CoStar Group Inc (CSGP) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CoStar fourth quarter 2010 conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions given at that time. (Operator Instructions). As a reminder, this conference is being recorded.

Speaking on today's call will be CoStar Group Founder and Chief Executive Officer, Andrew Florance; Chief Financial Officer, Brian Radecki and Communications Director, Tim Trainor. I would now like to turn the call over to your host, Tim Trainor. Please go ahead.

Thank you, Operator. Good morning everyone and welcome to CoStar Group's fourth quarter 2010 conference call. Before I turn the call over to our CEO, Andrew Florance, let me state that certain portions of this discussion contain forward-looking statements which involve many risks and uncertainties that can cause actual results to differ materially from such statements.

Important factors that can cause actual results to differ include but are not limited to those stated in our press release on CoStar's fourth quarter 2010 results and in CoStar's filings with the SEC, including it's Form 10-K for the year ended December 31, 2009, and it's Form 10-Q for the period ended September 30, 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 the statements.

As a reminder, today's conference call is also being broadcast live over the internet at www.costar.com/investors.aspx. A replay will be available on our website approximately one hour after this call concludes. Thank you for joining us. I will now turn call over to Andy.

Thank you, Mr. Trainor. I appreciate it. Welcome to CoStar Group's fourth quarter 2010 conference call. I am pleased to report a very strong fourth quarter close to a pivotal year for both commercial real estate and CoStar Group.

Commercial real estate made the turn towards recovery in 2010. The US office market gained 20 million square feet of positive net absorption in the fourth quarter of 2010, tripling the amount of office absorption in the third quarter and the strongest level since the fourth quarter of 2007. So it was a very impressive fourth quarter absorption number.

As a result of the strong leasing activity and significant absorption, US office vacancy rates continued to improve during the fourth quarter of 2010. From the peak in 2010 at 13.6, the US office vacancy rate has continued to decline to 13.3% currently.

The office availability rate also peaked in mid 2010 and has begun to decline. This is after an erosion of market conditions that began in the fourth quarter of 2006 until now. We're finally beginning to see a clear turn. Office vacancy rates, industrial vacancy rates do not jump around. They tend to move in glacial high momentum trends, so this is probably a stable improvement in the market. As a reported in the past, CoStar's sales growth and renewal rates have historically been correlated to these two key industry indicators and the improving conditions have continued to have a strong positive impact on our business.

The market outlook does vary from market to market, but the majority, or 14 of 20, largest US markets saw positive absorption in 2010. Los Angeles and Orange County posted negative net absorption in 2010, nonetheless, our sales are still accelerating in these two markets.

One very valuable indicator is to look at the number of sub markets in the United States that have improving conditions versus deteriorating conditions. So at the best point of the last cycle of 2004, 67% of the sub markets had tightening vacancy rates. At the bottom of this last cycle when it was the darkest, only 37% of the markets had stable vacancy rates or improving vacancy rates. Now we're back up to 65% of the markets being stable or improving and I think it's possible that conditions could improve beyond the best point of the 2004 part of the cycle.

Meanwhile, construction levels for all types of commercial property remain extremely low. A paltry 1 million square feet of office space broke ground in the US in the fourth quarter. That's the smallest amount of new construction in decades if not a century.

Given its almost complete shut down in new supply, we expect a very strong recovery in the office market in the next two to three years if trends in leasing and positive absorption hold. Based on current job growth forecast, the prospects for a faster than expected recovery in the office market appears strong. Economy.com for instance,is forecasting 6 million jobs to be created in the next two years.

Today, yesterday we saw an indication with a better than expected job numbers that economy.com could be right. We believe the level of job growth coupled with the extremely low level of new development activity occurring today would result in significant positive absorption and being accompanied by a decline of office vacancy rates to below 10%.

The picture remains mixed in the sales market. CoStar Group's repeat sales index shows that general commercial real estate, particularly the typical mid-size and smaller buildings across the US continued to fall in value, declining 8.2% in the fourth quarter of 2010 and 11.2 % for the year overall.

In contrast and on a much more positive note, large investment grade properties in major markets have climbed in value 8% over the course of 2010. Larger properties and top markets for their 90% lease-by-credit tenants are doing extremely well. The investors are essentially buying bonds backed by commercial real estate. I believe that the investment grade index is probably a leading indicator for the general commercial index.

The average price paid for an office property at the end of the fourth quarter was the highest it's ever been in a time period we're tracking which goes back two decades. The long-term average price is $7 million for a commercial real estate transaction. The prior peek was back in 2006 at $17 million, and the number today stands at $20 million. At the same time, average asking prices for the average commercial property in the United States have fallen from $1.1 million at the beginning of 2010 to $994,000 at year end.

Obviously, there's an awful lot of liquidity at the upper end of the market and not so much the lower end. A bizarre market disconnect, but nonetheless a leading indicator I think of a positive trend.

Just as with commercial leasing market, the picture for property sales changes depending upon the region, even the market. Commercial real estate in the Northeast US lead the nation in terms of strength of pricing, having recovered 23% of its pre recession pricing levels. The Southeast region of the country is the only other region that has recovered a portion of it's pre recession pricing levels gaining back 14%. In Washington, DC, values of commercial real estate have climbed 15% year-over-year, overall the property types large and small, industrial, office, retail.

Overall, we expect average property values for general commercial real estate to reach bottom and begin to increase in 2011. We believe this is an opportune time to become more aggressive in investing in our business given these clear signs that commercial real estate market conditions are well into a recovery stage and may in fact be poised for a long and significant growth phase.

With the onset of market recovery, CoStar's has experienced a very positive return to organic growth. The organic growth we experienced last year is clearly evident in the consecutive record levels of revenue in each quarter throughout 2010, culminating in $58.2 million in revenue in the fourth quarter.

Year-over-year, fourth quarter revenues increased $3.6 million or approximately 6.5% of our fourth quarter 2009 revenues of $54.6 million. Fourth quarter revenue also increased $1.1 million over our third quarter 2010 revenue of $57.1 million.

Full year 2010 revenue of $226.3 million increased $16.6 million or approximately 8% over 2009. We're fairly happy with that number given the fact that we are coming out of a pretty brutal commercial real estate market and that pushed our expectations to come at that quickly.

During the year, we added more than 2,600 subscribers to CoStar Group. Subscriber growth surged in the fourth quarter of 2010 with 1,135 new subscribers. We enjoyed very strong net subscriber growth across multiple product areas and regions. This total includes an addition of 738 net subscribers to our internet [lead] generation service Showcase and 705 subscribers net new to our flagship CoStar information product area.

