CoStar Group, Inc. (CSGP) Q3 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the third quarter 2017 earnings call. [Operator Instructions] As a reminder, this conference is being recorded. And I would now like to turn the conference over to our host, Rich Simonelli. Please go ahead.

Thank you, operator. It's really great to be here today, and welcome to CoStar's Third Quarter 2017 Conference Call. We hope you all will enjoy it. Before I turn the call over to Andy Florance, our CEO and Founder; and Scott Wheeler, our CFO, I have some very interesting and important items for you to consider. Certain portions of our discussion today may contain forward-looking statements, which involve many risks and uncertainties that could 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 our October 25, 2017, press release, on our third quarter results and in our filings with the SEC, including our most recent annual report on Form 10-K and in quarterly reports on Form 10-Q under the heading Risk Factors. All forward-looking statements are based on information available to CoStar at the time of the call. We assume no obligation to update these statements, whether as a result of new information, future events or otherwise. Reconciliation to the most directly comparable GAAP measure to all of the non-GAAP financial measures discussed on this call, including but not limited to, non-GAAP net income, EBITDA, adjusted EBITDA and forward-looking non-GAAP guidance are shown in details on our press release issued yesterday, which is also available on our website under costargroup.com. As a reminder, today's conference call is being broadcast live and in color on our website. So you can also find the CoStar information page there. Please refer to yesterday's press release on how to access the replay of this call once it's available. Remember, one question, make it a good one. I'll now turn the call over to Andy Florance. Andy?

Rich, I want to thank you for sharing that deep and personal information. I know that took a lot of courage.

Thank you.

