CoStar Group Inc (CSGP) 2007 Q3 法說會逐字稿

Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the CoStar Group third quarter 2007 results and financial outlook conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session. (Operator instructions)

I would now like to turn the call over to Tim Trainor, Communications Director. Thank you. Mr. Trainor, you may begin your conference.

Thank you, Nicole. Good morning, everyone, and welcome to CoStar Group's third quarter 2007 conference call.

Before turning the call over to Andrew Florance, our President and CEO, let me state for the record that certain portions of this discussion include forward-looking statements, which involve many risks and uncertainties that can cause actual results to differ materially. Important factors that can cause actual results to differ materially include, but are not limited to, those stated in CoStar's third quarter 2007 press release and in CoStar's filings with the SEC, including its Form 10-K for the year ended December 31, 2006, and Form 10-Q for the quarter ended June 30, 2007, under the heading Risk Factors.

All forward-looking statements are based on information available to CoStar on the day of this call, and CoStar assumes no obligation to update these statements.

Today's conference call is also being broadcast live over the Internet at www.costar.com\corporate\investor. An audio replay will be available two hours after the conclusion of this call, and remain available through midnight, November 8, 2007. The replay telephone number is 800-642-1687 within the United States, or 706-645-9291 outside the United States. Please refer to conference ID number 20100647. The replay will also be available over the Internet at www.costar.com\corporate\investor for a period of time following the call.

I will now turn the call over to Andrew Florance.

Thank you, Tim. I'd like to welcome everyone to CoStar Group's third quarter 2007 earnings call.

Last quarter, we announced our plans to transition from a period of intensive investment, to one in which we expect to generate solid earnings growth through the remainder of this year, and into 2008.

And as we reported in our press release today -- or, last night -- yesterday -- we believe we have successfully made the turn, and have begun to generate the growth and earnings we expected following the investments we made to expand our U.S. market coverage.

I am also pleased to report that the company completed another successful quarter, in which our core subscription business continued to generate strong revenue growth.

In addition to adding the 81 U.S. markets, our Core Based Statistical Areas, as part of a major expansion of our U.S. market coverage, we also invested to increase the quality of our service offerings in both the United States and Europe, and to grow our sales force.

Now we are seeing the beginning of what expect will be a significant return on those investments, in the form of improved earnings growth. Net income, which had declined over the four previous quarters as we funded those investments, turned up from $1.2 million in the second quarter to $3.3 million in the third quarter of 2007. EBITDA -- which is earnings before interest, tax, depreciation and amortization -- for the third quarter, was up even more, reaching $8 million, nearly double the second quarter of 2007 EBITDA of $4.2 million.

Revenues and subscriber growth continued to increase steadily during the third quarter, as they have done every quarter since our IPO in 1998. Our third quarter 2007 revenue was $49.3 million, a 21.6% increase compared to $40.6 million in the third quarter of last year, and $1.5 million more than our second quarter 2007 revenue.

Going forward with continuously improving operational efficiencies across our organization, we expect revenues to continue to grow over what is now a relatively fixed cost base. As a result, we believe CoStar Group is well positioned to generate continued, sustained earnings leverage through the end of 2008.

Speaking on behalf of the entire management team, I can assure you that we are focused on pursuing the opportunities we have created through this investment, and aggressively executing our earnings growth strategy, and we are fully committed to achieving a 30% EBITDA margin in our U.S. operations by the end of 2008.

I want to update you on our view of commercial real estate market conditions currently. I think we may be seeing the end of one of the great industry booms here. For the past three years, we've seen near-record absorption that has driven vacancies down, and spurred the impressive pricing levels seen in many markets for the buying and selling of commercial real estate assets.

But more recently, the sales and leasing activity have continued to cool off. We are seeing lower net absorption levels occurring across both office and industrial property types.

The U.S. office market posted net absorption of 19 million square feet in the third quarter. Although that's still positive, and it could -- you know, in the past, we've seen it go very negative -- the amount of space absorbed was the second lowest total for a quarter in the last three and a half years. Only the first quarter of this year posted a lower net absorption figure.

For the end of the third quarter 2007, net office absorption totalled 62 million square feet versus 90 million at the same time last year, a decline of slightly more than 30%. Overall net absorption is down in 32 markets compared with last year, and up in just 19.

Net absorption also is down for industrial property. Through September 30, net absorption in industrial posted a similar decline as office, totaling 125 million square feet versus 185 million square feet at the same time last year. The number of industrial markets with declining absorption in the third quarter was 30 markets, while absorption increased in only 21.

One potential problem that concerns us is that the amount of new office, industrial and retail space delivering across the country looks like it's about to surge dramatically, at a time of lower leasing activity.

The decline in vacancy rates has stopped, remained largely unchanged in office and industrial sectors this past quarter. The national average vacancy rate held at 11.1% for office space, and 8.5% for industrial. Only retail managed to buck the trend by posting a slightly lower overall vacancy rate.

Going forward, the combination of high deliveries with low absorption could lead to higher vacancy rates and declining rents. That in turn would likely cause the current exceptionally low cap rates, in particular in the current credit market, to erode, and it could bring property values down, perhaps dramatically.

We believe the impact will be more severe on the investment sales market than on the leasing markets. We believe that CoStar has less exposure to the investment sales market than the leasing market. We also believe that the softness in commercial real estate markets will impact the marginal players more than the higher end firms that tend to be our clients.

We have managed the business through several commercial real estate cycles in the past, and have grown subscribers and revenues through every quarter since our IPO nearly a decade -- in fact, before that. We have made a point of focusing our business on our most resilient clients, to reduce our exposure to just these sorts of downturns. We believe that many firms have an even greater need for our information in a downturn.

We remain confident in our business model, and our proven ability to manage through market cycles, and to consistently drive revenue and grow earnings. This isn't to say we aren't facing a more challenging environment in our business. We are more excited and confident in the earnings leverage that we anticipate in the coming quarters than we are concerned about the market cycle.

The third quarter of 2007 marked the substantial completion of the stepped up U.S. research costs associated with great canvassing and researching the 81 new markets we're entering this year. We now expect to see these cost structures stabilize. Our research team has done an outstanding job in researching these new markets and aggregating so many listings in such an efficient and timely manner. The results are clearly evident in the growth of our database, and very soon in the number of markets we offer our service to.

It still amazes me that as a company, it took CoStar Group about 19 years to build up 400,000 listings, and we've had that same number of listings in the past 18 months alone. This impressive feat is a direct result of our successful investment, additional research, personnel, and equipment in the past two years.

