CoStar Group Inc (CSGP) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CoStar Group Second Quarter Earnings Conference Call. (Operator Instructions)

I would now like to turn the Conference over to your host, Rich Simonelli. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to CoStar Group's Second Quarter 2013 Conference Call. We're glad you joined us today.

Before I turn the call over to Andy, I have some really important facts for you to listen to.

First of all, certain portions of the 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 not limited to, those stated in CoStar Group's July 24, 2013 Press Release on second quarter results and in our filings with the SEC, including Form 10-K for the period ended December 31st, 2012; as well as our Form 10-Q for the period ended June 30th, 2013, which we filed yesterday -- in each case under the heading Risk Factors.

All forward-looking statements are based on information available to CoStar on the date of this call, and CoStar assumes no obligation to update these statements whether as a result of new information, future events or otherwise.

As a reminder, today's Conference Call is being broadcast live over the Internet at www.costar.com. A replay will be available approximately one hour after this call concludes and available until August 28, 2013. To listen to the replay, call 1-800-475-6701 within the US or Canada, and 320-365-3844 outside the US and Canada. The access code is 297687. A replay of this call will also be available on our website soon after the call concludes, live and in color.

So, I'd like to turn the call over to Andy Florence.

Thank you, Rich. Welcome, and thank you for joining us today.

I think we have some very strong news to share with you today. CoStar's 2013 second quarter was our best quarter yet, as we achieved our highest ever net new sales quarter, our best ever quarterly revenue and EBITDA results.

Revenue grew to $109 million for the second quarter of 2013, an increase of $23.8 million or 28% year-over-year. Our annualized net new sales bookings in the second quarter climbed to $14.4 million, an increase of 49% over the same period last year. This is our second consecutive quarter of record annualized net new sales.

In the second quarter of '13, we added 1,300 new CoStar information subscription customers, which is the highest number of new subscribers we've ever added in a quarter. Over the course of the last 12 months, we have added a total of 4,700 new clients, the most in our history during a 12-month period.

In the second quarter of '13, our EBITDA increased 209% year-over-year to $25.3 million, a new high point for CoStar. Our EBITDA margin rose to 23% in the second quarter, up strongly from 10% in the second quarter a year ago. This shows our ability to flow a high percentage of every incremental revenue dollar sold to the bottom line.

Some of the primary drivers behind our solid results are -- one, continued strong cross sales of our CoStar information services to our LoopNet clients; two, strong results from our LoopNet marketplace as we see higher average price points, longer contracts and more firm level purchases; three, solid performance across all 20 of our product lines; four, cost synergies achieved in the LoopNet acquisition; and finally, continued recovery in the commercial real estate economy.

We continue to grow the top line, and we are reinvesting in the business aggressively for future growth, while at the same time expanding our margins. We're hitting on all cylinders and building an even stronger platform for the 7.4 million registered members we've got and our hundreds of thousands of paying commercial real estate customers.

When CoStar acquired LoopNet last year, one of the core rationales for the purchase was the potential to sell CoStar's premier commercial real estate information to LoopNet's large commercial real estate community on the Internet. In the first year post-acquisition, we have clearly delivered on that potential for cross-selling between the LoopNet and CoStar communities.

For the second quarter of 2013, the CoStar sales force had achieved $27.3 million of revenue synergies from our acquisition of LoopNet, which is an increase of 48% over the first quarter's cumulative total of $18.4 million. Of the $27.3 million in cross-selling synergies through quarter end, $18.4 million of the revenue is from selling CoStar information to LoopNet users. This represents an increase of 48% quarter-over-quarter as well.

$6 million in revenue synergies is attributed to selling an annual firm contract for LoopNet Premium Lister, where before the client was previously free or paid individual user on a month-to-month agreement. Generally, the sale is accompanied or done at the same time for the sale of CoStar services to the LoopNet firm. Revenue from this type of sale grew 53% quarter-over-quarter. Finally, $2.9 million of the cross-selling revenue was generated selling LoopNet Premium Lister to CoStar clients, which is an increase of 45% quarter-over-quarter.

Overall, through June 30th, 2013, we had cross-sold our products to 4,800 commercial real estate firms. We have closed approximately 31% of the 15,500 sales cross-selling demos we had arranged. We believe that we can continue to increase the close rate. The number of cross-selling deals we are closing has accelerated to nearly 600 per month. The 4,800 firms we have cross-sold to date represent less than 4% of the active CoStar and LoopNet prospects we believe are out there for cross-selling.

I believe that we are nowhere near reaching the cross-sell potential from the merger yet. And at this point, I believe cross-selling revenue could be several hundred million dollars over time.

Another significant factor to consider is the size of the LoopNet prospect pool. The LoopNet team has grown the LoopNet membership remarkably in the past 12 months. The number of LoopNet registered members grew by 21%, or nearly 1.3 million over the last 12 months, which is a robust gain of approximately 25,000 new members a week. We now have 7.4 million registered users, and the number of unique monthly visitors to LoopNet.com has grown by 36% year-over-year, to nearly five million.