Thank you for joining us today on our third quarter earnings call. The strong momentum we created in the first half of 2017 continued at an exceptionally strong pace into the third quarter of 2017. Year-over-year and sequential growth was excellent across the board. On a year-over-year basis, in the third quarter, our revenue growth accelerated to 16%, net income grew 48%, and EBITDA increased 26%. Sequentially, all three of our major revenue-by-services categories grew faster in the third quarter compared to the second quarter of this year. Our margins also rapidly expanded as adjusted EBITDA margin grew to 34%, up 1,100 basis points in the third quarter from 23% in the second quarter of 2017. Company-wide net bookings in the third quarter were up 31% year-over-year to $34 million, continuing an outstanding year in sales. Earlier this month, we completed the integration of LoopNet and CoStar, and our sales force began converting the LoopNet info users to CoStar users. I believe that based on results so far during the fourth quarter, the outlook for strong sales performance ahead is excellent. I'll have much more on this later. Overall, I believe we will see continued positive momentum during the rest of 2017, into 2018 and beyond. I'm truly amazed at the dedication and execution of the 3,600 CoStar professionals who have made us the number one platform in commercial real estate information and marketplaces. We are committed to constantly improving and building upon our prior successes to ensure that we continue to exceed client and investor expectations. In early October, we successfully completed an important secondary offering. Net proceeds in that share offering were $833 million. We restructured our credit facility, extending the term five years and increasing the size of the revolver to 750 million. And we pre-paid our outstanding term loan in full. Our cash balance today is 1,172,000,000, give or take a few dollars. We also have approximately 1.5 billion of buying power with our balance sheet. We believe we're in the perfect position with the utmost flexibility to move on the right deals when opportunities emerge. I want to thank everyone who made time in their schedules to meet with our management team on the roadshow. It was great to get on the road and discuss CoStar with many of our longtime and recent investors as well as many more considering investing in our company. I always value the insights that we glean on the road. To help build the best screens for our future deals, we recently asked Andre Benjamin, a former sell-side analyst with Goldman Sachs, to join us here at CoStar. I'm happy to say he joined us just this Monday. Andre covered CoStar from 2014 to early this year. Andre will work with Frank Carchedi and our Mergers & Acquisitions team, building, tracking and analyzing our list of opportunities. Completing the integration of LoopNet and CoStar databases and building a go-forward-product strategy is one of the largest and most complex projects we've ever completed. These were two massive databases with decades of information. This was an impressive feat pulled off nearly flawlessly by the teams of Frank Simuro, our Chief Technology Officer; and Lisa Ruggles, our SVP of Global Research. Close to 2,000 CoStar people worked hard for years to make this happen. Now one database will power LoopNet and CoStar with the immediate benefit of higher-quality data on LoopNet and even more comprehensive coverage by CoStar. There will never be a listing in LoopNet that's not in CoStar. With the integration done, we are moving full force into our second cross-selling and up-selling phase with LoopNet and CoStar. The first phase occurred from 2012 when we completed the LoopNet acquisition until 2015. In that first phase, we converted 28,000 LoopNet users to CoStar, generating 80 million of net new sales. We achieved that strong sales performance despite a number of significant obstacles. Back then, the databases were not integrated, and while CoStar had more content than LoopNet, LoopNet often had some content that was not in CoStar. LoopNet used to have hundreds of thousands of free listings, providing a significant product substitution effect. Without integration, it was difficult to show prospects the clear differences between the databases. In the first phase, we continued to sell the lower-end LoopNet information product via e-commerce and it created a headwind to the up-sell effort. The second phase should be dramatically more powerful. Now CoStar powers the LoopNet database, so there're always twice as many listings in CoStar. If you count the fields and records advantage CoStar offers over LoopNet, there is 1,000 times the content in CoStar. Only CoStar offers information on fully leased properties. This is valuable information because these are the buildings brokers want to win new listings in. Only CoStar provides information on millions of tenants, which are prospects for both brokers and owners. Only CoStar offers information on millions of comparable sales and leases used to value properties. Only CoStar offers statistics, analytics and forecasting. As of this month, we no longer offer new subscriptions to LoopNet Premium Search or Property Facts and Property COMPS so there's no competition or headwind to CoStar from this low-end products. Best of all, with a fully integrated back end, we can readily show prospects the CoStar advantage in every search. Over the past few months, we sent marketing letters and pieces to over hundreds of thousands of active market participants, advising them of the important changes occurring in LoopNet and CoStar. We told them how we've optimized LoopNet to be a tool for commercial owners and brokers, marketing tenants, investors and end users. We explained that CoStar is optimized to give professionals a huge information advantage, making them the most informed one in the room. The letters, marketing pieces and end-product digital marketing is working. We have received thousands of inbound leads from commercial professionals wanting to learn more over the past two weeks. These leads supplement a list of about 100,000 LoopNet Premium Searchers or head researchers that we will focus on intensely over the next few years as our best up-sell prospects. This is a vast pool of potential revenue for us that we believe is in the hundreds of millions of dollars. I've anxiously awaited this integration for years, the earliest results are in, and they're fantastic. The first weeks have been nothing short of amazing for sales. We are out-of-the-box very strong and quick. Last week, I was meeting with various regional sales VPs getting status updates. Separately, two of them told me that what really got their attention was that our sales reps were now literally running in the halls. They had so many deals coming in, they did not have time to walk and they're now running. That sounds good to me. Multiple VPs said that the middle of the month feels like the fast-paced typically only seen in the last two days of the month. We are closing at an astounding rate much faster than a typical sales cycle. It's not uncommon for 50% of the monthly deals to close in the last five days of the month. We still have a week of selling left in October, and many reps have already exceeded their quota for the month. We believe we are on our way to an all-time best month in information sales in October. Our pipelines are already filling up for November. As of last night, in a little over two weeks, we've generated over 622 LoopNet up-seller cross-sell deals worth $2.7 million in net new bookings. You'll notice that's up hundred or so from yesterday's press release. 474 of these up-sells were from LoopNet to CoStar. 148 were cross sales of LoopNet marketing. For the up-sells from LoopNet to CoStar, the average client had been paying 80 a month for LoopNet. After upgrading to CoStar, the average client began paying 470 per month or almost 6 times more. Remember that LoopNet was sold as an individual license, and CoStar was sold as an enterprise license. So often under the new agreements, there are more licenses being sold to the same company, and more people using it. This is similar to the large up-sells we achieved in the previous phase, but the volumes are higher. We are seeing large deals closing at an incredibly fast pace. Typically 1,000 a month CoStar annual contract requires several meetings over several weeks or months. Many of these recent deals are closing on the spot or within 24 hours. A lot of these deals are national data deals for CoStar Suite, and we're converting individual brokers, who are using Premium Searcher for national data at 470 a month to CoStar National Suite data at 1,395 per month. Others are taking CoStar Suite at the state and multi-market levels at 995 a month or 695 a month, respectively. It's an early indication of what I've always believed. If you demonstrate the value of the information analytics, professionals will pay for it. It's not about the price; it's about the value that they can create. Our clients can leverage our products and generate great returns for the investments they make into CoStar. We're also starting to see combination sales of LoopNet and CoStar as shops are starting to see the benefits of using both of these very complementary service platforms. In Winston-Salem, Meridian Realty Brokerage had 11 users with an unlimited LoopNet Premium Lister plan at 940 a month. We were able to up-sell them to a company listing plan with a defined number of listings on LoopNet, and they've added a CoStar Suite subscription for a total increase of $3,700 a month. MoSingTel telling was that the principal decision-maker at the firm had been following the Xceligent case and made the comment, if I had been doing the business with Xceligent, I would have ceased my contract with them immediately. We have had many examples of customers who told us that they were trying to cobble together a cheap combination of LoopNet Premium Searcher and Xceligent. Now that they know everything from LoopNet is definitely in CoStar, they're buying a CoStar subscription and canceling Xceligent. Many don't even need a demo, they just say, send the contract over. We are meeting and re-signing former CoStar clients that we lost to lesser alternative information solutions. For example, we contacted a former client in Florida that used our CoStar Express product for 11 years. They switched to LoopNet Premium Searcher at $80 a month, and for the past 11 years, we repeatedly contacted them, try to resell them, they kept turning us down. Now with the integration, they moved quickly to a 695 regional deal in just 10 days after conversion period. Longtime broker holdouts are coming over in days to large contracts. We're getting into the door of shops that previously said no for years. In Reno, Nevada, we picked up a broker group that was a longtime holdout that relied on Premium Searcher at 90 a month. They signed up for 1,650 a month and cited the integrated back-end database as the reason they wanted to move over. Another new conversion came in at 1,365 per month in Salt Lake City. We picked up a small investor in Columbia, South Carolina for 815 a month contractor -- contract after years of them using Premium Searcher at $80 a month. Sales are not just coming from up-selling paying customers; free LoopNet searchers are converting all over the country. We signed on a new annual CoStar subscription in Dallas for 800 a month and one in Houston for 795. We're also seeing significant upsells at a legacy unlimited listing plans at LoopNet to larger defined plans. We added net new sales of 1,100 per month on a deal in El Paso and one for 2,000 in Houston. Several of our Regional Vice Presidents have commented how this feels like the heady days of early 2012 when we were doing the first LoopNet conversion. Others harken back the momentum that we had in March of 2015 for the big Apartments.com launch when we saw some of our best sales months ever. Customers are also extremely engaged. Because of our marketing outreach, they were well informed. We are hearing stories across the country of how we made it very clear about what LoopNet and CoStar brands deliver. It starts with a strong, simple message. CoStar's an information system and LoopNet is a marketing solution used for lead generation. We have clearly defined how each one should be used and give strong cases why a professional needs both. Our field sales reps are reporting that the industry has been well-prepped and brokers have been expecting a change. What is most encouraging is that the clarity on the service offerings is making things crystal clear for the market. To reinforce that CoStar is the information service, we have added a locked pin result feature in the LoopNet search results. We know who the heavy searchers are, and when they search in LoopNet, the results will show all the listings they do not have authorization to see as a locked pin. Those that are locked are available with a CoStar subscription. This makes the CoStar advantage visually obvious. We also deliver a pop-up digital marketing to the heavy searchers when they see the locked pins. They are receiving testimonials, stats and videos with their search results. Many brokers who thought LoopNet information was good enough are now seeing the tremendous upside to having a CoStar information subscription. Beginning in the first quarter of 2018, we expect to add an e-commerce capability to this locked pin comparison feature. Heavy searchers will be able to immediately sign up for a CoStar Suite subscription online. This is the first time that we'll be introducing e-commerce sales at CoStar, which I believe will become another strong sales channel for us. As you might have been able to glean, I am pleased with our initial sales results coming out of the gate and look forward to speaking to you about our