and there's clearly money there. And the -- we -- the bottom line is, we still only captured 25% -- 20% of that potential upsell and the opportunity that grows faster than we're capturing, which is good news, and that would be a specific example of the Salt Lake, where the first and first created the LoopNet sale in order to get the CoStar upsell. So it's going -- and that continues well.

Okay. And then, the -- on the $0.19 of sales and marketing spending on Apartments.com you all called out. I think one of the -- since you bought Apartments.com, I think many view that as a little more consumer-oriented than some of the other things you've done just because you're pitching to a renter to come to your site. Can you talk a little bit about the persistence of the need to spend on not -- building the brand or drawing people, drawing eyeballs to the site et cetera, and kind of how that fits in? Is that $0.19 kind of -- whatever that number is, is that ongoing kind of thing or what is the -- what are your thoughts on that. Is my question clear?

Yes, it is. So it is -- Apartments.com is more similar than dissimilar to what we're already doing. So all of your revenue is coming from very traditional commercial real estate professionals. And a huge piece of that incremental spend is connected with strengthening our relationships, increasing our sales force so we can reach out to more of these traditional folks who own, manage and operate thousands and thousands of these income-producing rental properties. So a lot of money is going to basically ramping up a level of underinvestment we saw in just selling the product B2B. There is some investments being made in increasing awareness of Apartments.com to the consumer audience and driving more traffic. I'd actually put that at a less than half -- Brian might have a better idea of exactly what it is. The more important changes, the much more important changes to reach in the consumer with Apartments.com are improving the consumer experience at the website. There's some low-hanging fruit to be achieved by improving SEL and some SEM strategies and crosslinking between the different sites. But the most important thing is building a better website with more content and giving the consumer better experience, which I think we're well positioned to do and that is not about massive, massive, massive continued budgets. So this is an asset that realistically, look at Apartments.com, who was owned by a consortium of well-known newspapers. And not surprisingly, those well-known big newspapers are focused on cash flow and the businesses run for cash flow sometimes at the cost of potential returns 18 months up. It's just -- there are a couple of pieces on that, too. So essentially Brad, I think what you're also asking is, yes, I mean, I think that's investment in the business. So if you look at LoopNet, we invested in some of that business also to begin with, resulting in $50-plus million of revenue at a 90% renewal rate over the next 10 years, generating $400 million, $500 million of revenue at a 70% to 80% margin. So I think the -- yes, these are investments we're actually adding salespeople. We're going to add 30, 40 salespeople by the end of the year and I'm already actually including -- if again, if you look at it, I'm including our revenue in the first 9 months in my number than I did. I'm confident that we've done this before, so obviously, I feel pretty good about it. So people shouldn't think that I'm not being conservative, I mean, I'm putting some good numbers, good growth on their business, good, but we obviously have to hire the people and perform. But, I believe, that, that revenue that you sell, of course, again, over a 10-year period is going to result in hundreds and hundreds of millions of dollars of EBITDA from investments that we're making today. Clearly, there's already almost $1 billion of revenue in this area already being spent today, marketing on both offline and online. So we capture another $100 million or $200 million of that over the next x number of years at an 80% margin. It's just a -- it' s a massive, massive return. So for me the way I look at it is, when you look at the '16 exit, '18 exit is, you're investing a little bit today and then you're going ultimately get their business, higher revenue growth and then ultimately higher EBITDA in just a few short years and then, of course, you run that oven, your DCF and it creates massive value.

Great, that's helpful. And then last question is just another housekeeping, sorry. But you guys had called out, maybe sunsetting some loop revenue of $10 million to $12 million this year and also spending $0.10 to $0.12. I think mostly on 1Q, on supporting the launches in November, if I'm remembering right. What is the status of those? What was in the quarter? What was pushed out, et cetera?

Sure, it's Brian. So yes, I mean, I think a lot of it was basically branding and Andy, obviously talked pretty extensively about branding. So I think for the most part, we're sort of where we thought we were on the investments. I mean, I'd -- is there a couple of dollars that go between Q1 and Q2? Yes, possibly. But obviously, we've spent a lot of time on this branding project and a lot of money.