Total research and verified commercial real estate listings in CoStar's U.S. database group, 46% year over year, from approximately 546,000 in the third quarter of 2006, to 798,000 in the third quarter of 2007. As of today, we now have a record total of 869,000 listings in total across Europe -- actually, the United Kingdom and the United States, in our database. So there's 869,000 listings across the United Kingdom and the United States in our database currently.

The total U.S. rentable square footage tracked and maintained by CoStar now exceeds 42 billion square feet, offering detailed information on more than 1.92 million individual properties across all types and classes of commercial real estate. The largest year over year growth in listing type occurred, again, in our For Sale listings, which increased 74%. At the end of the third quarter of 2007, CoStar had over 292,000 For Sale listings in the U.S., compared to approximately 168,000 listings at the end of the third quarter of 2006.

Of course, much of this growth is a result of our addition of the 81 new markets throughout the U.S. Approximately 10% of our current inventory consisted of new markets, our Core Based Statistical Areas. They also now account for approximately 12% of our total listings.

We are confident that the research investment we have made in these new markets will result in increased sales of our services to new clients within the 81 new markets we are planning to open, and to many existing and prospective clients in our current markets.

The addition of all these markets fills in a great deal of geography, and adds contiguous market areas, making our coverage even more comprehensive and robust than it was before, which we believe enhances our overall value proposition.

Our experience in adding new markets to our research based information services has demonstrated that after making the necessary investment to add the market inventory to our database, the markets we enter become profitable, in aggregate, approximately 18 months after product release. (inaudible), last year we completed a similar geographic expansion covering 21 markets. That expansion phase was completed with the launch of our service in Milwaukee in February of 2006.

Today, those 21 markets are profitable in the aggregate, generating a 43% EBITDA market level margin.

With this latest expansion phase nearing completion, I can say we are well on our way to achieving our goal of being the only real estate information provider with a research organization, propriety software and infrastructure to offer truly comprehensive national U.S. coverage for commercial real estate. And it's also important to point out that with the completion of these 81 markets, we really are covering virtually every U.S. commercial real estate market that is remotely significant. So there's no story about adding another 20 markets next year, anything like that.

I'd also like to update you on our progress, working with the CCIM Institute to provide CoStar's information services to its large membership across the United States. We were very eager to introduce CoStar and its product offerings to a large group of commercial real estate professionals, and highly qualified prospective subscribers to such a well-regarded organization as CCIM. Under the agreement, CoStar is providing CCIM members with access to our information services for a limited time, in each respective CCIM member's home market.

We know that first impressions can be lasting ones, so we've made a concerted effort to reach out to every CCIM member who registered and used our product. Of course, supporting such a large number of new users during a limited time offer did occupy a very significant amount of time from the sales force. They were tied up throughout the third quarter on this initiative without any material revenue benefit in the quarter.

To date, more than 2,350 CCIM members and candidates have used our service in this trial period. Many have become regular users, and very intensive users, and we are confident this large-scale trial will result in a significant number of new subscriptions and a revenue benefit in the fourth quarter of 2007, and the first quarter of 2008. CCIM also provided CoStar with tens of thousands of lease and sale listings and comps from its CCIM membership base that we can use in our research process.

By far, one of the most significant third quarter highlights for the company was signing the world's largest real estate services provider, CB Richard Ellis, to a long-term enterprise-wide information services agreement to deliver CoStar's full suite of verified commercial real estate information services to CB Richard Ellis offices and partner offices throughout the United States.

The agreement covers a potential term of 11 years, and includes additional service offerings and a significant increase in the market coverage. It represents the largest financial commitment that CoStar Group has ever received from a single client, and the company expects it will generate significant additional revenue beginning in 2008, and then throughout the term of the agreement.

With a potential value exceeding $100 million in revenue over the entire term, the agreement represents both a major economic event, and a strategic advantage for the company. The fact that CB Richard Ellis, along with the majority of commercial real estate industry's largest and most influential firms, have committed to CoStar as the data standard for the U.S. operations serves to underscore our value proposition as the industry's leading information service provider. We believe that for CB Richard Ellis, and many of our customers, CoStar is increasingly valued as an essential long-term partner and service provider.

I don't believe a company of CB Richard Ellis' stature and knowledge of the marketplace would enter into such a significant economic agreement with CoStar if they believed there were an other viable solution provider out there was likely to emerge in a decade horizon. The fact is, our newly expanded national scale and high quality information resulting from our research verified process has become extremely valuable to our core subscribers, the major established service providers, who are called on to assist their corporate and investment clients in markets around the country and around the globe.

It is also clear that by entering into a long-term, mutually beneficial agreement with us, CB Richard Ellis has more closely aligned its interests with CoStar's. This represents a significant strategic change. At one time, CB Richard Ellis explored their option of partnering with other firms and a data sharing agreement in order to control their strategic information assets. It became increasingly obvious over time that the solution we offered resulted in the availability of higher quality information for their brokers, at a very reasonable cost.

As a result, the agreement contains a mutual non-compete clause. The long-term commitment and an enterprise-wide agreement to use CoStar's multi-market data greatly reduces the potential competitive threat from other commercial real estate data providers.

Another example of how our relationship has expanded and grown more comfortable over time is found in the greater flexibility over [datas] provided in the new agreement. CB Richard Ellis is integrating, deeply integrating, CoStar's information within its internal information systems.

Finally, there's one other aspect of this agreement that I think is important to note. As many of you know, CB Richard Ellis recently merged with another of our major clients, Trammell Crow. Prior to this merger, CB Richard Ellis was already our largest customer, and became only more so following the merger.

The new agreement is, in large measure, a result of the merger and consolidation. However, because of the enhanced value CoStar's information service provides to a highly integrated service provider on a national and increasingly global scale, the revenue from the new agreement is significantly more than the revenue from the two previous separate agreements.

The company has made expanding the size of our sales force to take advantage of our still very large market opportunity one of our top priorities. In the first half of 2006, the size of our field sales force was approximately 70 quota-carrying U.S. field subscription reps. Management set a goal of doubling that sales force, and we have, in fact, done that. we now have 148 U.S. subscription sales reps.

We continue to see progress at a measured pace towards 165 sales reps. These sales reps are located both in regions of the country where we currently have no local sales coverage, and in areas where we have reps but we need more.