fourth quarter results in February, when we'll have a much larger sample and more information on how we're doing. These are still early returns. This month, the CoStar-LoopNet integration brought another important advance. We launched our new listing manager interface, which give brokers greater flexibility and access in managing the listings in CoStar and LoopNet, and we're getting very positive feedback from brokers who began using it. Anyone with a listing in commercial real estate, once vetted, will be able to access our listing manager. These professionals will be able to manage all of their listings in real time online, increasing the update frequency in our database, which improves the quality of our data. With a single entry, they'll be able to make changes all at once for all CoStar sites, including CoStar, LoopNet, CityFeet and Showcase. This should allow us to control our research costs as well. In our dashboard, clients will also be able to track the listing performance of their listings on CoStar and all of our marketing sites, including performance metrics such as views and search activity. They can even upgrade their advertising exposure across all of our sites with an enhanced tab that is larger and sorts higher in the search results. Now that we're strongly positioning LoopNet as the pure marketing brand, I believe we have an even larger opportunity with LoopNet. Today, we have approximately 300,000 paid listings on LoopNet, CoStar has 1.1 million active listings for sale or lease. This means there's nearly 1 million listings that are not yet advertised on LoopNet. In addition to more listings, there's also upside in offering differentiated advertising opportunities to LoopNet advertisers. Turning to the multi-family side in Apartments.com, Apartment Finder and the like. In multi-family, our net new bookings in the third quarter of 2017 continued to be very strong, with a 43% increase year-over-year versus the third quarter of 2016. We believe we've built the best user experience in the market, helping millions of people find new homes in our Apartments.com network. Better user experience, deeper content, effective SEO strategies and great marketing is consistently driving huge traffic growth, an advantage to the Apartments.com network, and it's positively impacting these sales results. Our acquisition of ForRent has not closed and remains in the HSR process with the Federal Trade Commission. We believe that it's obviously clear that there is very robust competition in the apartment marketing industry, and this deal should receive approval. Our initial filing was slightly delayed with the FTC. During the acquisition, we used the codeword Tidewater for ForRent because it's headquartered in the Tidewater area of Virginia, down in the Norfolk. Tidewater was in the memo entry of the check we submitted to the FTC for the Hart-Scott-Rodino filing fee. Unknown to us, there's an Iranian company with Tidewater in its name that has known terrorist affiliations. This caused our checks to the Treasury Department to be flagged and mysteriously disappear with no explanation. Took a while to figure out. Crazy, but true. We resolved that issue at the end of the first 30-day period. The FTC agreed that withdrawing and refiling our HSR paperwork in order to give them additional time to complete the review of the deal would be beneficial, and we've done that. We expect our pending acquisition of ForRent.com will further add to the positive renter experience we deliver to millions of renters and will bring large efficiency gains and greater value to our advertisers. We are working through the regulatory review process at this time, and we continue to expect a fourth quarter close of this acquisition. It's not a great idea to take a lot of Q&A on legal issues. Overall, we are very pleased with the tremendous progress we have made in the multi-family space in the past three years. We still have a long way to go and believe this is a multibillion-dollar opportunity since we currently have less than 10% of the apartment buildings that are 5 units or bigger in the United States paying for advertising on our site. CoStar Real Estate Manager, an important product of ours, provides market-leading real estate management software to retailers and global companies. FASB accounting rules are always changing and beginning in 2019, public companies must begin filing revised financial statements to account for leases under FASB ASC 842. In particular, the new standards require companies to include the value of practically all leases on their balance sheets. In 2020, we estimate that over 5,000 U.S. issuers will be required to comply. This is like a Y2K event for real estate in public companies, and we're uniquely positioned to capture a huge amount of this business. CoStar Real Estate Manager offers an industry-leading module that is designed to help companies get in compliance with FASB ASC 842. We are a clear leader in the space, and we're one of the first to market in early 2016 our features. Because of its superior service offering, CoStar Real Estate Manager is having a fantastic year. In 2017, we've added new customers, including Facebook, JPMorgan Chase, GE, BB&T, Quest Diagnostics, Bank of New York Mellon, HD Supply, Dr. Pepper Snapple and CoreLogic. Our services extend to the international markets for IFRS standards as well. And in the third quarter, we signed Saint-Gobain, based in Paris, for a significant net new bookings deal. Year-to-date, net new sales were up 149% compared to the first nine months of 2016. Average deal sizes have doubled, and so have the number of deals. This business is expected to generate approximately 20 million in '17 and has the potential to be a significant grower in each of the next three years. Renewal rates are in the low- to mid-90% range, and most contracts are three years in length. We have some encouraging developments on the Xceligent litigation front that we can share with you. On Monday, a United States federal judge entered a judgment in CoStar's favor against one of Xceligent's primary research providers, RE BackOffice. The court found that they conspired with Xceligent to violate the Computer Fraud and Abuse Act, assisted Xceligent's infringement of our intellectual property and engaged in unfair competition against CoStar. The contractor admitted that they illegally copied CoStar's content into Xceligent's database, and that Xceligent's management directed circumvention of CoStar security and ordered the copy of CoStar's content. The facts could not be any clearer. Xceligent, a foreign-owned company, has built its commercial real estate information product by copying CoStar's content without our permission. Their copying of our data and images is pervasive throughout their product. While expensive and difficult, it may be possible for Xceligent to remove many of the copyrighted images it willfully misappropriated. It's too late and it may never be possible to unscramble and remove the massive amount of information they illegally misappropriated from us and mixed throughout their database. With the wealth of evidence and testimony, it is clear that Xceligent went offshore and illegally used LoopNet CoStar's CityFeet, Showcase, Apartments.com and other CoStar assets to build their competing database. One indication of the strength of our case is that as of now, three different judges have ruled in CoStar's favor across the broader case. Doug Curry, when he was Xceligent's CEO, had continued to deny the allegations and even implied that because CoStar was a successful US company and Xceligent was not, they somehow were entitled to rewrite the law and use CoStar's product to build its own. His perverted philosophy says that it was anti-competitive for CoStar to secure our computer servers to stop this company's high-volume theft of content. Doug Curry was the Founder and CEO for 19 years. Within hours of the publication of the judge's finding of conspiracy in violation of the Computer Fraud and Abuse Act and infringement and unfair competition, Doug's employment was terminated. Very, very hard to believe that, that's purely a coincidence. This comes on the heel of a number of senior executives that Doug was reporting into at DMGI, leaving to pursue other opportunities immediately after we originally filed our lawsuit against their sub-Xceligent. We believe that Xceligent's research providers' admission of wrongdoing, which it describes as Internet piracy and the judge's ruling, significantly bolster our ongoing case to stop Xceligent from illegal copying and reselling of CoStar content. This is a major development because a third-party vendor of Xceligent has confirmed that what we found -- what we found to be true in our investigations. Xceligent's actions were intelligent -- sorry, were intentional and highly egregious. Our investigation found over 3,000 fraudulent CoStar Group passwords created by Xceligent's researchers, who were responsible for 2 million unauthorized hits against our servers. Bisnow reported that RE BackOffice court documents contained a concession of wrongdoing, including that Xceligent directed it to hack into CoStar's databases and websites and copy its content. According to the article, RE BackOffice names Xceligent CEO, Doug Curry, and Chief Researcher Officer, Nathan Lipowicz as being directly involved. We're all about fair competition. We encourage any broker or owner in the commercial real estate industry to share and market their listings on any platform they wish. We welcome it and we believe we'll continue to succeed because of our superior service offerings. But as Xceligent's research provider admitted using competitors' content to compete directly with them is wrong and against business rules of fair play. We think the significant ruling against Xceligent's research provider and these terminations say all that needs to be said about the status of the litigation. Update you quickly on the commercial real estate markets we operate in. The commercial real estate markets in the United States continue to perform better than the general economy. Much of the strength stems from the solid and stable job gains, strong capital flows and restraint in construction lending outside of the multifamily sector. The apartment market on average has high-occupancy rates, and the nation's steady economy is driving demand for the Apartments underway. This is good as by the end of 2018, we estimate the apartment market will have delivered 1.2 million units over a 5-year period. The market has not seen this kind of construction activity in the past few decades. Yet most of the space has been absorbed, as single-family home construction has lagged. The homeownership rate has compressed, and a whole new renter class, the renter-by-choice empty nester, has been created. While vacancy rates nationally have ticked up by only 30 basis points from their cycle lows last year, different price points in the apartment market have fared differently. The top end of the market Class A properties, where the new construction has delivered, has been wrestling with higher concessions, more turnover, longer lease up, and in select markets, even negative rent growth. The middle and lower segments, which is the nation's -- most of the nation's apartment base, continue to see rent growth and increased capital flows. Since apartment advertising spend is highly correlated with vacancy levels, a more competitive apartment market is good news for Apartments.com and our sales efforts. In the office sector, vacancy rates have been stable in the 10.1 to 10.3 range for the past 1.5 years. These were also the lowest reported vacancy levels of the last cycle. Most of the ongoing construction activity is concentrated in a handful of markets such as New York, Dallas and the Bay Area. While office rent growth is likely to remain about the level of inflation for the next year, landlords and brokers should continue to do better than that as leases signed 3 to 5 years ago are now rolling into substantially higher market rates. In the meantime, the industrial market has never been stronger, very strong demand levels, much of it driven by e-commerce, have combined with rational levels of supply to support high-occupancy rates and solid rent growth. The retail market has never had to face larger headwinds than it does today. That said, on average, the retail market is not as dire as the headlines would make you believe. Retail is demonstrating positive demand for space and new supply levels are low. Total investment sales activity is averaging about 90 billion per quarter in '17. This is a decline from about 105 billion this time last year. I don't believe it's significant. Cap rates are historic lows, are turning investors and developers who are pursuing build-to-core strategies. We expect vacancies to remain at or close to their cycle lows, demand for space positive, and rent growth to, at a minimum, keep up with inflation. These market conditions are combined with ongoing job and GDP growth are favorable to CoStar's platform, which serves the marketing, leasing and transaction programs for brokers, building managers and owners. These conditions are even more suitable to the deployment of CoStar's market analytics initiatives. So in conclusion, I'm very pleased by the continued momentum we have achieved in the first three quarters of '17, with both the top and bottom lines growing and expanding nicely. Our Apartments.com network continues to deliver stellar results. The early returns on the LoopNet-CoStar integration are outstanding, with our sales force fully energized and selling up a storm. We expect to exceed our goal of 1 billion in run rate revenue exiting '17 and we're well on our way to achieve our goal of exiting '18 with a 40% adjusted EBITDA margin. At this point, I'll now turn the call over to our CFO, Mr. Scott Wheeler.