The fourth quarter of 2010 was seasonally very strong for subscriber growth and the sun was out and shining. The total number of subscription client sites increased by 273 to 16,781 Company-wide during the fourth quarter of 2010 from 16,508 in the third quarter. As you would expect, with strong subscriber growth, our sales also showed the consistent growth throughout the year with a very strong fourth quarter and an especially strong December. One of the best sales months on record.

For the fourth quarter of 2010, Company-wide net new sales totaled approximately $4.6 million which is nearly a $3 million year-over-year improvement over fourth quarter 2009 net new sales, and it's the highest level since the second quarter of 2008. Our Company's success in retaining customers and driving usage through the recent economic recession and into the current recovery has remained a positive hallmark of our business.

At the end of the fourth quarter of 2010, the 12-month trailing renewal rate for subscription based services exceeded 90%, increasing from approximately 85% at the fourth quarter of 2009. This is also the highest renewal rate level since the second quarter of 2008. Subscription based revenue accounted for approximately 94% of the Company's total revenue in the fourth quarter of 2010. The fourth quarter 2010 renewal rate for clients that have been our customers for five years or longer remained extremely strong at 96%, and the renewal rates for firms that have been clients for less than five years also remained very high at 86% up from 80% one year ago.

During the fourth quarter we continued to see strong demand from brokerage firms adding users or subscribers to additional services and markets. The most notable example during the quarter was Jones Lang LaSalle which became the largest major service provider to sign a significant contract extension for additional services and new markets, joining Grubb & Ellis and Marcus & Millichap, two other major firms and valued clients that renewed and expanded their subscriptions in the second half of last year. The average new contract value Company-wide during the fourth quarter of 2010 increased to $9,808, an 18% jump over the third quarter of 2010 average new contract value of $8,292.

As we expect and communicated to you earlier, our sales headcount returned to mid year levels as new sales training class moved into production. At the end of the fourth quarter we had a total of 195 sales reps, an increase of 14% from 181 on-staff at the end of the third quarter of 2010, so we're at that approximate 200 persons sales force level which is a good stable place for us right now.

As I reported in our recent calls, one area where we enjoyed exceptionally strong sales success all last year is in our financial services. There is no question that we certainly benefited from the additional exposure and visibility CoStar gained among investors, banks and other financial services firms from our acquisition of Property & Portfolio Research.

One recent example of successful of cross-selling of CoStar services to institutional clients during the fourth quarter was StanCorp Financial Group, a major provider of financial products and services with mortgage investment, real estate, and equities subsidiaries. We've also seen more CoStar clients subscribing to PPR services. Most notably Apollo Global Real Estate Management, which recently completed it's acquisition of the real estate investment management group of Citigroup Investment Bank and now has a global property platform of more than $3 billion in assets under management.

As I mentioned, Showcase continued to perform at an exceptional level during the fourth quarter of 2010. Our internet marketing lead generation service added 738 subscribers in the fourth quarter reaching 11,627 subscribers which represents a 31% year-over-year increase compared to the fourth quarter of 2009. Showcase is now generating approximately $6.5 million in annualized revenue which is up 10% from the prior quarter which is up pretty significant annualized growth rate making it one of the fastest growing services in the CoStar suite of services. Given the continued recovery and consistent demand we're seeing in almost all areas of our business, I'm very excited about our outlook for continued strong sales in 2011.

This clear and growing strength in our business was also apparent in our earnings. Given the growing market recovery and the enormity of the CoStar opportunity, we have continued to invest aggressively in growing the business. Despite that level of investment, during the fourth quarter of 2010 net income increased to $3.8 million or $0.18 per diluted share compared to third quarter net income of $3.4 million or $0.16 per diluted share.

With more than 1,000 researchers, economists, software developers and analysts focused solely on commercial real estate, CoStar has an unique ability to provide our clients with a much more accurate and complete window on the market. That is why we believe that CoStar's vacancy and availability rates indicated deteriorating market conditions two quarters before one of our key competitors going into this recent downturn, and why CoStar's same key indicators signaled the onset of recovery two quarters before that competitor signaled the emerging recovery.

We believe that this means that our clients know which way the markets are heading two quarters before our competitors reports the trend to its clients. We further believe this advanced insight provides our clients with a major advantage in the market, knowing exactly what properties are available and being able to forecast which direction the market is heading are the primary reasons our customers rely on CoStar's information and analytics.

In 2010, CoStar's research organization continued to expand it's database to unprecedented levels. At the end of the fourth quarter 2010, we tracked more than 3.9 million properties in the United States, the United Kingdom and France, having a total combined size of a staggering 75.5 billion rentable square feet. This is an astounding number that I believe is the largest proactively researched or proprietary commercial real estate database ever built and remains the main source of CoStar value in the marketplace, and I think it will remain so for quite sometime.

Another great strength of CoStar's research is it's granularity. The ability to quickly identify the same facts for each property, its size, its location, availability or historical performance. And then to do the same thing for a property next to it, and the one across the street, and then analyze the same set of facts for a specific set or thousands of properties to produce the most accurate and complete information and analysis on those properties. Because of the census approach to research, CoStar is able to achieve a level of accuracy and context that research constrained competitors relying on partial data or market samples simply cannot match.

One of the major milestones of 2010 for CoStar group was our HQ move from Bethesda, Maryland to downtown Washington, DC. As you may recall, moving our headquarters to Washington, DC has proven to be a great decision.

When our lease expired in Bethesda, we wanted to move closer to the center of the regions transportation hub so that we could more effectively recruit from the entire Washington metro workforce. In addition, with a national and international business we believe that downtown Washington offered us much better access to the North East corridor trains, into Washington's Reagan National airport. Finally, to gain efficiencies we wanted to consolidate our operations from three buildings in the Washington metro area to just two.

The city offered us considerable tax incentives, potentially worth more than $6 million over ten years if we relocated to the district and we increased the number of district residents on our payroll by 100 among others requirements. The city has now certified that we've achieved those requirements making us eligible to begin receiving significant property tax rebates or abatements. Not sure which one it is.

Now that we have completed the move and settled into our new headquarters, we could not be happier with the results. There is a tremendous positive energy and excitement in the new headquarters. We have lost relatively very few employees in the move and our turnover rate remains very low by historical standards.

We believe that we have had much better success recruiting new top quality staff in our new downtown headquarters. We now have a staff of nearly 500 in our new HQ. Dozens of staff from our Columbia and White Marsh offices have relocated to our new DC headquarters. We believe that within the next 18 months after we have completed building out this facility, we will have more than 700 staff working in the headquarters, or nearly twice the number we had in the old HQ. We also believe we'll achieve significant improvement operating efficiencies by having more staff in fewer facilities.