And there are 3 or 4 product areas there where we look and it and about 3 product areas where we look it when we think that will generate millions in revenue. We think ultimately, it's suppressing our earnings over an 18-month horizon out. And it's always difficult for any company to say, okay, going to give up this $3 million, I'm going to shoot those $3 million of revenue because each quarter comes around, I'm supposed to tell you about the maximum amount of revenue this quarter but clearly, these things or not the right investments. Now there's -- I don't want as you want to give any potential competitor anywhere, any kind of heads up on how they try to capture any of the revenue we're shooting. So I'm not going to go into detail on what we're shooting. But we're just doing that good character thing where you shoot the stuff that's not right for the company over 18 months or more.

And the next question is from the line of Andrew Jeffrey, SunTrust.

Just a couple of quick ones for me. I guess, we're in the afternoon now, I think. With regard to the sales organization, one of the things I didn't hear you necessarily call out today is the efforts you spent in the customer base beyond brokers into property owners and managers and, so forth. It sounds like you're asking the salespeople to do a lot of things, kind of walk and chew gum at the same time. Can you just talk about how as they come on and you train them and they sort of get their feet wet with CoStar with priorities are and perhaps some of the sort of end-market expansion efforts, they spend a lot of time talking about the last year or 2. Maybe, we're looking more into '15 to hear about traction there and this is more about a year of just ramping shelves host to get their productivity up on its core products?

Sure. So this is fairly dramatic and appropriate expense of sales force, bringing -- coming together at LoopNet just made it crystal clear. We can look at where LoopNet had success selling to commercial real estate professionals. We saw a complimentary and sort of inverse pattern. So we realized, like as example, that we had a West LA office and we had tremendous penetration downtown LA, Orange County, West LA, on up into up towards Santa Barbara. We didn't have an office in Inland Empire, LoopNet picked up 6,000 customers over in Inland Empire. It makes it obvious we should have an Inland Empire office and several salespeople there in the combined companies. So right off the bat, coming out of LoopNet, we knew we had to increase the number of territories. We could see, it was one of the great exhaust benefits of the LoopNet acquisition was getting a phenomenal transparency in how to optimize your sales force or where you should be investing for your sales force. So setting the goal of having this larger footprint of sales force and more field sales rather inside sales in your investment mix, we had to double the size of our management team, the sales management team. And we brought in some tremendous talents over the past year in the management team. So when I look at the experience set from companies like LexisNexis, Reuters, paychecks, all sorts of information, subscription, product areas, we've really added some horsepower to our the sales management team. I -- if you're on our sales management team, and you talked to one of these folks, you will hear that the CEO of our CoStar is maniacally focused on onboarding these salespeople and having these sales managers participating in the field, intensively, one-on-one with these new people and getting them up to that critical first 6 months, confidence building, moving them out of the classroom and into the field training mode. And I'm looking at a report showing that our managers are doing hundreds and hundreds of in-the-field customer meetings with these new reps and supporting them and we have all sorts of safety nets to try to make sure that these folks were onboarding, don't fall through the cracks. Because as we get this larger team successfully stood up, it's a tremendous resource. You're exactly right that it is a high-priority to begin to segment these sales forces into a debt and equity group, a general information sales group and an advertising sales group. 3 large distinct sales forces. First priority is to have all the players in place. We are making a lot of it done and initiatives on growing that debt and equity group, which has multi thousand month accounts. We just recently identified one salesperson from each of, I believe, 35 regions to attend advanced training up in Boston on the debt and equity space and the PPR product offerings. As we move in 2015, those folks will begin to move over. I mentioned the Apartment.com sales force and ad sales culture. That creates a foundation 2015 for segmenting our ad sales force over there. But you're absolutely right. We're asking a lot of them and they'll perform more effectively if we allow the sales force to focus down on one vertical and focus on the needs of these individual verticals. So it's an ongoing process and from start to finish, management, scaling up the number of salespeople and then segmentation is the top of the pyramid.

All right. And then, just to get a little more granular on the Apartments synergies and timing of marketing spend, could you give us a sense of when we're going to see that redesigned website and whether the marketing spend and sort of the associated revenue contributions that Brian laid out will be -- is that a second quarter event with the spend coming hard on the heels of the redesigning? What sort of the timing as far as Apartments beginning to contribute?

It spread across the year and there'll be incremental releases of -- incremental improvement releases throughout the year. And where the biggest impact of the release is in 2015. So smaller incremental releases in '14 and bigger impact in '15 and the spend relatively smooth throughout the year.