Generally, CoStar reps with less than a year of experience are far less productive than a rep with more than a year's experience. Because of the recent rapid hiring, approximately half of our sales reps have less than six months of experience, and are making important but limited contributions to our overall production. These reps require a significant amount of manager time and attention.

This has caused some level of friction and drag in the sales organization. We anticipate that it will take several more quarters to return to the high level of per salesperson productivity we enjoyed prior to our very rapid expansion of our sales force. But we are working diligently toward achieving that.

Despite the disruption caused by the sales force hiring surge, we showed solid sales results in the third quarter of 2007. Our renewal rate remained high for the quarter at 91%, underscoring the usefulness of our information and its central role in our subscribers' day to day, mission critical activities.

Sales to existing customers, excluding renewal increases, increased 42% year over year. The rate of growth of new subscribing firms was relatively flat on a quarter over quarter basis, with 572 new firms in Q3 compared to 581 in Q2. Year over year growth of new subscribing firms increased by 31%, with 436 added in Q3 2006, versus the 572 in Q3 2007. We believe we are adding about 2,000 subscribers per quarter, at this pace.

The Midwest -- where the Midwestern region of the country did show some softness during the quarter and the prior quarter, but other regions remained very strong. The average new contract value declined quarter over quarter, from $9,064 annualized in Q2 2007, to $8,010 in Q3. This is likely due to two factors.

First, with so many new sales reps, we are signing smaller first contracts -- initial sales that are much smaller than the average overall sale we enjoy with a more experienced rep. Secondly, with this summer's credit crunch, we saw a significant drop-off in the number of new contracts from financial institutions, which tend to be the higher dollar contracts.

We believe that while many of these firms have frozen new purchases currently, we believe they will have even greater need for information services in workout scenarios that could occur. In past market cycles, we have seen demand from financial institutions go up in a downwards cycle.

U.S. subscription contract bookings in the third quarter of 2007 were $5.6 million, down from $6.4 million in the second quarter, but up from $5.1 million in Q3 of 2006.

We anticipate releasing a new service in the first half of 2008, that cost effectively markets our clients' listings on the Internet to general audiences, as opposed to the professional audience our brokers market to today for free in our current products. We believe that this product, called Showcase, will be the first product we have produced that competes with our indirect competitor, LoopNet's core value proposition of general Internet marketing.

We believe that this competitor's recent, relentless price increases will create significant room for new competition. In a softening market, commercial real estate listings take longer to lease or sell. This means that brokers will build up higher counts of listings at the same time that their income is declining, and they're becoming more price sensitive. We believe that brokers will be very sensitive to vendors with continued price increases in incremental listing count fee structures that penalize them in such a downturn, and that could lead to a negative cycle.

CoStar first entered the European market in January 2003 by acquiring FOCUS Information Ltd., a major U.K. provider of web-based access to verified commercial lease comparables, available space, requirements, tenants, planning information, and photos. And in 2004, we acquired the Scotch Property Network, which offers users online access to a comprehensive database of information for properties throughout Scotland, including available space, comparable sales, and lease deals.

During the fourth quarter of 2006, CoStar purchased Grecam, a leading provider of commercial property information research and analytics, that we believe has the most comprehensive property database in Paris. Grecam provides consulting services and subscription based data to real estate professionals, including commercial property listings, on approximately 14,000 Parisian office and industrial buildings.

During the first quarter of 2007, CoStar acquired Property Investment Exchange Limited, Propex, for approximately $22 million in cash and stock. Propex provides a web-based introduction platform that brokers use to introduce high value properties for sale to potential buyers.

In addition to having an introduction platform, Propex had acquired and operated a U.K. retail information website called Shopproperty, and a London office information service called Screendata, which competed with our firm FOCUS.

Our goal is to become the pre-eminent source of commercial real estate information in Europe by building as strong a product offering in Europe as we have in the United States. We believe the European opportunity is at least as large as the U.S. opportunity, if not larger. We believe that the market for commercial real estate information systems is less developed in Europe, and more fragmented than it is in the United States.

Our many global customers have told us that they would find a standardized, international information platform extremely valuable. We believe that with the quality of our U.K. and French team now in place, our experience, our technology, and demand from an international client base for a standardized product -- all this will give us a competitive edge in the marketplace. We intend to expand through Europe at a measured pace.

Since our acquisition of U.K. based FOCUS in 2003, CoStar has operated in the U.K. under the FOCUS name. With our recent acquisitions of Propex, Shopproperty, Screendata, SPN and Grecam, we have now introduced CoStar Group as the umbrella brand encompassing all of these companies in Europe. The strategy of bringing together and integrating our U.K. operations appears to be working very well, as prospects and customers alike now see clear consolidation in what had been a very fragmented information market in the U.K.

As we previously disclosed, CoStar is investing resources in 2007 and 2008 to integrate our European subsidiaries into a common software platform with its U.S. product offerings. In addition, CoStar has nearly doubled the size of the U.K. research operation this year, to ensure the same level of comprehensive coverage in the U.K. as we offer in the U.S.

In order to cost effectively handle the tremendous growth in the U.K. research group, we invested early in the year to open a research operations center in Glasgow, rather than grow our existing research operations in a hyper-expensive London real estate market. The Glasgow research center startup is aided by the fact that we already had a small but very strong research operation there from our Scottish Property Network acquisition.

During the course of the third quarter, we evaluated all -- actually, the second and third quarter -- we evaluated all these acquired operations, and took steps to consolidate and streamline the operations into the most effective and cost efficient position. We made a number of both management and staff positions redundant, thereby reducing our costs, and our need for real estate in London. Paul Marples, who was the managing director of the Propex operations, was promoted to the position of Managing Director, Europe.

Because we took these steps, we were also presented with an opportunity, which we took, to enter into an agreement to terminate our office lease in Mayfair, in exchange for a payment of up to 4 million pounds, depending upon how quickly we vacate these premises, which we are trying to lease so quickly, we don't have time to turn out the lights.

By agreeing to vacate our Mayfair office, we also expect to avoid a very steep increase in our rental costs in 2008. By the end of 2007, we intend to consolidate our offices in Mayfair, Barkley Square, and [Chin] into one smaller office facility in SoHo. We are pushing the majority of our headcount growth into Glasgow, thereby controlling our costs.

These steps are positioning us for significant potential earning upsides in the quarters to come. We do believe that with all of these different consolidations, and refocuses, and reorganization of where our cost structures are, that we will be breakeven by the fourth quarter of 2008 in our European operations, which is a significant upside from where we had been earlier this year.