Buying 1331 L Street Northwest last year was simply an opportunistic decision. At the time, property values had dropped dramatically while rents had not. Our lease was up and we had to make a decision.

With some knowledge of the nature of commercial real estate cycles, we knew that Washington would recover quickly and if we leased facilities, rents for expansion space could become very expensive in the future. When we found a new class A office building in DC that we could buy in a distressed sale for less than it's construction cost 18-months prior, we knew that it was highly probable that owning it could be less expensive than renting with very little potential downside.

We bought the property last February for $41.25 million or $243 per square foot. With the advantage of the industry's largest research organization, monitoring marketing conditions, we soon discovered that the market for fully leased credit tenant properties in Washington, DC was recovering very quickly, as I shared with you earlier in this call.

Investors were looking for better yields backed by added security of prime real estate with some inflation protection, a logical strategy. We did not hesitate to put the building on the market sooner than anticipated and received a number of qualified bids. To give you an idea of the extraordinary investor demand for this type of property, we received offers from more than 30 major investors throughout the US, as well as Europe, Asia and the Middle East. We were very pleased to find a real quality buyer, GLL for the building at $100 million, including $15 million that has been set aside for completion of the build of our space in certain common areas.

We sold the building at $596 per square foot with all of the consideration and it was almost $60 million more than we had purchased it for a year earlier. We believe that the purchase and sale represents the greatest appreciation from a single building bought and sold in the past five years in the United States and we've examined a thousand plus deals to determine that. Brian will discuss the financial details of this sale later in the call.

When we announced plans to pursue this opportunistic property acquisition, we had no intention of remaining long-term owners of real estate. We feel it's important to our success that CoStar remain a completely neutral, transparent intermediary within the industry with no vested interest in the outcome of the market conditions we report on or the transactions we support. We do not think it's possible for a company to play the role we play if they're very active or active at all in the marketplace.

This sale largely culminates our plans for consolidating our facilities that we have communicated to you at the beginning of last year. In addition, we've moved aggressively to secure long-term leases in the current environment of sharply lower rental rates for several of our major offices including London, New York, and Boston. We have fine facilities there that we think long-term very affordable numbers.

CoStar closed out the year with an exceptionally strong balance sheet. At the end of the fourth quarter of 2010, the Company had $239.3 million in cash, cash equivalence and investment on hand. A $7.3 million quarterly increase, and the Company has no long-term debt. With this successful building sale, we now have more than $320 million in cash and investments on hand and no long-term debt.

With growing profitability and strong cash flow and more than $15 per share in cash, we now have a phenomenally strong balance sheet to support the Company's future growth. That's probably an understatement.

We believe that the domestic commercial real estate information industry is an asset class worth $11 trillion in the US and globally is one of the largest asset classes worth in total more than $30 trillion. Millions of high valued leasing, sales, and financing transactions are conducted each year. These transactions, as the industry has recently learned, can be risky and information intensive.

Historically, there's been very little digital information available to support a relatively opaque industry. It's my firm belief that much of the information in the industry has historically relied on has been synthetic or guesstimated. Increasingly, the industry is learning the value of reliable high quality digital information sources and tools to speed transactions, reduce costs and reduce risks. With the market moving into a stronger recovery and CoStar positioned with a leading market position and massive information assets, we believe there's never been a better time to aggressively exploit this enormous potential market for our share holders and our clients benefit.

We intend to use our strong cash position to support a more aggressive acquisition initiative in 2011. In 2008 and 2009 while the market was plunging, we took a relatively conservative stance by retaining cash and slowing M&A activity.

Currently we believe that there are just under a dozen attractive strategic potential acquisition targets for CoStar. We intend to pursue several of these targets and believe that these potential acquisitions could create significant value for both our clients and shareholders. As we've demonstrated in the past with PPR, Resolve and many other companies, we look for acquisitions available at reasonable valuations that offer, what we believe, is a strong strategic fit with an exceptional management team and an innovative product or service with a proven ability to grown and gain market share. It's reallyimportant to note that we have a well-established track record of walking away from over-valued deals. We have walked from more deals that we could not get a reasonable LOI on than we've ever done.

Among the companies we're considering out there, we're most interested in those that can take a leading market position and accelerate earnings growth by leveraging any or several of CoStar's strategic assets. These assets include our database of research, verified commercial property information, our strong balance sheet, our extensive client base, our advanced technology platform, or our highly effective and efficient sales and marketing channel. With more than a dozen successful acquisitions under our belts, CoStar's management team has extensive experience in acquiring and integrating commercial real estate information related companies successfully.

The second area in which we plan to invest more aggressively in 2011 and 2012 is software development. As we stated in our press release yesterday, we see numerous highly leveraged opportunities to drive additional growth in our revenues and earnings by investing in and upgrading our US and UK and French product offerings. In addition, we have several exciting new initiatives in advanced planning stages. There among other initiatives that include new and enhanced analytical tools for both CoStar and PPR users, new segment customized versions of our products, for instance a specific appraiser version of CoStar property, or an owner version of CoStar property, or a bank version of CoStar property rather than one generic type of product. It includes new service to integrate proprietary customer data with our information to yield far greater insight and faster decision support.

Right now our clients pull data from many, many sources and laboriously move it at significant expense through many different software environments to accomplish their objectives. We believe we can create significant additional value by providing more of these information streams integrating them more seamlessly with more vital applications, reducing the amount of friction and increasing efficiency and reducing costs. In doing so we can significantly increase the value the clients get from their information by making it much more proactive rather than the way it's reactive today.

Today people turn to a data source to look up a specific value or solve a specific problem, but through integration, applied analytics information can become proactive providing a trigger that alerts the user to a change or new development that may be the key to making a better investment or leasing decision. If you look at the entire real estate life cycle, you see that people need the information at different stages and for different events, and are basically having to reinvent the wheel each time they do an analysis or support a decision or report.

They're reorienting themselves to the market, rebuilding their models and going out and resourcing or updating for this component and that component and so on so forth. This is hugely time consuming process and introduces a large opportunity for error. Example, some of the events that they're doing are acquisitions, development, redevelopment, financing, valuation, leasing, raising equity, portfolio allocation, disposition, fund re-investment and many other examples. If we can provide our customers with a 5% increase in value or three-month market insight, we can create really tremendous value for them and for ourselves as well.

We would argue pointing to our successful recent sale of our office building, that the value you can create is a lot more than just 5% on these transactions. There will always be those market participants that stick to the old synthetic or guesstimate data sources and the old manual reactive ways of doing things, so the ones that have the advantage we hope to bring will take them to the cleaners. There will be a tremendous transfer of wealth in commercial real estate over the next several years is our belief. Our customers stand to be on the right side of that transfer.