Yes, the spend is smooth but what I will say the spend is immediate. So we've owned them for 3 weeks and I think we have a class of 20-some salespeople that we've already hired for them. So we're already ramping up -- we've already made the immediate spend. I mean, like literally on Day 1 in the selling and marketing area, and that's why I have enough confidence to put in the revenue for this year and again, more than I had, more than we actually did in LoopNet in the first 9 months because obviously we have a blueprint and a game plan to follow and we feel very confident in that. So the spend is immediate whereas waited with LoopNet that ramped up a bit more. It's immediate and pretty consistent.

Okay. So the website redesign really need, as we look out to '15 and beyond, we got to start to get some of the more explicit advertising revenue perhaps that you anticipate from March?

Yes, correct.

Your next question is from the line of Bill Warmington, Wells Fargo.

Now I think I should note this just because it was over an hour ago that -- but I just wanted to compliment Rich on his dramatic reading of the Safe Harbor. And to thank him for those new legal tidbits. All right. So the -- I saw -- one of these I'd like to ask you to do is to talk about the kind of the normalized contribution from Apartments.com, on the EBITDA line in 2014. Because we had -- I think components -- you gave some of the components but it sounds like there were some other components there, too, that you didn't necessarily break out. If we look at the $15 million increase in the EBITDA guidance, and you have about $9 million coming for specific marketing expenses and then another -- I assume about $2 million for that $2 million to $3 million discontinued revenue and then probably another $5 million that you would then deduct from that because that was kind of your -- that was your beat in the first quarter, if you will, get you to around $20 million to $25 million -- $20 million to $21 million in what a normalized contribution from Apartments.com without all those special expenses in there would've been. Is that a fair way of looking at that?

Yes, I mean, I think that's pretty fair. I mean, again, Bill, I didn't get into the multitude of things where we are investing in. And then again, I mean, there's just a whole back-office operation in moving them. We're moving them into new space by the end of May. We've got new servers. And so there's a lot of detail in there but what I do was I broke out the big pieces, so after you get past these big pieces, it's 50,000 here, 200,000 there, 10,000 there, lots of it, such as increased travel. We've got -- at any given time, if you go to the JW Marriott in the loop, and you walk through the lobby, you will undoubtedly in the morning and it night see on the high top at least 5 to 7 CoStar people every single night. CoStar, LoopNet people. So I didn't go through a break a lot but the way you did it is about the right. I mean, I included upside for the CoStar business, I can go through all the different spending on the Apartments business but yes, generally, you're about right. If you took their EBITDA and you took 3 quarters of it, you're going to be around $20 million, $20 million, $21 million. So your sort of map is generally correct, plus or minus $1 million here, there.

All right. And then, I was very glad that you pointed out the -- or you set the EBITDA margin target exiting fourth quarter '16 at 40% or better. The question I have is, the second quarter guidance is more like, it's on the 30%. And so, how should we think about the progression in that EBITDA, not so much in '14 because I think you've given us that guidance but it implies -- how to think about that in '15.

Yes. And so, I mean, it's -- what I would say is, as we sort of talked about on the call, there's investments upfront here, right? And so we just talked about a lot of those. And then similar to CoStar, as you invest in their sales force this year, it will also be ramping up all the way through next year. So I think next year is -- and will be, again, incrementally releasing new releases on the development website, and as Andy said, more to come in '15. So I think that the steeper slope of the ramp is out in '16. But I expect nice steady growth through '15, also, but obviously, I believe, the steeper ramp both on revenue and earnings will be in '16 as you sort of start to see the results of that, right? So you start seeing results in early first half of '15 and as you move through '15, you'll then get those full year impact of those in '16, right? You're only to get partial of your impacts from upside of those. So I would say, we still expect nice growth, top and bottom line, obviously in '15 with the steeper ramp in '16.

And just to be clear, Bill, none of these investments were my idea. As Brian so incredibly bullish on the opportunity insist that I invest in it.

Does Brian get credit for the granola bars, too? $5,000 in granola bars?

That is clearly Andy because I'm the most unhealthy eater at the company. But just to remember, Bill, the easiest way for you to build your 5-year model is just e-mail Andy at costar.com. He will just send it over to you because he always let the cat out of the bag. I can't keep anything a secret.

Well, I wanted to ask on the revenue side. I needed to ask about March, because you did call it out as the strongest net new sales month that you've seen. And I just wanted to ask, we know it was a single month but I just want to know if you were to annualize that level, what kind of a number we'll will be looking at? We know it's better than $15. million. $20 million?

