Ladies and gentlemen, thank you for standing by. Welcome to the CoStar Group Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, today's call is being recorded. Your hosting speaker Rich Simonelli. Please go ahead, sir.

Thank you very much, operator. Welcome to the call and greetings from Richmond. We're here for our CoStar Group's fourth quarter 2016 conference call. Before I turn the call over to Andy Florance, our CEO and Founder; and Scott Wheeler, our CFO, I have some important facts to convey to you. Certain portions of this discussion contain forward-looking statements, which involve many risks and uncertainties that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to those stated in CoStar Group's February 22, 2017 press release on our fourth quarter results and in our filings with the SEC, including our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q under the heading Risk Factors. All forward-looking statements are based on information available to CoStar at 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. Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all of the non-GAAP financial measures discussed on this call to their GAAP basis results (1:37) directly comparable GAAP measure are shown in detail along with definitions for these terms in our press release issued yesterday which is available on our website at costargroup.com. As a reminder, our conference call is being broadcasted live and in color over the Internet on www.costargroup.com where you can also find CoStar's Investor Relations page. A replay will be available approximately an hour after this call concludes and will be available for approximately 30 days. You'll be able to listen to that replay on 800-475-6701 within the United States or Canada, or 320-365-3844 outside the U.S. The access code is 417293. The other thing for today, just keep in mind, we'll take questions at the end. You will get one question and then if we have the time permitting, we'll allow a second roll to the questions. So, with that, I'll turn it over to Andy Florance.

Thank you, Rich. Good morning. As you likely have seen our earnings release, we achieved outstanding financial performance in 2016. Our revenue of $838 million for the full year of 2016 was up 18% versus the full year of 2015. Our sales force added $126 million of revenue for 2016, and generated $112 million of net subscription bookings. CoStar Suite revenue was up 14% year-over-year in the fourth quarter. Multifamily revenue for the full year grew 22% on a pro forma basis. We dramatically increased EBITDA by $125 million over the prior year to reach $215 million for the full year of 2016. EBITDA increased 139% over the full year 2015. Adjusted EBITDA margins climbed to 31%, up 60% from the prior year's margins of 19%. CoStar and Apartments.com are very profitable business models, enabling us to expand our margins nearly 1,200 basis points year-over-year, while at the same time making important significant investments into future growth initiatives. We continue to make significant and important investments, but we still expect EBITDA from our 2016 result of $215 million to grow to a range of $223 million to $229 million for 2017. For the seventh quarter in a row, we achieved net new bookings of greater than $25 million and the fourth quarter net new bookings increased to $29 million. We had our best year ever selling CoStar Suite and Q4 was the second highest quarter ever for both CoStar sales and Apartments.com sales. Apartments.com's bookings were exceptionally strong in the fourth quarter and were up 62% year-over-year. We prioritize subscription revenue streams because we believe the subscription revenue with high renewal rates and greater visibility is higher value revenue. Subscription revenue for the trailing 12 months climbed $162 million to reach $637 million for the full-year 2016 and now represents…

Great, Andy, thank you very much. 2016 was certainly an outstanding year financially for CoStar Group. As Andy mentioned, our revenue in the full year increased 18%, which translates into a 14% growth rate on a pro forma basis. These pro forma results include the revenue from Apartment Finder for 2015, net of the revenue streams that we eliminated such as Finder Social. In the fourth quarter, we reported $218 million of revenue, increasing 13% versus Q4 2015 and 14% including the impact of foreign currency movements in the UK. Looking at our revenue performance by services, CoStar Suite revenue growth accelerated throughout the year, exiting Q4 2016 at a 14% growth rate or 15% on a constant currency basis. This is a full 400 basis point improvement over the comparable 11% growth rate achieved in the fourth quarter of 2015. The acceleration of the growth rate in 2016 is the result of continued investments in our sales force and analytics products as Andy mentioned earlier. As we move to 2017, we expect the CoStar Suite growth rates to moderate somewhat from the 2016 levels to be within a 12% to 13% growth range. This moderation in the growth rate is a result of timing of large contracts in 2016, as well as the effect of continued strong revenue growth on a larger revenue base. Revenue growth rates in information services, which is approximately $19 million per quarter, turned negative in the fourth quarter of 2016 as expected. This is a result of our decision to wind down the LoopNet information product ahead of the planned integration this year with CoStar Suite. We expect information services revenue to decline at mid to high single-digit rates in the first half of 2017, and low double-digit rates in the second half of…

Thank you. Okay. The first question is from the line of Brett Huff with Stephens. Please go ahead.

Hey, good afternoon or good morning, guys. Can you hear me okay?

Yes, we can.