Our core attribute of our U.S. flagship product, CoStar Property, is that it acts as a reliable and comprehensive clearinghouse of lease and sale listings. We believe that this is one of our value propositions that our customers say they cannot live without. Our U.K. operations did not have a comprehensive enough or reliable enough inventory of listings to enjoy the benefits of this sort of this sort of value proposition.

We have made creating this sort of comprehensive inventory of listings a top priority for the U.K. team. While we got off to a slow start this year, the team is now making good progress towards this goal, taking our listing counts in the U.K. from 37,000 in January of this year to some 71,000 today, for an increase of 92%. And we believe that growth will continue.

In furtherance of this goal of becoming the clearinghouse for property listings in the U.K., we released a software upgrade during the quarter that increased the functionality, visibility and usability of our agency, or in the U.S., our listing product. The product has been very well received, and usage of our agency product is up dramatically from before the release.

In the year before we acquired Propex, it had acquired Screendata, which competed with our FOCUS product. We have converted the vast majority of clients that were purchasing Screendata's product, but not FOCUS, into FOCUS subscribers. We then discontinued Screendata's operations, losing only the revenue associated with Screendata subscribers who were also subscribing to FOCUS prior to the acquisition. Obviously, this was the right move to do, because we dramatically reduced our costs.

Because of this, and clear seasonality in our French-based consulting operation during the month of August when offices close there, revenues attributable to our European operations dropped slightly, from $5.9 million in the second quarter of 2007, to $5.8 million in the third quarter of 2007. Remember though, year over year, our revenues increased from $3.3 million the third quarter of 2006, to $5.8 million in the third quarter of 2007.

CoStar is committing significant resources in integrating the U.S., U.K. and French information services into one common technology platform. This is a major project, and we believe that it will take the better part of 24 months. The project will be delivered in phases, with the first releases occurring in the U.K. in 2008. At the conclusion of the [product], the new software platform will replace and upgrade our current U.S. software platform. The software allows a user to seamlessly run queries, analyses across borders, in whichever of a half dozen language they choose, in whichever currency they choose, using whichever country's business rules they wish.

The first two of dozens of planned modules have already delivered for internal evaluation, and they're performing stunningly. Since we are using next generation technology, the speed of the application is nothing short of amazing. I have seen queries run against tens of thousands of properties complete in less than a fraction of a second. Currently, those queries could take a hundred times longer or more.

Before I turn the call over to Brian, I want to reiterate again that at this time, the company's focus and direction is on transitioning from previous periods of heavy reinvestment, into one of leveraging these many investments, to show consistent earnings growth over the next five quarters. And the thing to remember here is that we're transitioning from heavy investment not because of a shifting economy, but because we completed the United States of America.

For the rest of 2007 and 2008, the company is focused on developing our human resources to their fullest potential, pursuing customer service excellence, enhancing the already high quality of research we perform, enhancing further the cutting edge software we provide to our clients, and reaching out and finding the thousands of prospects out there that will find real value in the huge array of products we've produced here.

Our first goal is long-term, intermediate term, and short-term earnings growth. We are pleased to have clearly delivered on that commitment this quarter.

At this point, I would like to turn the call over to Brian Radecki, CoStar's Chief Financial Officer, to talk a bit more about our third quarter 2007 results. Brian?

Thank you, Andy. Now you can take a breath.

Today I am going to focus principally on sequential results for the third quarter of 2007, compared to the second quarter of 2007, and on our outlook for the fourth quarter of 2007.

Total revenues grew sequentially by 3.2% overall from Q2 to Q3 of 2007, increasing from $47.8 million to $49.3 million.

Core U.S. subscription revenue increased by 4.2% from Q2 to Q3 of 2007, with renewal rates at 91.1% for the quarter, compared to 91.6% for Q2 of 2007.

Our Q3 renewal rate was essentially reduced by nearly 1%, due to our decision during the quarter to consolidate the duplicative acquired Screendata service. Otherwise, our renewal rate in Q3 would have been slightly higher, compared to Q2.

Overall top line results for the quarter were partially offset during the seasonally slow third quarter, and by the lower than expected revenue from non-subscription services, which account for less than 5% of total revenues.

Total subscription revenues for the company continued to account for over 95% of the revenues in Q3 of 2007, with our international operations contributing 11.8% of the total revenues.

International revenues decreased slightly, from $5.9 million in Q2 to $5.8 million in Q3 of 2007. This decrease is primarily due to lower consulting fees in our French subsidiary, Grecam, due to seasonality, and the consolidation of the acquired duplicative Screendata service, which came from our recently acquired U.K. subsidiary, Propex. However, our international revenues increased $2.5 million, or 78%, from $3.3 million in Q3 of 2006, compared to $5.8 million in Q3 of 2007.

The company has reported sequential revenue increases in every quarter since its IPO in 1998, and successfully through several commercial real estate cycles.

Gross margins increased by $1.3 million, from $28.5 million in Q2 to $29.8 million in Q3 of 2007, on a $1.5 million increase in revenues. Overall margin percentages increased slightly from 59.6% in Q2, to 60.4% in Q3 of 2007. The U.S. margin percentage continues to increase from Q2 to Q3, while the international margin percentage decreased slightly, as expected, during the quarter, due to the ramp up of our new, lower-cost research operations center in Glasgow, Scotland.

Overall, operating expenses decreased by $2.2 million, from $28.2 million in Q2, to $26 million in Q3, principally in the selling and marketing area due to the seasonal Q2 expenses related to the annual ICSC trade show. As reported earlier, the company's overall operating expenses have now stabilized, and are expected to remain relatively fixed moving forward.

As a result of the revenue growth and decreased operating expenses, EBITDA increased from $3.8 million -- from $4.2 million in Q2 to $8 million in Q3 of 2007. GAAP basis net income increased from $1.2 million, or $0.06 per share in Q2 of 2007, to $3.3 million, or $0.17 per share in Q3 of 2007. Reconciliation of GAAP basis results of all non-GAAP financial measures discussed on this call, including EBITDA, is shown in detail in our press release issued yesterday, which is available on our website at www.costar.com.

Capital expenditures for Q3 of 2007 were approximately $3.5 million, well within our expected range for the quarter. We closed the quarter with approximately $164.2 million in cash, cash equivalents, and short term investments, an increase of $9.7 million during the quarter. Also, the company has no long term debt.

Now I will discuss -- wait. Let me repeat that. Cash increased $9.7 million during the quarter. That's nice.