Yes, I mean, Bill, I'm not even going to go there and annualize 1 month. As we know, numbers go up and down from month-to-month. Obviously, we have a very new sales force again, half of the sales force that's experienced is spending a lot of time with half the sales force that's not. So, I believe, we will see a steady ramp this year with obviously someone's being better than others. It's obviously encouraging to us but I would -- I want to see how we do, obviously as we stream together a couple more quarters. And even with Apartments, I mean, if you look at it, I added it in the revenue. I added growth to them, I added synergies of to. I wasn't cheap on what I put in my model for them. And I would like since we've only -- it's only been 22 days since closed, I'd like to at least get a quarter or 2 behind me before sort of like -- even as we report Q2 and Q3, I hope people haven't people jacking up their '15 numbers and jacking up their '16 numbers because it's like, let's get a little experience. Clearly, I have a lot of confidence, or I wouldn't have done that. And clearly, when you look at the blueprint on LoopNet and we're using a lot of that blueprint on Apartments, we feel really confident in success here. So we're -- I mean, I can't wait for the next quarter and the following quarter number to report. I think it's going to be great.

One last question for you, then. Then, in terms of your total addressable market. Now that you've acquired Apartments.com, how would you size that and how -- the first is, how you would size that and then second is, how would you give us and proud brush strokes how you got there?

Well, without being terribly creative, I believe that the apartment communities who we researched, and identified over the last several years are already spending well over $1 billion in digital marketing. And with a very, very fragmented group of players. Some where exactly head-to-head competitors with Apartment.com. and then there's some variations of roll your own SEM strategies and the like. But it's unusual to look at a space like this and at this point, see well over $1 billion of actual spending and we're going to identify these various budgets. It is over $5 billion in marketing for apartment communities in total in all the different vehicles, concessions, direct spend, and the like, or locator fees, and the like. But if you put the market between $1 billion and $5 million, you're capturing the whole information side of the business, which is equally important to us. So massive underwriting. It's a multitrillion dollar asset class, lots of underwriting, lots of buying and selling these assets, the securitization of these assets. There's the REITs, there's the individual entrepreneurial owners. There's the larger institutional owners. And then there are, there's a whole broad ecosystem. There's some very large hard-quality companies that are producing software solutions for these same multifamily owners. So you definitely have a $10 billion space here. So if I look at just digital services to the apartment space, the direct spend is already probably approaching $2 billion. So it's a decent size space to plan. And the nice thing is, I like the fact that in a Apartments.com area, it's still highly fragmented.

Our next question is from the line of Peter Lowry, JMP Securities.

Just one quick question here. Andy, you mentioned that the more you learn, the more excited you are about the Apartments.com opportunity. Maybe you could share sort of how your view on that opportunity has changed or what you learned since you announced the acquisition?

Well, you're always going into an acquisition like this. You do all the research you possibly can. You -- we understand the market from a lot of our experiences at LoopNet and BizBuySell, Lands of America. We understand the multifamily space from the information side. As you get in there, and you get to work side-by-side with the management team, you actually explore some of details and nuances of what's occurring. You start to spot things that you've seen before. You see opportunities that -- anytime you have 1 management team in the company, running it for a decade or 15 years, that's easy for another management team with the difference of set of experience to come in and see opportunities. And so you just see just the whole plethora of financial opportunities to go after, that could be sales tactics, marketing tactics, pricing tactics, a lot of the upside we've got from LoopNet was just how you price the products more effectively to reach the customer's budget, how the customer wants to spend money. So that is certainly the case with Apartments.com. And then also, my own personal -- I'm a risk-averse individual and I don't like to mess these things up and the more you learn, and the more you see the teams working together, and you see more see people moving towards taking Apartments.com to the next level, you start to feel the risks are starting to fall away from me and I feel more confident about the potential here and that probably is an understatement about how a number folks feel about what could be built here with Apartments.com given the talents of the management team talents we've got across the spectrum. There are plenty of really good people here at CoStar to go execute something like this to make up for any shortcomings I have.

So with that, we're going to go ahead and wind up the call, and thank you very much for joining us and we'll look forward to speaking with you on next quarter's earnings call. Thank you very much and good job.

Thank you. Ladies and gentlemen, that does conclude your conference. We do thank you for joining while using AT&T executive teleconference. You may now disconnect. Have a good day.