Ladies and gentlemen, thank you very much for standing by. Welcome to today's CoStar Group's First Quarter 2011 and LoopNet's First Quarter 2011 Conference Call. [Operator Instructions] And I would now like to turn the conference over to our speakers today, CoStar Group founder and Chief Executive Officer, Mr. Andrew Florance; LoopNet Chairman and Chief Executive Officer, Mr. Richard Boyle; CoStar Group's Chief Financial Officer, Mr. Brian Radecki; LoopNet Chief Financial Officer, Mr. Brent Stumme. And I will now turn the conference over to our first speaker today, CoStar Communications Director, Mr. Tim Trainor. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on such short notice, but we couldn't wait until tomorrow to share the major acquisition news we announced today and to report the first quarter results for both CoStar and LoopNet. Before I turn the call over to CoStar Group's Founder and CEO, Andrew Florance, let me state for the record that certain portion of the discussion contain forward-looking statements, which involve many risks and uncertainties that can cause actual results to differ materially from such statements. The important factors that can cause actual results to differ include, but are not limited to, those stated in our press releases on CoStar's First Quarter 2011 Results and on our agreement to acquire LoopNet, and in CoStar's filing with the SEC, including its Form 10-K for the year ended December 31, 2010, under the heading Risk Factors. All forward-looking statements are based on information available to CoStar on the date of this call and CoStar assumes no obligation to update these statements. As a reminder, today's conference call is also being broadcast live over the Internet at www.costar.com/investors.aspx. Also, a replay of this call will be available on our website soon after this call concludes. Thank you for joining us. I now turn the call over to Andy.

Thank you, Tim. We are very pleased to announce that CoStar Group has entered into an agreement to acquire LoopNet, the premier online marketing service for commercial real estate. CoStar has agreed to purchase all of the outstanding shares of LoopNet for approximately $18.75 per share, which represents a 31% premium to LoopNet's closing price yesterday. On a pro forma basis for 2011, based upon annualized first quarter results for both companies, our combined company will have revenues of $321 million and adjusted EBITDA of $78 million. If you take into account, what we believe are the potential intermediate term cost synergies of $20 million, adjusted EBITDA of the combined companies will approach just under $100 million. We are combining two very innovative companies that have transformed the commercial real estate industry. The team at LoopNet led the commercial real estate industry from expensive and cumbersome paper-based marketing through traditional media like direct-mail, flyers and classified ads into the dramatically more efficient and effective world of marketing commercial properties on the Web. On the other side spectrum, CoStar revolutionized how commercial real estate professionals research and analyze commercial real estate. We believe that the combination of our two outstanding and complementary companies will lead to even more innovative and greater efficiencies by creating the premier internet solution for the $11 trillion commercial real estate industry. We expect that benefits to our customers and ultimately our shareholders to be very significant. The U.S. commercial real estate market is massive, complex and constantly changing. CoStar and LoopNet developed completely different business models address the challenges of aggregating content on, and providing comprehensive service to this $11 trillion asset class that has nearly $3 trillion in transaction bi-annually. Each model excels at tracking a different major segment of the industry, but neither comes…

Thank you, Andy. This is certainly an exciting day for both LoopNet and CoStar. Since LoopNet was founded in 1995, we have been focused on our mission in developing the leading online marketplace for the commercial real estate industry. Our goal has been, and remains, to build a world-class organization that delivers the best platform for marketing and searching for deals to our customers in the commercial real estate industry. I am proud to say that over the past 15-plus years, we have made tremendous progress building our business and serving our customers. And today, through this deal, we are taking another very large step toward our long-term objective. LoopNet and CoStar each have a long history of technology-driven innovation in our respective areas of focus in this very large global industry. We also share a similar vision of helping our customers be more efficient and effective in their jobs through the use of information and technology. We believe that the combination of LoopNet's Marketplace business and CoStar's research and information platform offers tremendous potential for our combined company and our customers, while delivering compelling value to LoopNet stockholders. Over the years, LoopNet has built a tremendous business, and I would like to take this opportunity to publicly thank all of our employees for their hard work and dedication. We are looking forward to working together with our new colleagues at CoStar to build on our successes and to provide even more value to our customers going forward. As Andy mentioned, the first quarter of 2011 was a very good one for our business, as well as that of CoStar, and we are very excited about the possibilities of this combination going forward. Now, Brent Stumme, LoopNet's CFO, is going to summarize our first quarter 2011 financial results.