Now I will discuss the outlook for the fourth quarter. As indicated in our press release, we expect a sequential quarterly increase in revenue from the third quarter to the fourth quarter, of approximately 3% to 5%. We continue to believe there is upside revenue potential moving forward in 2008, after we release the 81 CBSAs late this year.

As Andy mentioned, revenue growth is largely dependent on the successful growth and productivity of the sales force, particularly in view of the revenue opportunities resulting from the momentum in the established markets, the new markets, the retail offering, and new international opportunities.

For the fourth quarter of 2007, we expect fully diluted income per share of approximately $0.19 to $0.21. We expect to continue to leverage and grow earnings from U.S. operations through 2008 as a result of having stabilized the costs associated with our earlier reported step ups in investing activities, which are nearly complete, combined with our consistent core revenue growth.

Gross margin percentage is expected to somewhat improve from Q3 to Q4, as we continue to leverage the U.S. platform, even while we continue to slightly invest in our international research operations center in Glasgow. Overall operating expenses are expected to remain relatively stable over Q3 of 2007.

As we continue to invest internationally, the mechanics of our effective tax rate calculation continue to be affected by the amount of income or loss in the U.K., but we do not get an equivalent tax expense or benefit to offset the U.S. corporate tax. This results in an overall blended effective tax rate, which may increase or decrease over the current rate.

Finally, we expect capital expenditures in the fourth quarter of approximately $2 million to $4 million, and we expect capital expenditures in 2007 of approximately $12 million.

In conclusion, core revenue growth remains solid, and we expect to continue earnings growth in the core U.S. business during the last quarter of 2007, and through 2008, along with the ramp up of the investment of our international operations, which will position us for long-term growth opportunities in the U.K and Europe.

Also, we continue to believe the upside exists in the revenue growth of high incremental margins for both current established markets and the new markets we expect to release late this year.

As Andy mentioned, the entire CoStar management team is fully committed to achieving the 30% EBITDA margin in the U.S., and break even in our international operations by the end of '08, as cost structures for the various investments are expected to remain relatively stable as we grow revenue, and significantly leverage earnings.

We look forward to reporting our progress to you, and with that, I'll open it up for calls -- questions.

(Operator instructions).

Your first question is from Kyle Evans at Stephens, Inc.

Hey, guys, this is Neal for Kyle.

Hi, Neal.

Can you guys just talk a little bit about the dynamics of how a possible downturn in the commercial real estate market could impact your business, and your result going forward? And then, what you're doing now in anticipation of that central slowdown?

OK, the -- a downturn in market conditions in commercial real estate is not likely to impact our core customer base, or subscriptions from our core customer base. So if you have an established brokerage firm in a given city, with 30 brokers, each bringing in, on average, $500,000 to $1 million income to the firm, or revenue to the firm, in a downturn, that $1 million might drop to $600,000. At that point, the last thing that firm's going to do is cancel their CoStar subscription, to go out and spend four times as much money building an inferior in-house solution.

So we think we've got very strong resilience throughout a downturn with our core customer base. And as a business, we've always focused on signing up those sorts of core customers before we go after some of the more fringe customers like moving companies, telecommunications vendors, and the like.

So our salespeople actually -- since they're compensated on a net growth book of business basis, our salespeople are very focused on the renewal rates of various customer segments, and they tend to pursue high renewal rate segments.

So I think we've got some good resilience out there, and again, I know that you did not cancel your Bloomberg subscription on the day that the market went down 10%. You probably spent more time on your Bloomberg. And in point of fact, as I look at market conditions inside of our product, I think it would be a really good idea if more financial institutions started subscribing to our product sooner.

And so -- now having said all that, there's no question that in a stronger downturn, there will be some fringe element of our -- first of all, as the market moves quickly one way or another, people tend to just pause and see what's going on. And then after that -- but very often, after they figure out where it's going, you begin to move again.

On the fringe, there absolutely could be -- an interior construction firm client of ours, who uses our system for leads, to find new construction projects for interiors. They might go bankrupt, or they may have to severely cut back their budget, in which case we could lose that customer.

However, we've got a large, robust sales force at this point. We have many -- we are early in the cycle. We have many, many, many prospects out there. And so, we can continue to go through those prospects all day long to replace those businesses we lose. And that's what we've done for 20 years, as long as I can recall. There's never been a month that we haven't added more subscribers, or added more revenue net/net.

And I believe that will continue, because we've just opened up all these new investment initiatives. We've got retail, we've got all these new markets, we haven't begun to meet the middle of saturation in the vast majority of our markets. So, you're early in the penetration -- you might have to work harder. You might have to take three steps forward and one step back, but you're still going forward.

Does that answer your question?

Yeah, that helps. And I guess, moving on to backlog, it's a little bit lower than maybe we were looking for. Would you expect to see that tick back up next quarter as some of those newer sales reps start to get more productive? And really start to see that hit backlog next quarter?

Well, yes. I just -- on the way into this meeting, this earnings call, our VP of Sales mentioned that he was actually pleased with what he's seeing from a number of some of the new reps, who are beginning to post their first material sales.

No question about it. It's very difficult to go out there and double your sales force in a year. It creates a lot of friction, and this is not a sales force all located in Bethesda, Maryland -- they're scattered across 50 states. So it's a real challenge, and getting up to speed will take some time, and getting them all productive. And it's a drag on the managers, and it's a drag on the established sales people who are mentoring these new people.

But we do expect these people to get up to speed, and begin to produce at the same sort of levels the more established people produce at. So I would absolutely like to see some revenue tick up in Q4, and Q1.

And then the -- in addition, you've got that CCIM pent up revenue potential. You've got all those -- you've got 2,350 people who have become quite accustomed over the last several months to using the CoStar product. And when that trial ends, we should be able to convert a number to paying subscribers.

And we did run a similar trial -- I'm not exactly sure, but maybe three years ago. And at the end of the trial period, we did convert a -- well more than 100 of the trial firms into paying subscriptions. So I think we have the opportunity to do the same thing here in the third -- I'm sorry, in the fourth and first quarter.

So we remain very optimistic. We're excited about the business. It's fun to be doing it -- like even though you have a market downturn, it's nice to be completing a big series of investments, and to be seeing the earnings leverage, and we've very optimistic about the sales outlook, despite the fact that we've got a little bit of realism that our product tells us that some owners will lose their buildings.

Okay, that's helpful. Thanks, guys.

Your next question is from John Maiettaof Needham & Company.