We are also developing a new next generation version or our core product that will be designed to operate in the mobile environment including the iPad and perhaps Motorola's new device, and it will enable our subscribers to take CoStar wherever they go. We think these software investments could leverage and further unlock the massive value we have in our proprietary data sets and technology. We believe that they will enable us to capture greater market share and continue the acceleration of our revenue growth.

Before I turn the call over to Brian, I want to briefly mention and reiterate the landmark verdict in US District Court on password sharing that was rendered in CoStar's favor that we announced in the fourth quarter on the Friday before Christmas when nobody was reading the press. But more than $1 million in court ordered damages and the extensive media coverage on the case, which actually was pretty good, has been very effective in deterring this sort of illegal password sharing activity. We have seen a reduction in the frequency of password sharing and an increase in the number of firms and individuals coming forward just to subscribe to our services as a result of this significant legal victory.

We are committed to doing everything in our power to strengthen the security of our products, to prosecute unauthorized users and to protect the value of being a CoStar client. Fortunately the technology available today makes it increasingly easy to detect that and identify those who engage in illegal password sharing which in turn helps controls the heavy cost associated with data theft and more importantly, the lost revenue opportunity which we think is pretty significant.

Let me close my remarks by saying that I'm very pleased with our Company's performance during the fourth quarter and all of 2010. The increasing sales, high renewal rates and strong subscriber growth clearly demonstrate renewed strength in our business.

With commercial real estate markets now in initial recovery mode, we fully expect to achieve higher margin and revenue growth through the first quarter and well into 2011 and beyond. At this point, I'm going to turn the call over to Brian Radecki, our Chief Financial Officer, and he's going to walk you through a discussion of last quarter's financial results, the building sales impact and the outlook of 2011 in more detail. Brian.

Thank you, Andy. Your welcome. Take a breath. As Andy mentioned, we're very pleased with the performance in the fourth quarter and for the year 2010. We delivered excellent results for the quarter and saw positive momentum continue in many areas of the business. Today, I'm going to focus principally on sequential results for the fourth quarter of 2010 compared to the third quarter of 2010, and also our outlook for the first quarter in full year 2011. We believe the sequential trends offer the most insight into the performance of our business.

Our fourth quarter revenues came in at an all-time record of $58.2 million, an increase of $1.1 million over the third quarter of 2010 and an increase of $3.6 million compared to revenues of $54.6 million in the fourth quarter of 2009. Our record revenue performance during the quarter was driven primarily by strong net new subscription sales from our core CoStar suite service offerings, as well as by our high renewal rates.

International revenues on a functional currency basis was approximately GBP3 million in the fourth quarter of 2010, essentially flat when compared to the third quarter. International revenues were 8.2% of the Company's total revenue in the fourth quarter.

Subscription revenues for the fourth quarter accounted for approximately 93.7% of our total revenues and the number of total CoStar subscribers reached 87,938 at year end, up 1,135 from last quarter. As Andy mentioned earlier, we're pleased to see our renewal rates trend ahead of expectations as demand for CoStar services has been strong.

As of December 31, 2010, our 12-month trailing renewal rate, which is a measure of renewing subscription revenue, was 90.3%, up from approximately 85% one year ago. ago. And most importantly, has now increased for five consecutive quarters. We believe this is an important measure of the strength of our business model and we are very excited to see the 12-month trailing renewal rate move back over the historical average of a 90%.

Our end quarter renewal rate also remains strong at approximately 91%. Please note the end quarter renewal rate which is a measure of total dollars renewing in the quarter does tend to fluctuate from quarter-to-quarter plus or minus a couple of points, therefore we do continue to still focus on the overall 12-month trailing basis. Moving forward, we expect renewal rates to remain strong through 2011 and beyond.

Now turning to gross margin. Gross margin was $36.9 million in Q4 of 2010, up approximately $500,000 compared to Q3 of 2010. Our gross margin percentage remains essentially flat at 63.4% in Q4 2010 compared to Q3 of 2010.

Moving down the income statement, total operating expenses for the fourth quarter of 2010 decreased by approximately $400,000 to $29.9 million compared to $30.2 millionin the third quarter of 2010. Job and marketing expenses increased about $900,000 in the fourth quarter primarily due to the increased commission on higher net new sales and customer renewals, as well as a slight increase in spending in marketing initiatives to drive additional sales growth.

Looking at the profitability, net income for the fourth quarter of 2010 was $3.8 million or $0.18 per diluted share, up $0.02 compared to last quarter. And our non-GAAP net income was $6.6 million or $0.32 per diluted share, both at the high end or exceeding our previously guidance ranges.

EBITDA for the fourth quarter of 2010 was $10.4 million, an increase of $1 million compared to the third quarter of 2010, and adjusted EBITDA for the fourth quarter of 2010 was $13.4 million or approximately 23% of revenue. Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all the non-GAAP financial measures discussed on this call to their GAAP basis results are shown in detail along with definitions for those terms in our press release issued yesterday which is available on our website at www.CoStar.com.

Turning to the balance sheet, we ended the fourth quarter of 2010 with approximately $239 million in cash, cash equivalence and investments and no long-term debt. And as Andy mentioned several times, adding in the recent sale of our headquarters building, our cash and investment balance now exceeds $320 million --

-- or more than $15 a share.

or more than $15 a share.

Now I'll discuss our outlook for the first quarter in full year 2011. Our guidance takes into account recent trends, revenue growth rates and renewal rates which all may be impacted by economic conditions in commercial real estate or by the overall global economy. Our forward-looking guidance reflects our current expectations as of February 23, 2011.

As we have stated many times, it's our goal is to strike a balance between investing for continued long-term growth and delivering short-term growth and earnings. We expect for the first quarter of 2010 a range of $58.2 million to $59.2 million in revenue and for the full year 2011, we expect approximately $240 million to $244 million of revenue. Continued strong demand demonstrated by our renewal rate over our historical 90% average combined with consistent net new sales growth over the past three quarters has given us a high degree of confidence in our annual revenue outlook.

Our guidance on the impact of foreign currency exchange fluctuations and our top line results remains consistent. We will not attempt to predict the exchange rate fluctuations and our guidance assumes little to no volatility for this rate. The average exchange rate for the fourth quarter of 2010 was $1.58 to GBP1.00, and our 2011 guidance assumes a rate of $1.60 for the year.

In terms of earnings, we expect the first quarter of 2011 fully diluted income per share of approximately $0.15 to $0.18 and non-GAAP net income per share of approximately $0.24 to $0.28.

For the full year we expect GAAP net income per diluted share of approximately $0.72 to $0.78 and non-GAAP net income per diluted share of approximately $1.13 to $1.25. We expect the first quarter and full year tax rate to be between 42% and 44%.