Thank you, Rich. LoopNet's revenue for the first quarter of 2011 was $20.7 million compared to $20 million in the fourth quarter of 2010, $18.8 million in the first quarter of 2010 and our guidance of $20.2 million to $20.4 million. The revenue growth was due to an increase in our base of Premium, Premium Member and Property Comps subscribers and the impact of the recently-completed acquisitions. LoopNet's adjusted EBITDA for the quarter was $7 million or 33.6% of revenues compared to $6.9 million in the first quarter of 2010 and our guidance of $6.4 million to $6.6 million. Net income applicable to common stockholders for the first quarter of 2011 was $1.8 million or $0.04 per diluted share compared to $2.3 million or $0.05 per diluted share in the first quarter of 2010 and our guidance of $0.04 per diluted share. Non-GAAP net income, which we define as net income excluding stock-based compensation, acquisition-related cost and amortization of acquired intangible assets, for the first quarter of 2011 was $4 million or $0.10 per diluted share compared to $4 million or $0.09 per diluted share in the first quarter of 2010. As of March 31, 2011, the company had $97.3 million of cash, cash equivalents and short-term investments, and no debt. Now I would like to review some of our key operating metrics. The number of unique paying subscribers to one or more of our Commercial Real Estate-related services, as of the end of the first quarter of 2011, was 91,147, a 2.6% increase compared to the end of the fourth quarter of 2010. The average monthly revenue per unique paying subscriber during the first quarter of 2011 was $58.77, a 1.2% increase compared to the fourth quarter of 2010. In our LoopNet marketplace, the number of Registered Members, which…

Thank you, Brent. Again, I'd like to thank each of you on the call today for your flexibility, as we had to shuffle the earnings calls around in light of today's transaction. As you can see from our respective press releases, both companies posted exceptionally strong first quarter results, which we believe is a direct reflection of the emerging market recovery in commercial real estate. Before I go into the quarterly results, let me walk you through the transaction and some of the financial impacts. CoStar has agreed to purchase all of the outstanding shares of LoopNet for approximately $18.75 per share, which represents a 31% premium to LoopNet's closing price yesterday. Total equity value of the transaction is $860 million with an enterprise value of $762 million. We expect the transaction to close before the end of 2011 and is subject to shareholder approval by LoopNet shareholders and typical regulatory approval. LoopNet shareholders will receive a combination of cash and CoStar equity for each LoopNet share. Based upon the current value of CoStar shares, that would be 0.03702 shares of CoStar and $16.50 in cash. Upon completion of the acquisition, LoopNet shareholders will own approximately 8.5% of CoStar shares outstanding on a fully diluted basis. We will finance the cash conservation through a combination of cash on hand and debt. We received commitment from JPMorgan for senior secured credit facilities. We expect the acquisition to be accretive to 2012 non-GAAP earnings and adjusted EBITDA. As Andy mentioned, we believe there is potential for significant revenue synergies through cross-selling through both platforms. Both management teams are extremely excited about this combination and bringing this transaction to a successful close later this year. Now, to review CoStar Group's results for the first quarter, beginning with revenue. CoStar reported $59.6 million of…

Thank you Brian, Rich and Brent. Congratulations on great quarters. In closing, I want to summarize what we feel are the key rationales for this proposed transaction. These are two excellent companies that have revolutionized their respective niches, but they complement each other wonderfully. Together, they can have an even greater positive impact on commercial real estate. We believe that the transaction has the potential to take these two companies to more than $300 million in pro forma revenue and closer to $100 million in pro forma adjusted EBITDA. Most importantly, we believe that this transaction will enable our combined teams to build even more innovative services which can deliver even greater value to our respective customers. At this point, we're going to open the call up to questions. Rich and Brent are not in the same room as Andy and Brian because we're on opposite coasts today. So it will be helpful if you direct the call to one management team or another. But we're going to take half a dozen questions or so.

[Operator Instructions] Thank you. Our first question will come from the line of Jon Maietta with Needham and Company.

The primary question I had was around sort of the operational integration. Around integrating R&D, the technology platforms, sales and marketing, those types of things and to an extent you can provide color on day one here. But it would be great if you can talk a little bit about that, please.