Hey, thanks very much. First question I had, Andy, I was wondering if you could comment, with regard to the 165 field rep target that you had talked about last quarter, are we still on track to kind of end at that number by the end of this year, and to have those folks fully ramped at some point next year?

Well, we're at -- we started -- we were at 70 last year, we're now at 148. The -- we set two targets to double, and to go to 165. Our math was probably less than precise, because one target was simply higher than the other.

We're not treating the 165 as a magic number. What we're really focused on is, at this point, is taking the people that we have, and getting them up to productivity, getting them on the right page, tweaking the compensation plans, making sure they're aligned with what the situation is in the field.

And we have given instructions to our recruiting teams and our training teams to have smaller average class sizes going forward, and not to be in a particular rush to get to the 165, to get to it in a natural, a little more relaxed pace.

I think, in particular, in the light of some of the market uncertainty, we don't want to rush right up to the mark. I'd like to get the 148 we've got up to a higher productivity level. But I'm sure as we report -- or, I'm confident that as we report upcoming quarters, you'll see the number continue to creep on up.

Got you. Okay.

And that's not going to -- I'm not trying to hit a headline in Q4 of, we have this number of people on our payroll.

Yes, well, that makes sense. And then, with regard to integrating the European platform with the U.S. platform, from a technology perspective, is the technology integration piece progressing as you would have expected? And then maybe, if you can provide us with a little bit of color with regard to maybe some new functionality that we can expect to see maybe over the next 24 months or so, or whatever you think is reasonable.

Sure. We are making good progress on it. We have -- I'm not exactly sure of the number, but we have 16 to 20-some phases of release of the technology, where each -- at each phase, we add more and more capabilities of the alpha system, so we can -- we're not waiting 12 months to see something come out.

So we're now at the phase -- or, we're approaching the phase, I believe this month, where you can actually search in French, English, American, multiple currencies, and get result sets, and see full screens in the appropriate layout and format.

So it's making very good progress. We've got a very significant percentage of our sales force -- I'm sorry, our development team -- working on it. And it is -- the other thing we've tried to design here is to make it a real time system. We're trying to move away from having large centralized servers that would introduce latency into global systems. So if you've got customers accessing from both San Diego and Washington, Edinborough, or from Hong Kong, you wouldn't want to have all your servers in Bethesda, Maryland.

So we're shifting into a local/local technology platform, so we can scatter out 20 servers around the world, and the customers go to the fastest path. We're also using Ajax technologies, a couple other -- we're basically rewriting the platform from the ground up, into next generation technology. So the speed in the new platform is phenomenal.

You can go into the platform and type in CB Richard Ellis, and in .03 seconds, every CB Richard Ellis listing -- you know, tens of thousands of listings in the United Kingdom and in the U.S., pop up on your screen. And we think we can accelerate screen to screen times dramatically, which will basically, simply, dramatically -- would enhance the customer experience, that they preview 10 buildings, or 15 buildings. It would just move very smoothly, faster than most Internet applications you're used to seeing.

There will be a number of major feature enhancements over the course of this project. And I don't want to talk about them all, because some of them, I think, are fairly proprietary for competitive reasons. But there are probably about a dozen feature enhancements we'll be doing.

But when you're looking at what's available in Europe today, in information solutions to the commercial property people over there, what we have in the United States today is a full generation, or two generations ahead of what any competitor has got in the United Kingdom, and it's a full generation or more ahead of what our acquired companies provide in the United Kingdom.

So when we bring the next generation U.S. product into Europe in '08, we will be three generations ahead of what's out there. That, coupled with our research initiatives, I think, will give us an absolutely compelling product offering in Europe, as well as a very thoughtful, well paced upgrade to what we've got in the United States.

Great. Thanks very much.

Thank you.

Thanks, John.

The next question is from John Neff of William Blair.

Hey, guys -- good morning.

[Neese] to talk to you.

There you go.

Nice cash balances, too.

The -- let's see. On some of the revenue items there, you mentioned consulting fees in France. And my understanding what -- was that essentially with the Grecam acquisition, and do they have a consulting business? I only thought of it as a database.

Well, actually, the majority of the revenues actually using the proprietary database they have to do consulting work. And the majority of that revenue, I think, comes in on the fourth quarter, so it's very cyclical.

Correct.

And everyone on this phone call knows that the majority of France's GDP is not produced in August.

Great. Okay. And then the -- I was wondering if you could -- just a couple of statistical things.

What was the retail product, or retail oriented annual subscription value at quarter end, as well as the 21, quote/unquote, new markets are becoming not so new anymore, but -- give us an update on those?

The 21 markets, I believe we're at about $1.5 million last quarter. They're growing at about double the overall CoStar rate, so they're probably approaching -- I don't have the exact number -- $1.6 million. And I believe last quarter, the EBITDA margin was at 40%, and that's creeping up two, three percentage points to 43%.

So those are still doing very well, like I said, probably growing at about double the overall rate.

I don't have the retail one in front of me, but I can get that to you.

We did --

I'm sorry, what --

The retail number did continue to climb, we had some good winds. And I don't have a lot of color right here on that, but there were some good winds, and there was one today. A major owner signed up today on the retail side, on a $70,000 annual contract.

So we -- it continues to make good progress. And then another thing on that retail front is we are -- we have a new retail software application that we're release -- we're putting into beta -- I believe it's gone out, or at least, it's on my machine. And what it does, it's going to be right in the sweet spot of what the larger retail owners and the larger shopping center retailers have been looking for, like the J Crews, and the Neiman Marcuses, and the Saks, and that sort of folks.

What it does is, it consolidates all the individual buildings in a shopping center into shopping center views, so you can actually search for a shopping center as clusters of buildings, analyze them as clusters of buildings, and you can also search for the individual buildings that comprise a shopping center, see how they buy and sell, and are available on an individual level. I'm sure it doesn't mean a lot to people, but it is a -- it was a very, very complicated thing to do from a technology database standpoint for us, and we worked on it for almost a year. And we're releasing that to the customer base in November, along with a new home page.

So that will -- I think, will be very responsive to what people have told us, and put us in a good position to keep moving that retail number along.

Okay. All right, and then on the -- a quick couple of things on the CCIM deal. How long was that trial period? I think you mentioned it might be coming to an end in the next couple of months. And are the 23 -- 2,350 -- are those individuals, or are those firms?