As we mentioned in the press release, the Company's full 2011 outlook includes approximately $5 million in increased expenses associated with the sale and lease back of the Company's headquarter building. Additionally, the Company expects approximately $2 million of restructuring costs associated with the consolidation of our White Marsh, Maryland facility into our Columbia, Maryland facility and Washington, DC offices during the second quarter of 2011. The office consolidations expected to lead to expense savings of approximately $1 million per year moving forward.

We also expect to continue to make incremental investments as Andy had mentioned to improve our existing services as well as launching new services. We expect the investment of approximately $4 million to $5 million in 2011 to accelerate new software development and enhance our existing services in both the US and UK. We believe that by timing these highly leveraged investments in the early stages of commercial real estate market recovery, our business will see accelerating revenue in earnings as the recovery continues.

In closing, we're pleased with our record quarterly revenue results and the momentum we're seeing in the business. Our business model remains strong based on the fact that we have a 94% subscription based business model with high renewal rates over 90%, a unique proprietary database, market leading position, strong balance sheet, no debt and very high operating cash flow.

Last night as I was writing this script, started looking back just over the past three to five years and CoStar has generated over $200 million of operating cash flow, all while continuing to invest in the long-term growth potential of the business through acquisitions which we believe is a clear indication of the strength of the business model. Based on the results over the past few quarters, we believe we are well on our way to achieving the higher organic revenue growth rates and expanding margins that we've enjoyed in the past.

CoStar's management team fully believes there's significant opportunity for additional high margin revenue, following investments in software and strategic acquisitions which Andy discussed earlier. We continue to believe that our business has the potential for rapid growth with the expanding margins, continued strong free cash flow in the near-term as we progress towards our long-term goal of growing CoStar's business to $1 billion of revenue at a 30%-plus EBITDA margin, and we look forward to reporting that progress to you. With that, Operator, I'll open up the call for any questions.

We'd like to go ahead and open up the line for questions.

(Operator Instructions). One moment please for the first question. We will begin with the line of John Maietta with Needham & Company. Please go ahead.

Yes, thanks very much. It seems --

Hi, John.

Hey, guys. It sounds pretty clear that the end market, the CRE market at least at the investment grade levels is improving and the outlook seems pretty bright, so I wanted to focus less on that and more on the M&A strategy. In particular, I wanted to get a sense as to how you prioritize looking at traditional license-based on-premise software companies versus information services, and then were you to execute an acquisition of a traditional license on-premise type software company, would the goal be to over time migrate that platform to a hosted platform in a subscription revenue model?

That's a good question because you have obviously been researching, trying to figure out what those dozen plus companies are, and there are companies that are on-premise lot licensed software platforms that could have strategic value to CoStar Group. Without any doubt at all, we would take any such acquisition and migrate it to a web based SaaS model, and would invest a reasonable but not unreasonable amount of money in doing that as quickly as possible.

Our interest in companies like that is not so much because we want to be in the software business, it's because the software, moving the data in and out of that software is a major pain point for our customers, and by seamlessly integrating our data into these software environments we can make our information much more relevant and much more valuable to our customers. So I look at these on-site licensed software products as very nice raisers that could help us sell an awful lot more razor blades over time. These are venues for accelerated information sales on a subscription model.

Got it. Okay, that's helpful. Thanks, Andy. And Brian, could you give us a sense as to what -- I think you had some revenue contribution from TALF in Q3 and I'm not sure if you had any at all in Q4, if that's gone entirely.

Yes, the TALF impact. I guess we didn't discuss that in the call. We did lose that in the fourth quarter. It was $200,00 to $300,00 of lost revenue. Annually the contract was approximately $1 million, so it did effect the revenue in the quarter and renewal rate. The renewal rates in quarter would have been up another 1.5% or so, would have been even much stronger if we didn't lose that contract, so it definitely had an impact.

So once every major cycle we gain some federal contract to support recovery, and then when recovery emerges we lose it, and that's an example of that. It was a significant amount of money, but it's good news to lose it.

Got it. That's it for me. Thanks very much, guys.

Thanks very much.

Thanks, John.

Next, we will go to the line of Brandon Dobell with William Blair. Please go ahead.

Hi, guys.

Good morning.

Good morning. For ten more minutes.

Exactly. If you could characterize maybe your level of comfort or confidence in the productivity of the sales force that's been around for a year or two? Are you happy with how those guys are performing? Maybe contrast that with your level of confidence or comfort around how the new guys are performing relative to what their quotas are, what their benchmarks are or what your expectations were when they were hired?

Sure. Right now we're seeing -- obviously, I've been doing this for a while and I'd say that right now we're in the upper side of performance for the sales force. I'm actually quite happy with where we are overall in productivity on both the established sales people and the more junior people.

More importantly, I think that we are getting a group of sales managers that are giving us a little more strength in the middle of our management organization in sales which is very important on a widely dispersed national/international sales organization. I'd have to say that the quality of the new recruits that we've been bringing on board to our sales force is outstanding.

We're getting the resumes and experience level of the people that are joining us now is miles beyond what we were able to hire five years ago. So we're bringing people on board today who already have extensive commercial real estate experience, have sales experience. Often they may have advanced degrees, they understand DCF, they understand econometric modeling and they are very fluent with that. I think these people have a lot of long-term potential.

At the same time, when you look at those fourth quarter, 10% of fourth quarter over third quarter Showcase sales. That came entirely from our centralized or almost entirely from our centralized sales force which is performing quite well, is fully staffed. So I think we've got a sales force right now that's well-positioned to gain productivity really on the strength of the improving economy. Remember we're talking all about how we're seeing recovery.

We're seeing the clear signs of emerging recovery. We're not in a healthy commercial real estate market. We're in a market showing indications of solid improvement which is usually predictive of a long-term trend. Their productivity will increase, I believe, will increase significantly as the vacancy rates really start to come down over 13% and they could become significantly more productive when you start moving below 11%.

I'm pretty happy with the group that we've got, and we've got some good tenure and the turnover rate is relatively low. The managers are making responsible decisions on their own to keep that quality level high. More than you wanted?

Yes. No. That's good. You mentioned earlier that you thought you had a stable sales force headcount. Are there any assumptions in the 2011 guidance for growing that headcount, or is it just more productivity that's going to get you the raised revenue base?

I believe we have some additional, one or two senior management positions that we're adding in there in the guidance, and I believe that we have about 10, 11 additional financial sales reps. So these are people who will target investment banks, major banks, major owners. So we have growth there, but it's single digit growth, it's not double digit growth, it's not triple digit growth, certainly.

Okay. You mentioned Showcase in the performance there. How has the up-sell from that product for people that have been using it six to 12 months, how has it been recently and is it meeting your expectations?