Sure. I'm going do it at a cursory level. Because you're right, day one, there's a lot to research and to coordinate. And Rich and myself are committed to working closely together the next six months, a year or so, to make sure we do this right and get the most out of this combination that's absolute possible. A couple of things that I think bode well here. LoopNet and CoStar use nearly identical technology stacks. So our developers understand the environments that we're working in. And actually, an awful lot of our software developers are in Southern California, so not so far away from LoopNet, and a lot the leadership in our group is out there. So I think, while this probably comes as a shock to both employee bases, big picture, it's a pretty exciting opportunity to work on some pretty cool projects together and move the ball forward in a more meaningful way. On the sales and marketing side, this is going to be a fairly significant sales and marketing group. I think that LoopNet will be able to leverage the fact that we have a lot of field sales offices around the country. I think it's good, I mean, if you try to sell in a national footprint, I think it's a little bit easier to have a little bit more scale like we're going to have here. And then on the sort of personal story side of it, I think also, our Head of Sales, just coincidentally, John Stanfill, also happens to be the son of the chairmen of one of the founders of the original LoopNet property, first mix. So there's probably more similarities between these two companies than differences. Obviously, we've competed or we tried to compete, never quite met in the same field. But we -- it's been a spirited interaction back-and-forth, to say the least. But I think you actually learn to respect each other and that -- and we can see in the bigger mission here, and it makes sense.

Got it. Okay. And just a follow-up question. Given today's announcement, does that push back your investments around analytics, new products, customized offerings for various customer cohorts and that type of thing?

Well it does. We will be reevaluating all of our investment initiatives to focus on what is the absolute most important priority, which is successfully integrating this transaction. But we'll be evaluating that over the months to come.

Thanks very much.

Thank you. Next we'll hear from the line of Brett Huff with Stephens.

My question is just trying to make sure that I understand, going forward, once we get things integrated, because I think that will probably happen smoothly. When we look at sort of normalized EBITDA margins, I want to make sure that, Rich, that you still think that the low 40s pro forma is still the right pro forma EBITDA margin for your business if it were stand-alone. And Andy, do you still think sort of the 30% range in EBITDA for -- straight up EBITDA, is still the right number for you guys? That's my first question.

Rich?

Yes, I'll address the LoopNet point of view on that. From our point of view, our Marketplace business has margins at or above that level currently, and we absolutely see that continuing and going forward.

And from CoStar's perspective, I think the cross-selling opportunities here and the scale advantage that we gain here, which is actually very important when you're try to track millions and millions of buildings and sell in 150 cities. I think the scale that we're going to gain is going to help CoStar as a combined entity to reach target margins closer to 40% and north.

Okay. The thrust of that question is, if I just look out and use kind of consensus revenue numbers and apply those kind of normalized margins, the EBITDA that I get, even pre-synergy, is meaningfully above $100 million. I just want to -- if that's the case, that I think that's a good thing. So that's observation #1. And then the second question is, can you give us any more quantification in the kind of cross sales that you're going to do? Just any more specifics on that to give us a little bit to hang our hat on.

Sure. I'll try. It's fairly straightforward. Again, these are two huge subscriber bases is have very little overlap. We do -- we've done a lot of research here, we've conducted focus groups, we've done market studies. And a lot things we hear is that people do not look at it as a this-one-or-that-one. They look at LoopNet as having a set of value propositions that are very different than the value propositions CoStar has. Typically, on the CoStar side, people are looking at leasing, they're looking at information, they're looking at larger buildings or the Wall Street-type properties, they're looking at office properties. On the LoopNet side, they tend to be looking at marketing benefits, they're looking at sale properties, they're looking at different set of strengths. And we see that brokers and commercial real estate professionals tend to grow in to the opportunity that's created by more powerful information systems. And when we interview these potential customers anonymously, they say they will keep both systems. But you got -- all the ones who are buying both systems are telling us they're going to keep both systems, but that overlap is actually pretty small. So many, many, many of the hundreds of thousands of people that list their properties on CoStar Group's website, do not market that property or pay to advertise that property on the LoopNet network. And the LoopNet network delivers an awful lot of exposure and lead value by serving up real clear information to our listers about the amount of exposure they can receive. When they look at their screen, they can see a list of their properties and get estimates of what additional exposure they can get if they were marketing on LoopNet. We believe that will help cross-sell to hundreds of thousands of folks who are listing with our service. Likewise, I find that over the last 25 years that I've been doing this, I find it nearly impossible for a client on a casual basis to try to sort out which database is deeper or more comprehensive in one sector or another. But by integrating these back ends, we could actually -- when people are conducting searches, we can actually run searches against both systems simultaneously and present merged results, which gives people a much better deal of what's going on. And we believe what these focus groups tell us is that people will buy into that and find significant value for that.