Thank you, Andy. I know there's really a lot going on in the third quarter fairly on a positive result, nothing like taking on a major product integration with CoStar-LoopNet, signing an important new acquisition with ForRent, executing common stock offering, restructuring debt, and by the way, we also turned on the Oracle cloud ERP system on October 1, so nothing like a quiet quarter here at CoStar. Yeah, great results. Revenue in the third quarter, as Andy mentioned, is up 16% over prior year. And we see the acceleration in all our major revenue growth rates on our primary revenue streams versus the prior quarter. Our organic growth rate in the third quarter was 14%, and that normalizes out the acquisition of WestsideRentals, The Screening Pros and LandWatch, all of which we closed earlier this year, as well as the effects of THOMAS DAILY, which we closed in the second quarter 2016. Let's look at the revenue performances by our services. CoStar Suite revenue growth improved to 14% in the third quarter 2017 versus third quarter 2016. And this is after reporting strong 13% growth rates in the first half of 2017. We certainly expect CoStar Suite growth rates to continue at 13% to 14% for the rest of 2017. We expect to see continued strong performance going forward as we hit full stride in the cross-sell of CoStar services to LoopNet information services that Andy talked about. The revenue growth rates in information services remained negative in the third quarter, as expected, as we continue to wind down the LoopNet information products. The revenue decline from the LoopNet information products in the third quarter was moderated by the double-digit growth in our portfolio of strategies and the Real Estate Manager business. We expect the Information Services revenue decline to accelerate in the last quarter of the year as we actively convert clients to CoStar. We expect full year revenue in Information Services to decline in the mid-single digits, which is a slight improvement compared to our previous range of an 8% to 11% decline, which comes from our Real Estate Manager acceleration. We had another very strong quarter in multi-family, as revenue increased 25% year-over-year and 22% on an organic basis. This is adjusting for the two small acquisitions. Revenue contribution from these two acquisitions was approximately $2 million from the quarter, which we expect will decline as we complete the integration of these two businesses in the quarters ahead. Consistent with last quarter, a little over 75% of the organic revenue growth in multi-family was the result of adding new paying properties, while the remaining 25% of our growth came from customers selecting more valuable advertising packages. In fact, our highest value advertising package, called the Diamond level, grew almost 50% year-over-year in terms of growth in the number of advertising packages. Based on continued strong sales performance, we expect our full year 2017 growth for multi-family revenue, before any contribution from ForRent, to be in the range of 23% to 24%, which is an increase to the range of 21% to 23% we discussed last quarter. And last but certainly not least, commercial property and land grew 21% year-over-year in the third quarter of 2017. Organic revenue growth, adjusting for approximately 2 million in revenue from the LandWatch acquisition, was 14% in the third quarter, well above the 11% revenue growth we reported in 2016. The improved growth rate is a result of our increased focus on selling LoopNet Premium Lister and tiered advertising to the property owners. We expect organic trajectory in this business to be in the 14% to 16% range for the full year of 2017. Including revenue from the acquisition of LandWatch, we expect commercial property and land services to grow in the range of 17% to 19%. Turning to gross margins. We came in at 78% in the third quarter, up 100 basis points from the second quarter, as revenues continue to grow and our research investment spending has leveled off. The vast majority of cost of revenues relate to our research operations, and we remain very pleased with the productivity improvements we've seen from our investments in the new research center in Richmond, Virginia. Operating expenses for the third quarter of 135 million were favorable to our forecast, due to cost-saving efforts, slower-than-expected hiring, and shifts in the timing of our marketing spend. Accordingly, adjusted EBITDA of 84 million in the third quarter exceeded our guidance range by $14 million and represents an increase of 25% versus the third quarter of 2016. Adjusted EBITDA margin was 34% in the quarter, up from 23% in the second quarter of 2017 and up from 32% from the third quarter of 2016. Our cash and investment balances were approximately 633 million at the end of September 2017. And in the third quarter, we generated $65 million of cash from operating activities while capital spending remained low. Our cash balance today is approximately $1.2 billion, of which $350 million is earmarked for the completion of the ForRent transaction, which we expect to close before the end of the year. Now let's look at some performance metrics for the quarter. Our sales force, which totals approximately 730 sales reps, delivered $34 million in net bookings in the third quarter of 2017, an increase of 31% versus Q3, 2016. This is our third consecutive quarter of net bookings over $30 million, which continues to demonstrate the returns we're getting on our research, sales force and product investments. As we move into the fourth quarter, we expect to see a significant lift in sales from our CoStar cross-selling efforts, as Andy discussed. At the same time, our net bookings in LoopNet information products are expected to decline at a much faster rate than they have in the previous quarters, reflecting the shift to CoStar and the elimination of online sales of LoopNet information contracts. We expect the shift in net bookings out of LoopNet information and into CoStar to be net positive. However, it's too early in the quarter to actually predict the outcome of these efforts. Given the timing of the sales in the fourth quarter 2017, we do not expect a significant impact to reported revenue until 2018. Renewal rates on annual contracts was 91% in the third quarter of 2017, up 30 basis points from 90.7% in the third quarter of 2016 and up 40 basis points above the renewal rates we achieved in the second quarter of this year. The renewal rate for customers who've been subscribers for five years or longer was 97%. Subscription revenue on annual contracts accounts for 78% of our revenue in the quarter, which is up from 76% this time last year. I'll now discuss our outlook for the full year and in the fourth quarter of 2017. These numbers exclude any impact of the pending ForRent acquisition, the outlook of which I will discuss in a few minutes. We're raising our revenue outlook by approximately $77 million at the midpoint to a range of $962 million to $965 million based on continued strong sales momentum. We expect revenue for the fourth quarter of 2017 in the range of 251 million to 254 million, representing top line year-over-year growth of around 16% at the midpoint. We're also increasing the company's 2017 outlook for adjusted EBITDA to a range of 287 million to 291 million, an increase of $17 million at the midpoint, based on the revenue increase and the stronger third quarter profitability. For the fourth quarter, we expect adjusted EBITDA in a range of 85 million to 89 million. We expect 2017 non-GAAP net income per diluted share in the range of $4.65 to $4.73, and that's based on 33.6 million shares. The non-GAAP net income per diluted share outlook includes approximately $0.11 dilution related to additional shares from our recent common stock offering, offset by approximately 2% - $0.02 of improvement related to lower-interest expense in the fourth quarter after paying off the company's outstanding debt. Favorable revenue and expense trends in the second half of the year contributed approximately $0.31 per diluted share versus the previous guidance range, more than offsetting any dilution from the recent offering. For the fourth quarter, we expect non-GAAP net income per diluted share in the range of $1.31 to $1.38 based on 36.2 million outstanding shares. Costs associated with the Xceligent litigation were approximately $3 million in the quarter. And we expect the cost in the range of $13 million to $14 million for the year, a slight improvement from the $15 million we communicated previously. We expect our acquisition of ForRent to close late in the fourth quarter of this year. Accordingly, we expect ForRent will contribute between $6 million to $8 million in revenue in the fourth quarter and be slightly dilutive on a non-GAAP net income per share basis due to the impact of integration and purchase accounting adjustments. Our view of the post-integration profile of ForRent has not changed. We still expect the post-integration business to settle in the range of $75 million to $85 million in revenue, with adjusted EBITDA margins in the range of 45% to 55%. We expect it will take approximately three to four quarters following the acquisition closing to achieve the run rate results. In closing, we believe our strong sales momentum and updated revenue guidance will enable us to reach our goal of $1 billion revenue run rate in the fourth quarter of 2017. And we remain on track to reach our goal of a 40% adjusted EBITDA margin exiting 2018. In addition, we further strengthened our balance sheet and we're well positioned for continued strong growth, both organically and through strategic acquisitions. With that, we can now open up the call for questions.