It is. It does have an awful lot of potential. We set up a group to do that, I believe four months ago. So we took some of the people successfully selling Showcase and I believe the number was at 70% of the people buying the individual Showcase subscriptions were not CoStar property subscribers. So we felt that represented a huge potential up-sale. Now, these people are all over the United States and secondary, tertiary markets in the United Kingdom, so we set up this group to go after those folks and from a centralized sales group sell them the information products.

They've geared up and I believe, and this is antidotal, I'm not certain of the numbers here. Actually, hold on one second, I think I have something right here. I have to confess this is the first earnings call that I've used these reading glasses.

Yes, that group had zero sales in the second quarter of 2010. They had a little over 100,000 in the third quarter and an increase 25% quarter-over-quarter going into the fourth quarter, so I think that group -- I think that will be a story of continuing growth, and it's revenue we wouldn't have seen before, so it is working and it will move more staff in there. The problem is you can't grow it too fast or you lose quality.

Final question for me. Can you remind us again of the product road map for analytics and working those into the core product, kind of making it all one big happy family. Has there been any changes with the types of things that you're targeting to roll out or the timeframe under which you expect those to hit the market with full force?

Sure. We have been in a process this first year with PPR and the analytics product in synchronising our data sets, so PPR was tracking the market from the top down and we were tracking the market from the bottom up. PPR was not using our data sets since they were a competitor prior, thankfully, they are not using our data sets.

So we've been in a process in rebuilding all of the forecast that PPR does, the performance forecast, the vacancy forecast and the analytics reporting. We've been rebuilding that using the CoStar data. We've made and awful lot of progress doing that. We've replaced all of the COMPS data in the PPR product line and through a significant effort we anticipate that we will complete that integration of data providing totally consistent data allowing me to go from 60,000 feet down to the granular data on the ground. We'll complete that this summer.

Once that's done that will open up a window for a whole lot of product opportunities. What we're working on doing is creating a special owner version of the product that takes the forecasting and analytics that PPR is doing and take its from being something that's really appeals to the global 24 capital allocators down to a much broader audience, somewhere between the traditional CoStar user and the traditional PPR user which I think is the thick part of the market, and beginning to bring the first products out at the end of 2011.

But the product road map is extremely robust and is probably something that occurs over a dozen product releases, initially tying forecasting data, analytical data to granular on the ground data then trying to get much more detail at the local market level to appeal to those folks managing multi-billion dollar portfolios in a specific city. We wanted to prioritize on that road map tying this stream of data into the customer's own data. I think that will at least double the products to the customer if the data flows into them and allows them to proactively see trends.

We also want to bring our Propex product, our UK system that the majority of investment grades sales in the United States, I'm sorry, the majority of investment grade sales in the United Kingdom goes through this Propex introduction system. We want to bring that to the United States and integrate that with a PPR offering. We think that will allow our customers to actually conduct efficient frontier sort of portfolio modeling. So we have a very robust road map and a bunch of talented people who are very excited to work on that map.

The first things you'll see are -- this summer they will be subtle but very important then you'll see additional product at year end. You'll see a product offering that we're not talking a lot about. This summer we're expecting to bring a product offering out on the brokerage side which we think will -- we're hoping will get rave review from the brokerage community and drive penetration there.

So we're really gearing it up as you know. We're ramping up the investment, we've built a product design group, we're looking at acquiring a couple of strategic components to fit into this road map, and it's something that I think is appropriate for the balance sheet, the opportunity, and the expansion for the next five to six years that we hope we see.

Thanks.

You're welcome.

Next we will go to the line of Bill Warmington with Raymond James.

Hi, this is [Bethany Caster] in for Bill Warmington. Congratulations on the good quarter.

Thank you very much.

Just a couple of questions. Regarding your EBITDA margins, in what range do you expect to exit the year?

We're not giving guidance on the EBITDA margins ranges where we're going to exit the year, but I can tell you about the general trends. I think that, aswe talked about in the call, we are looking at software development, both this year and next year, but we're also projecting growing revenue, which will drop to the bottom line. So I think as we move throughout the year, in the beginning of the year we have some investments where we're now re-implementing salary increases for the Company. We're doing things obviously doing things for the long-term there.

I think by the midpoint for the end of this year you'll start seeing growing margins again. And then throughout next year, even with the software development, you'll continue to see the growing margins pretty much throughout next year. And I think you'll start to see them ramp up more significantly toward the end of next year exiting. So I think that we're definitely still focused on the 30% margin that the Company has been talking about over the next few years.

Okay, thank you. And one last question. You talked about adding a sales force for financial clients. Have you instituted any other changes to sales force compensation that would put more emphasis on volume or pricing or cross-selling than in previous years, or is your focus for 2011 mostly on building up your roster of financial clients?

Well, we -- the building up roster financial sales capability, that's a continuation of a process that we began several years ago, and the ramp up is significant. We probably anticipated doubling of that group, so it's big and important. In terms of what we've changed in the last quarter, too, and focused on compensation, there has been a pretty significant change, and that is we've shifted the sales force compensation more towards purely compensating -- more to the side of purely compensating them for net growth in revenue, and this basically is a signal that we believe we should be seeing stronger, consistent net revenue growth.

So, at the -- back in 2008, when we knew the wheels were going to fall off of commercial real estate's train, we shifted the compensation a little bit towards gross sales, not net sales productivity. And we shifted the compensation towards heavier emphasis on usage so that we would retain customers through the downturn, knowing that we couldn't hope to grow net revenue at a meaningful pace in a really bad market. So this transition back to more net compensation, not gross compensation on revenue growth, is an indication that we're a little bullish about where the plan looks for 2011.

Okay. Thank you very much, and that'sall for me.

You're welcome.

Next we'll go to the line of Ian Corydon with B. Riley & Co. Please go ahead.

Thank you. I wonder if you can talk about how much of the incremental investments are related to international? What you see as the opportunity for the next couple of years? And are any of the dozen or so deals that you're looking at companies that are based internationally?

Okay. I'll start with international investments. Yes, the software development investments are happening both here in the US and in the UK.

Last year UK had about $3 million EBITDA loss, $2 million dollar of that was a settlement with Nokia. We're expecting to be around the same loss this year, so instead of investing in Nokia we will be investing in our software development over there. It's a fairly significant investment into the UK into software and services which we believe will yield much higher revenue growth next year and then the following year over in the UK.

Yes, so it's basically split more towards here.

Correct.

More towards domestic.

Correct.

But you've got tremendous opportunity in the United Kingdom. We have an awful lot of impact in that market now. We believe we're number one in that market from being not even measurable on the radar screen with a customer base of 2,003 to being the clear leader.