Okay, great. That's What I needed. Congrats again and thanks.

Okay. Next we'll hear from the line of Ian Corydon with B. Riley & Company.

Thank you. Andy, are there any services that either company offers that you'll look to deemphasize or discontinue, divest? And then second question, given the cost in integration, what does this do to CoStar's appetite for acquisitions over the next, say, 12 to 24 months?

Okay. So on the first question, we will table that. Just because we need to actually study that, figure out what customer segments are buying what. From CoStar's perspective, we focus, first and foremost, on the main core of our respective businesses. And those main cores are Premium Membership with LoopNet and CoStar Property Suite. Those obviously continue to grow and thrive separately and are great brands. The reality is, the two companies in combination broadly have 15 secondary, tertiary products or even more, 20 tertiary products. So resolving and rationalizing each one of those sub-products which generally account for low single-digit revenue. Rich and I will be doing that over the next several months. And your second question? Appetite for acquisitions. I have to say, I don't -- I think we've been working 100-hour weeks for the last couple of weeks. And easily 100-hour weeks, and I would -- it's clearly diminished. We have accomplished our M&A goals for the year. There could be some smaller, strategic tuck-in that we consider at some point, but we have a full plate right now. We definitively will be doing no international acquisitions. And anything that occurred domestically would be a small tuck-in and would be a footnote.

Got. Thank you.

Next, we'll hear from the line of Todd Lukasik [ph] with Morgan Stern.

Thanks for taking my questions. Just a quick question for you, Andy, on -- with regards to LoopNet's recently-launched RecentSales, sort of comp sales data. Is that something that will be complementary and additive to your comp sales offerings? Or is that a potential, sort of potential future cost synergies?

Again, we're going to evaluate that. As we move forward, Rich and I will have very frank and open discussions and look at the -- see, I have not been into the RecentSales product, I haven't used the RecentSales product, I haven't examined the actual customers. The RecentSale product is, what? 1.5% of revenues, roughly, of the combined company. So it's going to be a fairly small product area. My initial thought, from where we stand today is that they're fairly different services. RecentSales, I think probably, is more in the core logic area or I guess the assessment area, but that's sort of preliminary. So we'll evaluate that more going forward.

Okay. And then with regards to the listings on LoopNet, any thought to adding sort of research and verified stamps on those as well?

Well, again initially, the two management teams are going to refine the business plan as we go forward. But initially, I think that one of the things we can do is, on higher-value listings, investment grade listings, 2,000-foot buildings and the like. We will be, since we're looking at all those listings anyhow, at our research site. We will be able to probably step up some of the QA little bit and we'll have more independent knowledge, and we'll try to work to continuously improve the quality and consistency of the marketing information listings that are presented. And so it will be something like what you're talking about, but it's all preliminary.

Okay. Thanks for taking my questions.

Thank you. We'll go next to the line of Jim Wilson with JMP Securities.

Thanks. Anything -- it's probably way to early to discuss, but anything you contemplate or -- think of the changing, pricing-wise, is obviously pretty -- it's different services, but pretty significant discrepancy -- and what pricing looks like for both products? Or set of products?

Sure. I think, I've been beating the same drum for a long, long time on this subject. I think, I've said this consistently over the years. I am a big believer that this is a marketplace with 600,000 to 1,000,000 potential participants. There's an awful lot of people that we've sold -- that we could sell our products and services to. I am frustrated by the fact that we don't have 300,000 combined subscribers, and I think that the play here is cross-selling and new customer acquisition. We're going to do that by improving the quality, using the combined strengths to improve the quality of the products. I definitively do not anticipate any price increases or sort of material changes in pricing policy. This is a penetration play and quality play.

Okay. And then I guess just the other would be -- I mean, seeing it through LoopNet and the dollar amount, and the potential for cost savings. Could you drill even a little deeper, in the sense -- $20 million seems like an awful lot. Or is part of it data feeds and things I wouldn't see? Or maybe I'm just thinking operating expenses and not thinking about cost savings at the gross margin level. But could you maybe break down a little bit where the biggest opportunities are?

Sure. I'll let Brian do that.