Yes. Okay, great. Thanks for taking my question. Can you give us a little more detail – the detail you guys gave on kind of the tenor of the sunsetting revenue, the booking of the cross-sell revenue into Suite happening in the second half, but not hitting the P&L until 2018? Is there any more detail you can give us on that? A lot of the questions we got after the release last night was, is that the primary driver of what people thought was the lower guide or is there additional sort of incremental spending on research or things like that that we're not seeing or is it all just the timing of the Loop sunset?

I'll let Scott answer most of that, but I would say that the LoopNet sunset does create a very material and significant headwind, and you saw a lot of it in the second half of 2016. We still perform very, very well, but it's just a significant headwind. You're trading out $60 a month subscriptions for $300 a month subscriptions, but the $60 going out, and we haven't yet sort of seen the – we're seeing the money going out from the $60 ones being discontinued. We're not yet seeing the mass of the $300 ones come in and those come in the middle of the year. So we're being conservative around that real and ugly sort of reality.

Yeah. And Brett, that played a lot into our thinking obviously as we came out with our numbers for the year. We certainly know that the direction of travel of info services, which we just talked about is $7 million, a 9% to 11% drag. And then we fully expect there'll be good selling efforts in the second half, but as we've talked before, we don't intend to build those into revenue until we let those sales build and are taking a cautious approach that those will help us in 2018 and not materially in 2017. With your question on investments, yeah, there's no new investments from what we've talked about before, we're putting a lot of our investment power this year into research. You heard us talk about obviously Richmond, we're also investing in further field research, we're investing in research in Canada and in our international markets. And so when you take all of the grounded investments in research to put our data and our products on the best footing, it's all those things together that puts us into the guide that we came out with today. And which when we talked about back in October, you'll recall we were concerned that 2017 was expected to have a significant margin growth, just like we had in 2016. And at that point we said, we need to caution everybody that wasn't going to be the case. And so when we finally finished our planning this year and came out with our guidance, those are still the primary investments, and the uncertainty on the top line from the LoopNet conversion is the other factor in deciding where we wanted to come out today in our communication.

Next question is from the line of Andre Benjamin, Goldman Sachs. Please go ahead. Andre Benjamin - Goldman Sachs & Co.: Thanks and good morning.

Hi, Andre. Andre Benjamin - Goldman Sachs & Co.: I guess I just had a question on the margins as well. If you guys maybe talk a little bit about 2018, I know you just put out 2017 guidance, but there's a lot of focus on the exit of 2018 at 40%, I guess, how do you think about the full year margin as opposed to just exiting at 40% given you just talked about the first three quarters of 2017 being down, but then obviously a huge pop in the fourth quarter exiting at 35%?

Yeah, good question. The reason I talked about the trajectory of margin this year is really to demonstrate when we finish a period of investment, which Andy mentioned a lot in Apartments as well, but as soon as you finish that period and obviously the sales continue to run up at that very high and predictable rate that we have, then the margin and the profit move up very quickly, which you've seen us do many times in the past. So we still expect that in 2018 that we will see margins moving north for the entire year, and then as we have seasonally shown that in the fourth quarter is always going to be the highest. I believe if you look over the past couple of years, it's typically 5%-ish higher margin in Q4 than in the other quarters. So that's going to change based on obviously sales pace and cost management, which is again in our control. So, obviously, we're not giving any guidance on 2018 yet, but we can't say that, that we still expect to be able to deliver what we said in our commitments for the over $1 billion of revenue and the 40% exiting, and the full year will be higher as well.

Next question from the line of Mayank Tandon, Needham & Company. Mayank Tandon - Needham & Co. LLC: Thank you. I just had a quick question around the acquisition pipeline, your expectations in terms of timing of future deals. And then, also maybe some word on the international opportunities as you're looking at investments outside the U.S.?

Sure. So, there is definitely a robust set of opportunities for us both in the – a lot of them are around the apartment space, but there are a number of things we're looking at. We're always talking to people. The amount of work we're doing right now around this LoopNet to CoStar conversion, keeps us focused on that task at hand to big lever in the business. So, we're focused on that through for a long time like at least through May and really through the summer. But there are opportunities out there. We obviously can't discuss specific things and some of those could accelerate sooner if the timing on the other side was such that if we had to move, but there's a broader range of opportunities. On the international front, I'm pretty happy with where things are shaping up there. The United Kingdom, which was our first foray overseas. It was a lot of work, a lot of learning. It's been very successful. We have, I don't know, 97 of the top 100 brokerage firms there as clients. It's a profitable business. It's a very strong business. We've got a good management team there. Canada, our second material foray overseas, there was a competitor there, been there for many, many years. Within our first two years, we outpaced them in the revenue, and I think we're really just at the starting point there. I think we have a lot of potential upside there in Toronto. We are investing a little bit in research out there to fill that out, make sure that we're covering all the markets there, Edmonton, Calgary, Vancouver, Ottawa, and Toronto. We believe we now have the best databases for commercial real estate in Canada. And as you can see, as we're moving into the more language software, we will be doing a polyglot version of CoStar in the next 18 months or so. So then, Madrid has been a fascinating experience. It's like looking at data flow in 1980. We've really gone to that market, and to increase the perceived amount of listing opportunities for brokers tenfold in the first year is dramatic. In – really that's our primary focus right now, is standing that up and making that happen. And then Germany, we've got a good solid business there, but we think this is an opportunity to grow without changing anything, just to leverage the product further and drive more sales by just doing a different philosophy, more focused selling efforts there. So, we are continuing to keep our eyes open for other opportunities overseas, but it's probably at about the pace that you're seeing right now, which is a country a year. Mayank Tandon - Needham & Co. LLC: Good pace.