Those are individuals. Those are individuals, and they tend to be a couple people at a firm here, a couple of people at a firm there. The -- it really runs to the end of this year. We can end it sooner, we can end it later. We're working with CCIM to try to find ways to work on going with them. I, frankly, don't know one way or another whether or not we'll have formal, sort of, vending relationships with CCIM ongoing, and our primary goal really is to introduce our product, particularly in the new markets, to CCIM members through this trial period, which I think we're doing successfully.

Did that answer all your questions on that, or was there something I missed?

No, no, I think that's pretty much it. And last question, and I'll get back. The Showcase product that you mentioned -- how is that different from commercial MLS?

It's very, very different, and it's one of these things that isn't immediately obvious to everybody.

Commercial MLS is our lowest end information product. So it -- it is only properties for sale, and it's not even all the information about the properties that are for sale. So it's -- of all of our different cuts of information products, where the subscriber is paying to get access to information the way an investor institution subscribes to Bloomberg for information, commercial MLS is the lowest end product we offer on the information side.

Showcase -- and I would say that CoStar Group, while we perform probably the most important marketing function for free to the commercial real estate industry, so in other words, today, I think 98% of the Fortune 500 use a CoStar client to find space. So we're a critical marketing function. We have never charged for that. We do sell advertising, so that you're -- within CoStar Property Professional, you pay us an extra amount of money, your listing will come to the top of the list inside the Professional product.

We are largely a broker-oriented system. We facilitate brokers working with brokers, brokers working with big owners. We're a broker information system, historically, with a little capital I for information, a little M for marketing, and free.

Showcase becomes the first marketing service product for communicating your listings efficiently to a general Internet audience. And that is LoopNet's primary value proposition, in my mind. So basically, in my mind, most people subscribe to LoopNet so that they can market, typically, a lower end product to a general tenant, or principal audience. And very often, I think, LoopNet may be used as a way for a principal or an owner looking to avoid paying commission to market directly to tenants and other principals.

Showcase will be a product where we'll probably limit the people that are participating and to real estate professionals. But it will be -- you'll pay a per unit, or a monthly fee, to market your listings over the Internet to the general public.

And we'll keep the product price competitive, and so when someone -- when John Q. Public, or the dentist, is looking for a new medical office of 500 square feet, and they go to Google, and they type in dental offices, into Google, up will pop various medical spaces from a CoStar website with pictures, floor plans and rates, and like that. And each one of those listings will have been paid for to be marketed.

So CoStar Property Professional is an information system, like a Bloomberg terminal, and Showcase is a marketing service, sort of a click aggregation marketing service for commercial listings, similar to a LoopNet.

And so, the person paying you, in this case, would be the lister of the property?

Correct. So I am a broker, and I have five listings. I could pay $19, and I've got five office listings in Bethesda, Maryland, and I pay CoStar Group -- I already have my five listings in CoStar Property Professional for all the professional community to see, and I didn't pay anything to do that. And I may or may not be a CoStar subscriber.

But then I pay CoStar Group $19 a month, and I -- to make sure that when someone goes to Google or Yahoo! or MSN and types in office space in Bethesda, that my five office listings for Bethesda will be on the first page of the result set from a Google, Yahoo! or MSN search for office space in Bethesda.

And your target audience is not brokers, because brokers are using CoStar Property Professional. Your target audience is the smaller space tenant that might be looking directly, and may not be able to get the interest of a broker to represent them.

Okay, so it is not -- so who -- you're going to use the search engines for, sort of, to draw the audience in. But where are they being drawn to? Is it a CoStar website?

They're being drawn to a CoStar website that is -- like, one of the advantages is, where various competing sites require you to log in, register, do a lot of different things, you'll be able to go right into listings. Really nice layouts, you won't have to register, you won't have to sign up, you won't have to pay. You just go right in and you'll be able to see listings.

So if you want to go look for -- consider various cars that you might buy, you normally don't have logins. Before -- you don't have to log into the Toyota site to learn about the Prius.

This will be sort of -- this is a pure marketing site. It's just presentation of listings directly off of a search engine hit. So it would be right off of CoStar's site.

All right. Thank you.

And I think it will become much clearer to you what it is after you see it, and after it's out there for a quarter or so. But it's really a distinction between marketing to an Internet audience, general Internet audience, versus professional to professional marketing inside of an information system.

Thank you.

Thank you, John.

Your next question is from Chris Little of Morgan Stanley.

Hello, Chris.

Hi -- thanks, guys. Thanks for the more information you've given this time around. It's been helpful.

I've just kind of gone over the math. If -- even if I assume 3% sequential revenue growth through the end of '08, and 30% EBITDA margins in the U.S. core business, and breakeven in Europe, you basically get to a $60 million EBITDA run rate by the fourth quarter of '08. And I see consensus for '09 at less than $50 million.

So can you tell me where -- am I doing something wrong in the math, or what could possibly -- you know, I see, because the U.S. business looks like it did around 4% sequential growth in the quarter, your sales force is expanding. What am I missing?

And then just as a follow-up -- two follow-up questions to that. Given that you are going to be at that type of run rate of cash flow, you've got $150 million of cash on the balance sheet. What's the point of having all of that cash, especially one year or two years from now, when you're solidly free cash flow positive, and how do you see the capital structure evolving?

And then the last follow-up question, and then I'll get off, because I know I've been long winded. But the agreement with CB Ellis -- is there any way they can dramatically draw down the number of seats if we went into a big commercial downturn? Do they have that flexibility in the agreement?

Thanks, guys.

Hey, Chris, it's Brian Radecki. I'll answer the first part, and let Andy answer the second two.

First, I can come over to your office, and I'll check your Excel model for you, make sure that you --

I need help.

--make sure you've got everything in there. But just from what you described, it sounds like you're doing the math correctly. Obviously, we haven't put out specific 2008 guidance yet, but I believe, by Andy and I setting these targets out there, it makes it extremely easy for everybody to update their models and come up with something that's reasonable for 2008.

We will, obviously, issue 2008 specific guidance next quarter, but I do believe that. So I can't speak for any of the analysts, they all run their own models, but I'm hoping that after this, a little bit more clear cut guidance, that they will be in the right place.

Great.

And Chris, I -- your ability to do math is why I am excited about the earnings leverage in the business.

Well, I hope it doesn't count on my abilities, but that's okay.

No, no -- I think we'll be okay. So the -- on the cash balance side, you're right. The cash balances are growing. It's one of the better problems to have. And as we continue to show earnings leverage in the coming quarters, we look forward to putting in front of our board on their agenda the discussion of some larger acquisition opportunities, or share buyback, or paying a dividend.