Hey, Jim, it's Brian. So, yes, I think you've got a whole list of things that we're going to be looking at. Two management teams met a few weeks back and started discussing those, but exactly -- I think you hit the nail on the head. There are a lot of duplicative data costs. Both companies spent an awful lot competing on the internet for the same pay-per-click dollars. I won't give you the number, but it's a significant amount, millions and millions for each company. There's an awful lot of R&D spend, where both companies are investing in R&D, which, as Andy discussed before, can be put towards the same goals versus separate goals. There's obviously going to be -- it's sort of a joke, but not a joke. A lot of redundant legal costs, public company overhead cost, those types of things. And I think some of the things Andy talked about, we had a goal of adding $4 million to $5 million of additional software development spend and we look at a tremendous software development team over at LoopNet. Very similar with the tremendous team we picked up at Comps.com 10 years ago. Almost everyone of the same people are still there in San Diego. So we look at it as, instead of hiring a majority of those people, we believe we've gotten a lot of them through the LoopNet acquisition. So there's going to be, we're going to look at cost on both sides of the business. But we feel very comfortable with that number over the first 18 to 24 months.

Right. So this is, it's not like the two companies are going to be standing still. We were pursuing investment initiatives. And when you look at these cost synergies as a percentage of the total budget of the two companies, it's roughly what, 7%?

About 7%.

Yes. So it's -- I think it's pretty achievable.

Okay, and then I was just going to say, so 18 to 24 months -- so if you were giving any guidance you're not necessarily, Brian, 2/3 of it in the first in calendar '12 and the balance after that, kind of thing?

Yes. I mean I think you can say it's something in that range. It obviously depends on when we close the acquisition. But I think as the acquisition closes by the end of this year, again, we have all expectations this will be extremely accretive for the one year following the close of the acquisition both on adjusted EBITDA and non-GAAP EPS.

Okay. Good, thanks.

And next, we'll hear from the line of Jennifer Plett[ph] With Pacific Crest Securities.

Representing Steve Weinsten. We just have a quick question. What if -- is there any chance that the deal will break? Obviously, we don't hope for that. And that also, if that's the case, whether there is any deal breakup fee?

Sure, we had an exciting moment here. John Coleman, our counsel, has sat through 40 earnings calls and never spoken once. I'm going to actually let him answer this question.

So, in our view, the businesses are very complementary. And we think this combination is in the best interest of clients and shareholders. So we don't think that this is going to give rise to any antitrust issues. We have to go through the process, but that's our view. And the agreement does contain a reverse fee. We haven't really disclosed it yet. We're going to, which I think we can.

Which I think we can.

Yes. So it's 6%.

What does that mean, 6%?

Possibly $52 million.

Okay. If anything happened from now to the deal is close?

If the deal doesn't get done because of antitrust.

Okay, Thank you.

And the final question in queue at this time is from Toni Kaplan with Morgan Stanley.

Thanks for taking my question. I'm not sure if you mentioned this before, but -- if you could talk about any plans for the management structure?

Well at this point, again, it's preliminary. We will be exchanging people back and forth. We'll look to have people from CoStar operations work in the big operation centers of LoopNet and vice versa. So we will do a lot of cultural exchange. And I think we have an awful lot to learn from each other. Because we're in fairly different spaces. But it's way too early to start trying to figure out the management structure. We've been revealing information to each other in slightly escalating amounts and we'll do a lot more of that over the next 6 months.

Great, thanks. And also could you give some of the terms of the term loan?

Sure. It's a $415 million commitment with a $50 million revolver from JPMorgan. It's a first lien term. We do have options to convert that to other things. So we're still evaluating all those options over the next few months. So we'll -- actually, the ultimate capital structure will be in place as we close.

Great. And then a final question on the quarter. I saw the great new sales number. I'm was wondering if there was anything in that, that was specific to this quarter or if we just continue to expect that good new sales numbers going forward because of the changing environment.

I believe that not all of what you're seeing is the changing environment. And I believe that the real driver of that excellent growth, revenue growth, was the high renewal rate and sales in our core product area. There was no particular standout monster deal that drove that. It was just hundreds, thousands of new folks coming on.

Great. Thank you so much.

Actually -- so I think this is a -- I think, I need to revise my comments just slightly. One of the benefits I left out for the acquisition is that, somehow, when the two companies get together to do a joint earnings call, we finish it in less time than CoStar does when we do it by ourselves. So we'll take that as an extra benefit. Thank you very much for joining us and we're really excited about this acquisition. And both management teams will be available if you have any other questions, off-line. Thank you very much.

Thank you. And ladies and gentlemen, that concludes our conference today. We appreciate your participation and for using AT&T executive teleconference. And you may now disconnect.