[Operator Instructions] And our first question would come from the line of Brett Huff with Stephens, one moment.

Thanks for all the details and particularly the LoopNet up-sell. A lot of folks have been, I know, very focused on that. My question is on bookings growth. I know this is sometimes a frustrating question to get asked. But 31% was a deceleration from, I think, the 39% growth last year or last quarter. And I wondered, just give us thoughts on that, was there some distraction of the sales force as they get trained up for Loop? I think you guys said in last call that maybe half of the 700 and some odd would be focused on this. Was there a tough comp? Just any thoughts on that would be helpful because folks have asked us about that. Thank you.

Yes, sure, Brett. Q2 obviously was a pretty phenomenal quarter, record net sales numbers. And we had this record sales number in CoStar Suite, which was obviously a very positive. We had some pretty large national deals that were in there, which helped us in that quarter. So when you look at Q3 across all of our product groups, they performed very strongly and I think that the two factors I'd call out was, one, we didn't have any big, large national deal in the fourth or in the third quarter. And also we lost a number of selling days around a couple of our regions as we dealt with - clients impacted by the Houston hurricane, the Florida hurricanes, and we backed off on, obviously, sales. And we also did some crediting for distressed clients there. It's not a huge impact, but it does sort of dampen the output. And then there was some getting ready for the CoStar LoopNet integration that occurred in the last month in the quarter. So I think all those things combined gave us a little softer than Q2. But still we're very happy with where that is, and we're averaging about 35 million a quarter this year in net new, which is a nice place to be.

So, just to add to that. I would just say that the focus in the sales force was 100% on the upcoming Loop integration. So that was the topic of the quarter. And so as you approach that integration period, there's a lot of energy, a lot of preparation going into that integration, which will be the highlight of the next two years. That will be the drumbeat that we're following for the next two years. And so in the lull right before you set off on that big effort, people weren't launching new major initiatives somewhere else. So it just was more of a timing issue where you're building up for what we've been describing in the last two weeks, which is a really strong result. The other thing on the apartment side is that we had intentionally slowed down our efforts to take business from ForRent, which we have an agreement to acquire. So that also had a little bit of an impact. So big picture, good things happening, more timing issues with exactly what you're trying to do, what emphasis you're putting on what's allowable.

Our next question comes from the line of Pete Christiansen with Citi.

A lot of good information, a lot to chew on this quarter. Just some quick ones. Andy, I know it's early but any thoughts on the pace of the campaign given the first couple of weeks here? Is this something you think you may want to accelerate? Or it's status quo for now? And my second question was to Scott. I know you mentioned the offset bookings is going to most - a net positive on the conversion. But I guess, how do we think about that on a recurring revenue basis? Would it be roughly the same impact? I know you're not turning off everybody at once.