Yeah. There's not many countries. Mayank Tandon - Needham & Co. LLC: It takes 140 years to cover the world and something like that.

Yeah. We'll be down to North Korea in 120 years.

Next question is from the line of Sterling Auty, JPMorgan. Please go ahead.

Yeah. Thanks. Hi, guys. You guys gave us a lot of data. I just want to make sure that I'm clear on a couple of things. So, on the margin front, if we adjust back for the things that we didn't know the last time – last quarter when you talked to us, so the litigation costs, the acquisition, et cetera, would you say that the pace of investment that you're putting forth for 2017 is on par with what you talked to us last time, or is an acceleration? Because I think where a lot of our models where, we still had slight improvement in margin for 2017 and then the improvement to the goal. So I think this – part of the reaction is, it's a departure from that, but again, there's moving parts. So was that core investment in line with what you were talking to us about a quarter ago?

Yeah. And this is a question, as we go through our planning process and again, back in October, we hadn't finished out what our investments would look like. Again, investing in research is the primary piece, and you heard Andy talk about other components of research that are important, like productivity of research. So they need to put technology folks in to drive software productivity that can allow these 1,000 researchers to deliver productivity over time and create a better cost profile. And so, you put all these things in and then you come out with what your investment plan is here (1:01:36) for the budget, which we do in the early part of December. I was actually pretty happy when we came to the end of that process and, on a $720-some million cost base, we came within 1% of where that cost would be when we finally ended up with our budget. So, I would rather – of course, had it been above the margin we said last time, but it was $7 million or so below. So we're not unhappy with where it came out, it's still in line with what we're investing, and we still expect the same great returns on top of the money that we're putting back into the business here.

Really, we have a great business here, except for Jon Coleman, our General Counsel, spending way too much on legal.

Okay. Next question is from the line of Andrew Jeffrey, SunTrust. Please go ahead.

Hi, guys, thanks for taking the question, appreciate it. Andy, I guess, high level question, and I think this is kind of what we're hearing today is, how do you talk to us in the investment community about the long-term growth and profitability of CoStar Group? You've made a lot of investments and, obviously, a pretty aggressive growth initiative, which seems to be working well in apartments. But are we going to have this sort of sawtooth pattern into perpetuity, or is there a point at which CoStar kind of goes into harvest mode, has the right assets in place and really sustainably grows EBITDA, because I think that's critical for the stock from here (1:02:59)?

Sure. Well, so I would say it's a very fine-tooth sawtooth blade. So you got real lumberjack stuff with big blades, real big sawtooth, and you got a real fine metal one, this is a fine metal one. So, when you really – unfortunately, I've been at this for 30 years. So, when I look at it in the broader picture, it is a very actually, fairly smooth, consistent EBITDA expansion profile. So, $215 million was a pretty significant advance over each of the X number of years – with variation. So, we're having a lot of discussion around a couple of points this year. We really frankly envision a much, much larger business than what CoStar Group is today. So, I would inspire more to what something like my friend Jeff Bezos has done, or Mike Bloomberg has done, something that is a lot. The goal of 2018 $1 billion in revenue is a important goal, we keep articulating it. The 40% EBITDA margin, that's not my goal. We'd like to be talking about $5 billion in revenue some day, so we are definitely playing a little bit of a longer-term growth game, and that's a reality. And we see things like this LoopNet-CoStar conversion this year, where it basically impacts the entire commercial real estate industry throughout the United States in a very fundamental way. We just approached that very carefully and we want to make sure that, whatever we do this year keeps us on track for our true long-term goals, which is building a business that's an order of magnitude larger than the business we have today.

Thank you. And our next question from the line of Brandon Dobell, William Blair. Please go ahead. Brandon B. Dobell - William Blair & Co. LLC: Thanks. How do we think about the progression of the sales force this year? Do you have the right numbers or should we see a continuation of kind of mid-to-high or maybe even low double-digit head count growth? And if so, where should we expect those people to be concentrated in?