But what we've never done is we've never made a significant investment in software in the United Kingdom. In order to move their product set to the same quality level of impact as the US set, we're now doing that. And once we do that, we think that will give us -- that coupled with recovery over there will give us margin expansion that makes looks like a great investment.

In terms of the acquisitions we're looking at, our heart is not with trying to acquire companies in Italy that give us a presence in Rome. What we're really interested in doing here is moving our information much more effectively through the kinds of software tools that our customers need. Things that get us closer to what we think is a tremendous segment, the owner side of the market or acquisition targets allow us to get more effectively to continue to grow our successes on the retail side of commercial real estate.

I don't want to play 21 questions because people start to infer things, but there could be companies, a lot of soft -- anything you touch that's got software is going to have some international presence, but the goal is not to -- our goal is not to do an awful lot of opening up new cities overseas through acquisition, that's not the strategy.

Got it. Thank you.

You're welcome.

Next we will go to the line of Brett Huff with Stephens. Please go ahead.

Good afternoon, Andy and Brian.

Good afternoon, Brett.

Couple of follow-up questions. Number one, just on the long-term goal. Since you guys started to talk about a couple of different kinds of EBITDAs, is the 30% long-term goal just regular or pro form EBITDA?

It's regular.

Okay, that's what I thought. And then I missed the first little bit of the call so I apologize if you addressed this, but can you just give us an update on how the -- you talked a little bit about integration of PPR in the Q&A, but any update on Resolve, I know that was a fairly big undertaking to move some of that functionality or looking to move some of the functionality from software to software service? Any update on that?

Sure. To be honest with you, we were sequencing. We were sequencing focusing on coming up with a road map for PPR and the integration of the data sets and rationalizing that because the strategy with Resolve requires feeding CoStar and PPR forecasting through their products and services to their customers. And you really couldn't achieve that until you had CoStar and PPR integrated. So we've been doing a lot of planning there and had a very active agenda, but we don't expect significant product releases till next year on that. There's been some minor integration successes, so people can access PPR reports through Resolve if they're customers, things like that, but not the big picture grand strategy things we're looking for at this point. That's still in the future.

And Brad, on the subscription sales, when we bought them they were pretty much typical selling licenses versus subscription and we've been slowly moving them towards more of a subscription model with some implementation. And I don't have the number in front of me so I'm going to guesstimate it, but I would say where they really had very little if any subscription sales that did have a little bit of maintenance, now they are up to almost probably, I'm guessing, about half of subscription or maintenance or even possibly more. That will continue to grow this year. I think we're definitely already in that process. It's been a good year as far as moving them more towards a subscription based model and less away from a licensed model.

Now unfortunately that doesn't give you fast financial impact result that you're looking for. Recognize revenue down initially, but it's relatively small so we're just doing that, and we'll do that with anything we acquire on the software side, we'll take them to a SaaS model.

A lot of things we've done with Resolve this year are very straight forward blocking and tackling. Like we've relocated them under one roof with -- so consolidated PPR and CoStar and Resolve into one office facility in Boston. It may sound like a little thing, it's actually a big thing. It enables you to begin this complex interaction that you have to do to create the integrations that you're trying to achieve. Things like increasing their sales force. We've done all those sorts of thing, so we're making progress there.

I know that there was a lot of complex data coming in not just from you guys but from the actual clients themselves, and how is the client base responding to not having something on-premise as much and having it more outsourced? In general, is that something they like or what is their perception of that?

The great thing is people just thinks it's complex, it's actually straightforward. We haven't actually moved it into the cloud yet. It's still largely residing on their servers.

That's something that Resolve designed their product to have it reside on their clients' servers simply because Resolve didn't have the capital structure to buy a big hosting facility or manage a hosting facility, so Resolve was trying to control its costs. We actually believe that the customers would just as soon have it be in the cloud, most of the customers would have it -- presume have it be in the cloud.

When you really get to reality, there's not massive differences in the security of it and the convenience is huge being able to implement much quicker if you're doing a cloud solution rather than setting up servers. Like an awful lot of implementation time on Resolve is the client setting up hardware and server environments and the like. So we'll move it to the cloud in one of the next several releases.

That's helpful. One last question on product for me. How is CoStar like going into -- I think the introduction was in the fall if I remember right, and can you just give us update on that. How the sales are going, how the pricing is looking, what the competitive nature is and the secondary and the tertiary markets you guys are focusing on? Are you still as optimistic on the low hanging revenue fruit there?

Sure. We're optimistic. I mentioned I would put that earlier comment talking about the 25% quarter-over-quarter increase of sales of that low end product area. Yes, we're picking up good headcount there. We've got good positive net new subscriber growth in the fourth quarter, strong subscriber growth that low end solution is a part of that. I guess you could say some of those are competitive wins.

We'll continue that strategy, but to be honest I am really much more focused on picking up the $1 million accounts than the $500 accounts. I think the section of revenue is up at the institutions managing $1 billion who have piles of MBAs just pushing data back and forth and not meeting their analysis expectations because it's just so hard to do. We're much more focused on bringing that ultra high valued customer solutions that will give them 5% advantage on a multi-billion dollar portfolio.

Okay, that's what I needed. Thank for your time.

Thank you.

Next to the line of Chris Mammone for Deutsche Bank. Please go ahead.

Hi. This is [Vasa Goor] for Chris. Thanks for taking our question. Can you give us some color on what the CapEx and free cash flow generation was in 2010 and what your expectations are for 2011?

Sure, the free cash flow is approximately $40 million in 2010 with CapEx of about $14 million. More than half of that is facilities related. In 2011, we expect the free cash flow to be approximately the same amount or even higher than that with CapEx back down to a more normalized range of let's say $6 million to $9 million.

Right, thank you. And then can you give us some color on what the renewal rates would have been, excluding Showcase, and have these rates beat or are you contemplating further improvements in your 2011 guidance.

I think renewal rates are going to continue to improve in 2011. Showcase is -- for the subscription piece of it, it's included in the subscription renewal rates, the renewal rates for subscription services, and we do again expect that to keep improving as we move into 2011 through recovery.

Yes. It's important to note that compared to other companies in our industry, our subscription rates are dramatically higher, so the Showcase and the information subscription numbers are pretty darn high, so 90% some, 96% of our customers five-years plus. Remember, we do not exclude bankruptcies from that renewal rate. We don't exclude death or the like. So it's difficult to get above 96% because that implies 50-year career terms on some of these small businesses. We'll get some improvement, but just like DSO's can't go below zero, we can only improve another point or two.

And again, our renewal rates are based on renewing dollars, so it's a true renewal rate. It's not based on the number, it's based on the dollar so if we were to lose a big client like the TALF, you saw that in the quarter for about 1.5%, we were still over 90%. We do expect that to continue to be high through 2011.