So, in terms of accelerating it, right now I would say we are measuring it. And the pace of the lead flow right now is massive. So we are just trying to keep up with the pace of the lead flow that's coming in. And so we will continue to assess that and figure out how we try to scale to take advantage of that. I think the e-commerce modules coming up later in the not-too-distant future will help us process more of those leads electronically, immediately. But I think that if you just - if you look at the press release and my statement today - the press release from yesterday and the statement today, the pace of 100 contracts a day, that's sort of unprecedented for us. And we will look for ways to accelerate probably relying on e-commerce to help there a little bit. I'll let Scott answer the second question.

Yes. The perspective on bookings and what we see going forward, as you can imagine, there's a good bit of noise that gets introduced in October that we're sifting through now. The very positive noise, obviously, from the pipeline and then the new sales and the uplift that we'll see in CoStar Suite. And then there's the noise around the info services declining both from the shift of CoStar and also that we no longer sell those to our e-com platform. So that's - it's interplay between those two that we are seeing as a net positive right now in the fourth quarter. There's also other minor, let's say, near-term disruptions that you'll see as you make a conversion of this scale in the LoopNet marketing business, has to do with users having new interfaces, new places to go, figuring out their listings between the two sites. And so you see a little disruption in the first couple of weeks, but we've recovered from those and we'll see those recurring like we have in the past. So all in all, even though we don't forecast our bookings or communicate bookings forecast, we'll see a little more range of variability in the quarter, but I wouldn't expect to see us much different than where we landed in the third quarter as we go in towards the end of the year.

Our next question comes from the line of David Ridley-Lane with Bank of America. Please go ahead.

Now that the LoopNet is a pure-paid marketplace, do you have any early indications of behavior? I think there were about 100,000 free listers. Are you starting to see them soften up to, at least, to the basic ad package? And maybe to set the backdrop so that we're all on the same page, can you give us the number of paid advertisements on the site and the average revenue per listing? Thanks.

Sure. So yes, we've been watching that, I think there's 128,000 free listings or something at the point of conversion. And we've been very pleased with the response we've received from those folks. So they get - they basically understand that there are paying advertisers and that their free ads compete with the paying advertisers' exposure. And so not a big surprise to them that it's becoming a pure-paid marketing marketplace. Again, in the first week or so, I believe we've had over - first two weeks, we've had a 100-some-convert. And my sense just anecdotally this early is that we'll see a lot of those folks move in to basic packages. And we extend some pretty good discount plans and easy entry points for them. So I would expect that we would do very well in that audience. We are intentionally prioritizing our sales resources against the information side initially, that's the one that goes by very rapidly, and we want to make sure we're on top of that as a first priority, and we've taken some of the folks who were selling the LoopNet product - develop some LoopNet product to help process some of the more remote - geographically remote candidates for CoStar up-sell. So the results are good. And I have to say that I was watching what kind of reaction we got from those free listers and I am very happy with the way they responded. So just again, timing for six months or so, it's 100% about how are we making sure we're capturing this information opportunity and that will continue for two years or so, but tuning it for six months or so. And then the LoopNet sales effort happening now, but really hitting its crescendo in '18. So they're waves because they have to be. In terms of number of paid listings - it's 300. The 300,000 paid listings. And then in terms of price per listing, sub-$20.

Yes, it's not very high.

Yes, it's not high. And that was - that's an important issue because, remember, prior to our acquiring LoopNet, they pretty much sold one-size-fits-all. They just sold a standard ad and they sold it to commercial real estate brokers. Commercial real estate brokers, the person paying for the ad only gets about 1.5% of the deal. The owner's getting 95% of the deal. Sub-$20 is really low. And if you look around the world and you look at SeeLodge, Scout24, Rightmove, REA Group, Zillow, any of these folks or Apartments.com, our own property Apartments.com, we're getting $7,000 per advertiser and some folks are getting up to $30,000 per advertiser. We're doing couple of hundred bucks for advertisers. I think as we offer more tiered listings and enhanced listing opportunities as we do with the Apartments.com and as we target the owner opportunity, I believe that those numbers will soar and grow really dramatically. So that's our primary focus. And whatever anxieties I had around how the free folks reacted, those are gone.

Our next question comes from the line of Bill Warmington with Wells Fargo.

So first of all, congratulations to Andre Benjamin, nice to see you hiring a recovering sell sider.

We have him in therapy right now.

So, I wanted to run through some of the math that you gave earlier. So if you talk about $2.7 million in bookings that we've seen so far, on 622 new deals, that would imply about $360 per month in revenue lift that you're seeing. But question is, you're really looking at two different opportunities here, right? You've got the LoopNet Premium Searcher converting to the CoStar Suite, and it's like 474 of them. And then you've got the free lister to Premium Lister conversion. And I just wanted to try to parse the contribution to that $2.7 million a little better just so that when we're doing the modeling of what the opportunity could be, at least, using figures that make sense.

Yes. Is it 80% is information right now of the revenue?

Yes.

80% of that 2.7 is info. And again, we have - as John Paul Jones said, we have not yet begun to fight. So we have not yet entered the field on the advertising side. So the free-to-client movement on the advertising side will be significant. But I really think the much, much more significant opportunity will be as we remove more and more of the clutter on the LoopNet site associated with low-end broker products and we focus the site more to higher end product like beautiful office towers and high-end shopping centers and create a more high-end advertising opportunities with using the 3D imagery we’ve used so successfully in the Apartments.com and the videos and whatnot. I think that the bigger story is going to be when owner starts - when we start selling higher volumes of $1,000 a month, $2,000 a month ad packages with a lot of exposure. So we're doing all sorts of things to grow the upper end and the free to pay are good, that could be a lot of money. But the huge money is going to be meeting the needs of the people who have $300 million speculative office building developments in a 5% marketing budget that’s’ going be our primary focus. So we have a number of different initiatives underway there. So you may have seen the redesign, probably not. We've redesigned the home page and we put up a wealth of news there. We've begun to build a much larger news team to engage people more emotionally in the site, create more ad opportunities. And so you'll start to see the full pace of that in '18. You'll start to see some interesting news around that. So I'm very excited about that, getting good results on the free-to-pay now. But getting phenomenal results on our primary focus, which is the information side. And I know, like, for instance, we just added some key players to our product team on the LoopNet side around designing towards the higher end opportunity, so...

The other encouraging piece of news when you look at the contracts we're closing are folks that are now buying CoStar are buying the information side. Half of those contracts were paying us something before, half of those contracts were paying us nothing before on information. So that's very positive news for us to see that's kind of a split.