I would say that we're largely stable where we are. Incrementally, mechanically, it could be plus 40, could be plus 20. Big picture, we have the sales force we need. Just finished our sales conference, you look at that sales force and said, oh, my gosh, that is an enormous sales force. And it is an incredibly competent sales force and it is a great team to go to market with. So, we are very happy with it. I think we are probably more focused on the fine tuning details, some organizational shifts here and there, minor things, and we might shift a little bit of focus to inside sales as we convert LoopNet clients and markets that are far away from one our field offices. But these are all pretty minor. It's roughly – we're very happy with what we've got right there and to stand in front of 750 people at that sales conference and see the team we've amassed, you're like wow, it's impressive. Brandon B. Dobell - William Blair & Co. LLC: And in the last couple of quarters, you guys have talked about, I guess, let's call it a different go to market strategy with the apartments assets, just more points, better organization, et cetera. How much more work do you have to do there nationally to get it to where you really think you've got the right go to market strategy or has there been many changes in the last ample of months based on what you saw kind of middle of 2016?

I guess you get a different answer if you talk to me or some of the sales people. The sales people feel that we have them worked at 100% of capacity, and I think doing a fantastic job I'm really happy with the customer service ranks we're getting from people, the 9.68 or whatever it is. And so I think we're in a pretty good place. We did institute the pure hunter role last year and so that's maybe four, five months old. We're fine-tuning that, but I think that's progressing well, where we want to have a little more touch point with our major accounts. We're selling more with the top 50 accounts than we do in the rest accounts overall. We still think there's more room to do even better there. But again, big picture I'd say, fairly happy with what we've got there, and I definitely believe we have by far the best sales force in the industry. I mean, there is some good sales people, some other operations out there that we compete against, but we definitely have the best sales force by a country mile.

And the proof is in that net bookings number in fourth quarter for apartments looks very good and you can see that the outcome of that hard productivity work in the mid part of the year is starting to come through.

Yeah.

Next question is from the line of Peter Christiansen, Citi. Please go ahead.

Good afternoon, guys. Thanks for having me part of the mix. Quick question, so...

Welcome.

Yeah. Thank you.

You're welcome.

You cover the LoopNet CoStar transition pretty well and extensively here, but just wondering if you can give us some color on some of the conversation that you're having with clients and how they view it and what's been some of the early indication so far?

Well, we haven't hit the main thrust of this. So we're really waiting for that magical moment of when you have the unified database. At that point it gets – it's a very clean story, where there it's just there's 5 gallons in this bucket and 1 gallon in that bucket in terms of information. It's very literal and it's very clean story. We're having a conversation with people basically saying, look, almost everybody using LoopNet's an end-user. It's no longer fair that we would be hampering our whole net system back by bringing along a 0.2% group of brokers trying to use this information system. That story's working pretty well. But the other thing is that you have to roll back 5 to 10 years ago, where the industry really didn't – couldn't define differences between CoStar and LoopNet. They just thought they were two versions of the same thing and the picture has become clearer and clearer and clearer. We just ran a whole slew of focused groups around the United States and it was really nice because you could begin to see an understanding that was not there before from the industry, where they're like LoopNet is an essential tool to market your listings. It is not an information system. And look, CoStar is an indispensable information system. So we're actually just amplifying what the more knowledgeable people in the industry know, and then we're trying to push that out to the laggards and try to move them into the right slot. So I'm sure there will be – there's a little bit of folks, who have been getting a great deal for a long time. They've been getting literally hundreds of thousands of advertising exposures a year for free or they've been servicing their information needs…

Thank you. Next question is from the line of Patrick Walravens, JMP Securities. Please go ahead.

Thank you very much for taking my question. I guess as you look to scale beyond $1billion in revenue longer term, what markets do you feel you need to enter and would you be open or would you consider expanding into the property management software market? That's it from me. Thanks.

Sure. Well, there's an awful lot of runway right here in the segments we're in right now, the analytics segment, international growth just penetration, like we only have 23% of the brokers signed up for CoStar property in the United States right now. A lot of opportunity to grow just right where we are for many years to come. On the subject of the property of management software, there's some very high quality companies out there in the property management world. The problem is as they each sit in a little high switch cost zone, sort of entrenched four to five positions that, we're little more interested in being able to work cooperatively across multiple zones and as soon as you acquire one of those property management companies, you sort of lock down into a fantastic relationship with 10% of the market. And we're a sort of company that needs to have a fantastic relationship with 95% of the market. And we don't want to get into a trench warfare winter invasion of Russia kind of thing with those property management systems. That's more of a longer-term outlook, something you come back to after you are in a much bigger place.

Very helpful. Thank you very much.

Yeah.

So with that, I think that completes all the questions we can see here. And I would like to thank you all for joining us for the year end conference call. And we look forward to updating you next quarter.

(1:14:22)

Yeah. Thank you very much.

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.