Great, thanks. One last housekeeping question. I'm just trying to understand why you have used a 40% tax rate for making the non-GAAP EBITDA adjustments because tax rates have generally been in the 42% to 44% range for the last few years.

Yes. I expect the tax rate to continue to come down over the next few years. The tax rate is a little bit over 40% because we're investing internationally, so we're not getting the benefit over there, so the tax rate appears higher. The cash tax rate is actually much lower than that, so I do expect that to come down. It's more of a long-term, what do I think long-term historically I think the rates will be.

Great, thank you.

Thanks, Chris, we appreciate that.

Next we'll go to the line of Toni Kaplan with Morgan Stanley. Please go ahead.

Thanks for taking my question.

Thank you, Toni.

Back on M&A for a second. Are there any areas in the product portfolio that you're looking to build-up in terms of content or areas that you're not in that you'd like to be in?

Oh, definitely, but they're all -- everything we're looking at, everything we're interested in doing is something where we already have a connector, so we would be looking for taking steps into adjoining squares, not leap-frogging into areas that we're not already in.

The good news is the footprint is pretty broad at this point and there's an awful lot of opportunities to pick up parallel information or content streams where we all ready have substantive amount of content around what somebody else is already doing and we join their content and we have a whole lot of free content that we can leverage, join with their content and create a very competitive offering.

In a lot of instances there might be a competitive zone of content that we're not in today, but by joining our content with their content we can make them the clear market leader and create competitive advantage that's just really compelling in their space, so we're looking for that kind of thing.

Okay, great. And just wanted to get your take on how valuations are looking over all right now.

Evaluations, oh, yes. Well we still spend an awful lot of time with people who believe they are schooling Google or Facebook or whoever, but generally folks are fairly reasonable and there's enough opportunities out there that you can work with people that are reasonable and walk away from the people who are unreasonable.

In some cases there might be more back and forth if there's one strategic asset in a zone, but we're trying to stay within our historical, our historical boundaries which have been reasonably conservative given our industry and the size of the opportunity we're pursuing.

Okay, great.

Again, I think our track record I think is 20 and one, one goof and 20 successes.

That's very good. Then moving on to pricing. Last year you mentioned that you were implementing price increases just above inflation. Do you plan to accelerate that this year? How much of your growth do you expect to come from pricing versus volume, cross-selling et cetera?

I think the vast majority of our revenue growth will come from improving market conditions and budgets opening up, from people looking to adopt some of the software we're bringing out. I think a lot of our growth is come from people whose budgets had to be trimmed and they had to cut our services, now they're budgets are getting a little healthier and they're coming back to us. We're seeing a lot of that. People who canceled last year are re-subscribing.

Having said all that, price increases will be a component, a small component of our increase. We have people who have seen only CPI increases for 10 years on their services and we did no increases whatsoever for the prior two years, and these folks are folks who bought a very different product 10 years ago. They bought a product with maybe 100,000 properties for the United States, now we have 3.5 million. Maybe just had office, now it's got all product types. The number of data fields has probably double, tripled. The software functionality has probably quadrupled.

Really I think our CPI shouldn't be the same as a typical commerce department sort of CPI. I think we could probably be a little more aggressive than CPI and still be extremely fair and extremely reasonable. So our goal would be to recapture some of the investments we've made over the years, but certainly nothing that approaches double digits.

Yes, and Toni, we're just starting to roll those out and we will roll those out all year long, so we really as Andy said, we don't expect very much of the revenue growth to come from that this year. A percent or two at tops because you're rolling it out on [1-12 with clients roll of the] contract. I do think what you will see is a bigger impact from it in 2012 and 2013. Both because you'll have a full year of it; also because as markets continue to recover, as Andy said. I would expect to see something somewhat higher.

So I think we would probably want to adopt inflation rates that looks like the schools where I send my kids and the colleges out there, their version of inflation rates.

Sounds good. Thanks so much.

You're welcome.

(Operator Instructions). Next we'll go to the line of Jim Wilson with JMP Securities. Please go ahead.

Thanks. Good morning, guys, it's been a long call, so I'll just ask one question.

Jim, we were here for your questions, so take your time.

You're patiently waiting, okay.

And we're the only ones left on the call, so take your time.

Probably. You think about or you discuss prospects and what's needed with bigger customers, so I'm thinking banks, Wall Street that are looking for the powerful analytical tools. What do they tell you they need to put in place to get you some big contracts with them? Obviously, you've got contracts with many of them already, but what do they really want to see, what are they looking for so you can come out and say on a call somewhere, "Boy, we landed a really big contract with BFA or somebody?"

Well, I think it's relatively straightforward. I think integrating Resolve like products with PPR and CoStar content with a strong local coverage, the top 20 MSAs would allow you to hit those seven digit contracts. Some of it's not just what these major clients are looking for.

In some cases, what regulatory bodies might be looking for. One of the things that's really stunned us in this downturn is how little information lenders actually have about what they've lent money on. I think they'll there will probably be a trends towards these folks trying to have a clearer view of where their commercial assets are.

So just doing the basics of integrating Resolve, PPR and CoStar into a solution that integrates our forecasting and actual data against the customers own data and putting that into a discounted cash flow context where people can use our rent growth and contraction indexes and cap rate growth indexes and time on market against their portfolio to get an automated refresh of their disconnect cash flow analysis on a portfolio level. I think that's the big one.

Now this is something we'll work on throughout 2011. I don't realistically expect we'll deploy those sophisticated integrated systems until 2012, but we've met with a number of these prospects and the communication is clear. They're giving us a positive indication of what our road map looks like and now it's just our job to deliver on that road map.

Great. I guess just you think you'd actually, I don't know beta test? Is there anything you would announce earlier with idea of some kind of full contract to occur in 2012?

I think we would probably be deploying in 2012 and I think the limiter would be -- I think we could probably sell more than we could implement. I think that some of the lead major customers would be very hands-on, very -- we'd develop it very closely with their guidance, but I don't think there will be an extended beta cycle. I think it will be more of initial couple of installations and evaluation, then an expanded rollout.

A little more customized. Okay.

Now we're also at the same time, we're going for a mid level solution too, which targets that fairly typical owner in the United States that operates the single [soodi] level with $1billion portfolio, and there's really no good solution for them right now and that one does not have a big implementation. That one is shrink wrapped delivery SaaS which is an oxymoron, but.

All right, great, thanks.

Thank you very much, Jim. You have a good day. I believe that's the last call we've got here and I would love to thank you all for joining us for the fourth quarter call and we look forward to updating you on our progress in the next earnings call.

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