The other positive thing is that if I roll back four years ago, the market - there was confusion in the market. They would sort of say, "Well, gosh, I'm either buying LoopNet or I'm buying CoStar." And they really hadn't got their heads around the value prop - the relative value propositions. Now we're signing up a lot of business, I imagine a lot of those contracts on the advertising side are situations where the person - I mentioned some of them, where the person's doing both CoStar and LoopNet contracts aggressively buying significant marketing plans on LoopNet and significant information plans on CoStar. So that's the best news is that these aren't either ors, these go together and they complement each other beautifully. They're solving two huge problems for our clients, one is their information need and the other is how do you reach a buyer universe of millions of end-users. So hopefully that gives you some color. Operator Our next question comes from the line of Andrew Jeffrey with SunTrust. Please go ahead.

Andy, the initial result of a cross-seller are pretty impressive as you recited chapter and verse. How do you feel about the productivity and the capacity of the sales organization? I know at times of accelerating growth in the past, CoStar's gone out and made meaningful sales force investments and I think you've invested in front of this cross-sell cycle. But I just want to check in and see where you're headed at as far as, perhaps, having to scale up that sales force in line with the nice success you're having on the cross-sell side?

Yes, so you're correct. And thank you for pointing that out, Andrew. We did invest ahead of this. So we added 88 customer relationship managers to support the effort and specifically to do this. We ramped that team up during the course of the year and the prior four quarters and got them to roughly full strength in advance of this integration effort. We have grown the sales force a bit there. We have begun to grow on the inside sales team around the efforts. So we do invest in advance. One of the ways I'm looking at it, which is a little different than normal is how we - when a significant percentage of your sales force has made quota by mid-month, which is highly unusual, you have to actually begin to manage the sales force a little bit more around making sure that nothing - none of the opportunities are slipping by because they're doing really well. Like, we need to sort of extend our expectations on productivity for the sales force because they can, I think, the sky's the limit on what that they can do. I do not believe right now that adding more bodies is necessary. And I do think that e-commerce can do a lot with the lower-end opportunity. So both LoopNet and CoStar have been observing and working with and interacting with tens of thousands of these brokers for years. We know who they are, we know how many properties they have, we know how many people are in their firm, generally speaking. And when they go into LoopNet and they see this locked pin interface, and they can clearly see the dramatic information advantage CoStar would offer them. And they're the only one seeing, the end-users don't see that mode. They immediately want to learn more about upgrading to CoStar, and in the first two weeks, we had 2,500-plus - more than 2,500 people submit leads to us who were on that locked-pin system. And we want to give them the ability to just electronically buy immediately, just use their existing contract authority with us or a credit card to immediately buy, which would solve some of the constraints of the sales force.

Our next question comes from the line of [indiscernible] with B. Riley.

So a quick follow-up on the multi-family opportunity you guys have. I think you mentioned in the call a significant TAM of apartment sizes of 5 units and above, but you've also talked about in the past how the TAM of apartment side is about 5 units and below are significantly larger. Could you kind of quantify what you see is the larger tail opportunities as you guys moved and target those smaller 5 units or below apartment complexes?

So traditionally, the industry, the apartment marketing industry, the folks producing publications for supermarket checkout counters and the like around the apartment industry, they targeted properties 120, 150 units and above. And when we had bought Apartments.com, we began focusing on - and that's probably only - that world is probably only about a quarter of the apartment units in the United States, a huge swathe of them are 5 units to 120 units, 150 units. So we have had huge success in the last two years selling to people who have 50 units or 30 units or 80 units. And it probably makes sense people that owned 80 unit apartment buildings are absolutely good prospects for advertising, or even 10 units, right? And so we can see - we can quantify given the rates we're currently achieving in the high-end and the middle that, that's in excess of a $2 billion TAM. And as you get to smaller unit size - smaller property sizes, people pay dramatically more in marketing because they don't have in-house - they want to invest more in marketing because they usually don't have in-house marketing and leasing. And then the biggest one is the sub-5 units. So that's basically little walk-up properties, condos, townhouses, single-family homes, that's about 22 million-plus units. And that's probably the single largest TAM. So we're focusing on harvesting the opportunity at the middle and upper side where we have products that meet that audience's demand. But we now have about 300,000 of those mom-and-pops participating in marketing on our site and the growth there is huge. And right now they're marketing for free, but the numbers are staggering. It was basically zero, three years ago, now it's 300,000 people actively marketing there. So first, we're going to build participation and we're going to build - we're going to try to engage that community and create real powerful marketing channels for them. And then we'll offer them products that they can enhance their exposure. And so we can go after that $8 billion TAM at the lower-end, at the sub-5 unit area. I hope that answered the question.

Yes, absolutely. And I guess as a follow-up to that, you guys obviously have different pricing tiers. You mentioned the smaller-end of the market pays a lot more, so would you say that's a diamond-level pricing? And how does the TAM increase as you essentially make the assumption that a lot of those people signing up, essentially, will start with standard, then move on to, like, a diamond-level package or a high-level package over time?

So the - we actually - we measure it as the spend per unit. So the numbers won't be precise. But at the upper end, if someone's got a 200 unit or 300 unit community they might be spending $30 a year per unit with us. When you move down to someone who is - got a 20-unit community, they might be spending $300 a unit or $200 a unit per year. So it actually - they more pay more per unit. And so they may be paying the same amount or slightly less per property, but they're paying more per unit to market with us. And we do give them slightly lower price points to participate at the Basic, Silver, Gold level. But then the prices begin to look the same for small and big communities when you move into the diamond, the very highest exposure levels. And then for the sub-5 unit communities, we are not currently offering products targeted to them. Right now, we're looking to grow participation not to monetize it, so. But there are a number of different things that we can do to monetize that in the years to come, but right now we're focused on just getting them to use Apartments.com as their preferred marketing source.

And kind of final follow-up question. I imagine you've been seeing like an uplift of people on Apartments.com moving to the diamond level to get that incremental exposure, just given the number of new units being developed. How much of a tailwind would you kind of estimate that would be over the next few quarters have you seen more people probably uplift to a higher level subscription given the incremental vacancies and the new developments happening across the country?

Well, I do think that these new - when you build - I think it's like 75% of all of new construction is targeted towards the top 10% of the market. So 75% of construction is targeted towards the top 10% of income renters. So those folks tend to be diamond advertisers right off the bat when they're selling the $3,000 a month unit, they're going to diamond. So that is a great tailwind for us. But the bigger tailwind would be if we get any overall growth in vacancy and apartments, that's across the whole spectrum or the whole market and that tends to drive dramatically more advertising. And I think Scott gave us some numbers, there were 75% of the revenue growth there is coming from new customers and only 25% is from coming from the folks scaling up the ladder. As the marketplace is still relatively young given that we have 10% penetration into that - into the more traditional segment of the market, and you would expect that the shift to revenue growth coming from peer - to people going up the tiers would be something you'd expect to see more ratio there in years three through ten or something from now. Right now it's about bringing new people onboard. And we're very happy with the number of folks coming on board, new advertisers. And we're getting good renewal rates with those folks, too. So it's strong.