So we -- the issue is there, and we think the timing is probably '08 to evaluate these. I do think that there are -- we don't want to foreclose the possibility that there could be some larger acquisitions in which you would want to have those sorts of cash balances available to you.

But the three -- the share buyback, the dividend, or the larger scale acquisitions, will be -- we hope -- on our board's agenda in coming board meetings.

I guess, just to kind of go back and forth on this, though. The deals you have done up to this point have been deals that have been basically taken care of by just general cash generation by the business. And those deals have been kind of both U.S., and more primarily, international.

Are there any deals out there that could potentially take up the cash, and then just from a larger standpoint, as we look out longer term, two years, there's still the same issue, which is, you've got a huge cash generation business with no net debt, and a business that probably should have some debt on it, to enhance returns to us and you.

So I guess -- am I looking at it correctly? I understand you want to keep your [power drive] for deals, but longer term, this is a type of business where you're going to be constantly looking at dividends, share repurchase, acquisitions, and then it's just a matter of picking which ones are the best for returns for us.

You are looking at the business the right way. I do believe we have a track record -- I guess we've done 20 acquisitions. Very often, those acquisitions are -- we just do those acquisitions with cash, and it doesn't prevent our cash balances from growing quarter over quarter as we do these smaller deals.

I do believe that -- I do believe that where we are in the business, with the maturation of the management team -- the management team's ability to handle operations, I believe that there could be some domestic -- there is a possibility of doing some domestic acquisitions that are larger, at the scale of the COMPS acquisition we did, or larger.

And so we want to -- don't want to be shedding cash immediately, and -- but beyond that, even if that were to occur, we would still be looking forward to the ability to pay dividends or do share buybacks post doing something like that.

So you're looking at the business the right way -- it's just a question of timing.

Okay, and then that --

It is really the first time it will go on the board agenda as a serious issue at upcoming meetings.

Great. Hopefully we can spend our time talking about that, as opposed to whether you grew 4% or 3.8% sequentially.

Well, I'm not embarrassed to be in a position talking about the earnings leverage, as opposed to other things.

And then the final question was CB Ellis.

The CB, right. So under the agreement with CB Richard Ellis, both parties have the ability to reset the contract values based upon either CB acquiring companies, or CB growing personnel. So at various points in the different places, CoStar could receive a higher compensation from CB Richard Ellis, because they add additional companies and because they add additional players.

At the same time, if CB were to reduce their headcount dramatically, they would have the ability at certain periods to reduce their fees.

Now, when you look at who CB Richard Ellis is today, I think they've become an amazing company. And I know that when you look at their brokerage operations, they've gone towards a strategy of not having a million mid-level brokers. They've gone towards having a strategy of having several thousand top, top, top producers.

So the kind of people they have in their ranks -- you know, they've got people who are bringing in $10 million a year in fees. These are not people that leave CB and go sell cars because they went from $10 million down to $8 million. So I would be surprised to see CB start shedding material numbers of brokers.

However, they do have the ability to reduce fees should they start doing that in any sort of large level. And again, CB has got a lot of business. I think CB will do a lot of business over the next three years, where people are building large, class A buildings that will come to market with very little pre-leasing, and the investors in those properties may be disappointed. But they will have premium properties that are vacant, and they will be able to -- they, or the next owner, will be able to set a price at a level that pulls tenants out of the B quality buildings, and the brokers will earn a commission, moving them from the B building to the C building, even though the rent doesn't go up, or even goes down from the B building origin to the A building target.

Once the B buildings empty out, then the brokers will go and they'll take the tenants out of the C buildings, and they will move them into the B buildings at a comparable or lower rent. So you get -- some of the owners may be squealing in pain, but the brokers make money with a multi-billion dollar, hundreds of billion-dollar game of musical chairs.

I see.

So I think CB's got that revenue ahead of them.

Great, and would you expect to be doing similar deals like this with the remaining big commercial real estate broker players?

I would love to.

Are you presently working with them on trying to get that done, or --

Probably.

Thank you very much.

Thank you.

(Operator instructions). Your next question is from Cynthia Reuben of JMP Securities.

Good morning. I just had a couple quick questions on pricing.

Good morning, Cynthia.

Good morning. On Showcase, I was just wondering, I thought I heard you mention five listings for $19.95. Was that just something you threw out there, or is that going to be the pricing model?

Well, we haven't finalized pricing models for that new product, but that could be reasonable.

Okay, and to clarify on Showcase, I thought you mentioned something about it would be used primarily for people who are already are using CoStar to market to a different audience? Do you anticipate also having users that don't use CoStar currently?

Absolutely. It would be to that segment of the audience that finds value in marketing their particular listing to a non-professional audience to a general Internet audience. So that would be both our existing customers -- a lot of our existing customers -- and then new customers. It could absolutely be a situation, and remember that we -- you know, 90% of the top 500 brokerage offices in the United States may subscribe to CoStar, but -- and maybe 50%, and I don't -- these numbers aren't (inaudible), 10%, it could be 50% of the top 2,000.

But all -- almost all of the top 2,000 give us listing information today, and so this probably would be more oriented toward the 80,000 plus firms that are giving us information, the majority of whom are not our customers, will be saying, hey, it's free to go to the professionals with your listing. If you want to pay us a small fee, we'll take your listing out to a general Internet public.

So it will be for the whole world. And I wouldn't be surprised if -- by counts, most of the people who are taking advantage of Showcase weren't subscribers to the information system.

And then lastly, I was just wondering if you have any plans to increase pricing on the CoStar properties?

I -- you know, there is -- it's always a good idea to be evaluating, have various who have grown over the years, and make sure that the pricing is fair, relative to how they've grown, and how -- what other like sized firms are paying. So we will be doing, and are doing, a more targeted price increase, adding seats to customers and the like.

But I think that in a time of a softening market, when there's anxiety in the brokerage firms, I think it would be a horrible idea to do large, across the board price increases.

Thanks, then. Okay, thank you.

At this time, we have no further questions. Gentlemen, are there any closing remarks?

I would just like to thank everyone for joining us for this third quarter conference call, and look forward to updating you on year end results next.

Thank you.

Thank you for participating in today's CoStar Group conference call. This call will be available for replay beginning at 2:30 p.m. Eastern time today, through 11:59 p.m. Eastern on Thursday, November 8, 2007. The conference ID number for the replay is 20100647. Again, the conference ID number for the replay is 20100647. The number to call for the replay is 1-800-642-1687, or 706-645-9291.

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