And our next question comes from the line of Sterling Auty with JPMorgan. Please go ahead.

This is Jackson Ader on for Sterling this morning, guys. One question from our side. How do you think about - after we get past this initial blitz of converting LoopNet over to CoStar, how are you thinking about pricing power or potentially pricing pressure moving forward after we get through the next maybe three or four quarters?

Yes, so I would say that the blitz is a - probably a ten-quarter activity. So the first phase where we did the 28,000 up-sells that occurred over three years. And I think this is a similar time period. I think this is multiple years of just bringing these folks into the CoStar information platform. The prices are actually pretty constant. And we have created - the interesting thing is, we want to make sure that there are affordable options for everybody. So we actually created some of our lowest-cost solutions to date. We came up with an enhanced CoStar property, which is a - has less content than our CoStar Suite product, it comes in at nearly half the price. So we offered something at nearly half the price. And 90% of the customers went to the high-end product. And I think that just points out the fact that they - I think this points out - we tried to do the right thing, you're like, no one wants the low-end plan. And the - it just points out that these guys make good money in the business. They spend all day long in these information products. They're able to get huge returns on their investment in these information tools. And what we're charging them is actually de minimis to what they actually make on the product. It's an investment on their part, for sure, but it's-relative to what they make on it. It's a good deal. And that is reflected in our super high renewal rates. So right now, we're focused on participation, we're not focused on trying to raise prices. We're 100% focused on participation. And we haven't contemplated anything but that.

And I guess if I can just quickly follow-up. I mean, is there any incentive - if I'm a customer who converts in October of 2017, is there any benefit that I get to converting now instead of maybe October of 2018?

Excellent question. I believe we're offering, if you are a LoopNet customer, I believe, we're offering three months free, your first three months are free when you commit to a new contract. So I think it ends up being a 15-month contract with three months being free, the revenue is just straight-lined across, and that's just to give them a reason to move in 2017. But I think that you'll be able - when that is past, I think, we'll be able to continue at the same pace after that's done, just that people are smart to jump in early will get a little bit of a gift from us, a welcome gift because we appreciate their business.

Our next question comes from the line of Josh Lamers with William Blair.

You've touched [Technical Difficulty] into the multi-family business and better understand the contribution to growth in the quarter from asset type, call it, 2 to 50, 50 to 100 and 100-unit-plus buildings. And then, additionally, what kind of incremental sales force headcount growth might we expect in order to address the growing pipeline in that segment?

Okay. I think we lost - something happened and we lost the first 10 seconds of the question. Could you repeat that?

Sure thing. Yes, I just - you've touched on it a bit, but I'd like to better understand the contribution to growth in the multi-family business from an asset-type perspective. So call it 2 to 50 units, 50 to 100, 120-plus, if you will. And then what kind of head count growth can we expect in order to meet the growing pipeline?

So the - if I just generally look back at when we acquired Apartments.com, 90-some-percent of the revenue - 95% of revenue was coming from 120-units plus. Now 15% of the revenue is coming from below 100 units. So it's going from being a couple points to 15 percentage points. The growth rate in that - the growth rates in the 20 to 49 unit communities advertising has been 500% over the last three years. Growth rate in 50 to 99 communities has been 300%. Growth in 100 to 200 units is 150%. And the growth in 200-plus is 70%. So the explosive growth is at the lower end. And our first priority is to make sure our sales people are touching basically our existing clients each quarter and then they visit prospects. We do not have enough sales people to visit all of the prospects we now know that - now learned and discovered that we have in this sub-100 world. But fortunately, with the pending acquisition of ForRent, that would bring us a new shot in the arm with a growth in our sales force well over 100 people, which should give us exactly what we need to visit every one of those good prospects every quarter as we try to build out that opportunity. So we sort of have it baked in to the acquisition of ForRent to get enough salespeople to visit the prospects.

And our final question comes from the line of Brett Huff with Stephens.

I guess, I got back in the queue. So I didn't mean to do that, but I can certainly ask another question. Can you talk a little bit about how you guys are thinking about other new products you're going to be focusing on? I know you're going to be jamming on the LoopNet cross-sale, but I know, Andy, you've always got kind of the next thing on the horizon. Any thoughts on that at this point? Or is it just sort of too early given your focus on LoopNet right now?

Sure. So we - LoopNet marketing over the next three years will look very different than LoopNet marketing looks today. So if you go back to ancient history when CoStar used to sell print office directories around the world, around this region, we actually, in the late 80s, came out with online or computer-based information products and couldn't sell them because nobody had a computer so we had to go produce magazines instead. And we - it's in our DNA. We understand how developers market higher end commercial properties, and we used to sell advertisements of $15,000 a month, $10,000 a month, $5,000 a month for these high-end properties, put them prominently in front of the biggest players in the market consistently. Compare that $5,000, $10,000 a month to the $20-some-bucks LoopNet was getting per advertiser, very different. So the biggest design change you'll see right off the bat over the next 18 months around LoopNet are creating the presentations those high-end advertisers want. What does One Bryant Tower in New York want when - Bryant Tower New York want when they are - when they've got 100,000 square feet of speculative space they need to market to the community. And we believe we can build those products in LoopNet. So that will be a big development push. The other development push that's still early stages, but you're right, I spent two days in Atlanta doing focus groups on new products this week, because we had nothing else going on. And the - and one of the things we're very excited about is doing more work around screening, prescreening renters who are setting leads in the communities and potentially providing tools to accelerate and streamline the screening process and application process with these millions of renters coming off of Apartments.com. The renters don't like the way the system currently works, it's very inefficient, they can't tell what they qualify for, they can't tell what's really available and then the owners don't like the system where they get super high bad lead ratios. And we think we can solve those problems with some innovative tools. And we think those tools will lead us into monetizing the lowest side of the market, that sub-5 unit area. So that is one of our highest priorities. We've added some staff around that, and we continue to add some staff around that and that - we've done some very small acquisitions around that area, too. So that - not going into too much detail, I think that's where we're focusing.

And there are no further questions in queue. Please go ahead.

Thank you everyone for joining us. I appreciate your patience as we went through a pretty long call today and I blame Rich for that, I cut out at least ten pages that Rich wrote for me. But we look forward - we had - we were glad that we were able to report a fantastic early indication on the LoopNet-CoStar integration. It's still very early and look forward to being able to come back at the year-end call and give you some more substance, what happened over the full three-month period. So thank you very much.

And that concludes your conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.