LoopNet's flagship information product is Premium Searcher. In the first quarter of 2012, before we closed the merger, Premium Searcher had annualized revenue of $18.7 million. Not only have we converted nearly that amount of information revenue by selling CoStar to LoopNet members; we also simultaneously grew LoopNet Premium Searcher revenue 27%, to $23.8 million annualized.

That depth and strength of the market really came as a surprise to me and is great news. The bottom line is the pool of LoopNet subscribers we have to sell CoStar information services into is growing.

Over the past three quarters, we have referred to approximately 100,000 prospects at LoopNet that are prime candidates for CoStar information and analytic services. Our most recent analysis of LoopNet leads using the same scoring system as last summer indicates that the lead list has increased substantially over last year. In fact, the number of individual prospects has grown from 100,000 to 140,000 in the past 12 months.

While we are very pleased with the strong success we have had over the past year, we remain focused on accelerating our sales momentum. We are taking steps to further educate our sales force, reallocate sales resources, improve marketing tools, and deploy software solutions in an effort to accelerate our cross-selling and traditional selling activity.

Extensive market research and experience leads us to believe that the commercial real estate community will pay significantly more for a high-quality, more accurate information source. If you have followed the Loop-CoStar merger for two years, you've heard me talk about the challenges a CoStar salesperson with normal training has in conveying the qualitative differences between two enormous databases like CoStar and LoopNet. I have also commented that post-merger we plan to build software tools to automate those comparisons for our salespeople and clients.

I believe these tools will help our LoopNet clients more readily access long-held views on where to find the best information solution. In turn, I believe that this will likely result in an even higher pace of CoStar information and analytic sales to LoopNet members.

Our system team is making fantastic progress on these comparison tools that will reside in LoopNet, CoStar Suite and CoStar Go. I expect they'll be deployed in the third quarter of '13.

The first comparison tool for the iPad is in beta, and I'm thrilled with what I've seen so far. A CoStar salesperson will be able to use CoStar Go to view any geography and be able to instantly show the prospect the multitude of listings that are only found in CoStar for that area. I believe there will be very compelling to our prospects that hate to think there's even one listing they're not aware of in their market.

We plan for the comparison tool we are building into LoopNet to be only visible to the core up-sell targets. The software will help us to identify these prospects and compare their results with what they could achieve if they upgrade to our higher-end CoStar information product. My hope is that these tools will help us achieve close rates in the 40% to 50% range.

Although we are already achieving our best ever sales revenue and EBITDA numbers as a result the LoopNet cross-sell, I believe we can achieve even better results if we accelerate the transformation of our sales force structure to better address the larger opportunity we have. This transformation is underway and in the early stages.

Around the time of the close of the acquisition of LoopNet, we had a combined sales force of approximately 325 total salespeople, with 131 in the field. From the outset, we knew we needed more field salespeople. Without a major disruption in the business in the last 12 months, we increased the size of our field sales team by approximately 37%, to 180; all the while achieving our best ever sales and revenue results. Many of these new salespeople were recruited from our inside sales team and have successfully transitioned to field sales roles.

We are expanding our field sales management infrastructure to ensure maximum productivity from our expanding field sales team. You may recall we have a team of financial services sales specialists that focus on institutional clients and prospects. These sales specialists are generally dramatically more productive than our average sales person.

We plan to significantly expand this successful, vertically targeted program by initially adding 30-plus field sales positions focused on three to five non-broker customer verticals. These salespeople would focus on specific prospects and clients such as owners or lenders, retailers, institutions or appraisers. Now that we have more than a dozen products and six major client verticals, it is much more manageable to train and develop a sales person extensively and properly on how our services add more value to one client vertical rather than to all of them.

We also plan to structure our marketing and product design teams around our three to five primary client verticals. Our effort to evolve our sales force may cause some short-term friction, but we believe it will result in even better sales results over the intermediate and long term, and possibly the short term as well. It is our belief that this next-stage structure results in greater client satisfaction, higher penetration rates across all our customer verticals, more effective marketing programs and more valuable products.

I'll chat a little bit about LoopNet Premium Lister. In the three years prior to LoopNet-CoStar merger announcement, revenue for LoopNet's core Premium membership products had fallen approximately 11%. In the 12 months prior to the announcement, it had grown only a paltry 3%.

During the 12-month period since the merger closed in the second quarter of '12 until the second quarter of '13, revenue in LoopNet's core business had turned around and grown 21%. So in the past year, LoopNet's new management team has taken their product from little revenue growth to substantial revenue growth, with a 600% increase in revenue growth rate.

For LoopNet Premium Lister, LoopNet's flagship marketing product, the turnaround is even more dramatic. In the first quarter of '11, which was the last full quarter before the Loop-CoStar merger was announced, revenue for LoopNet's Premium Lister had fallen 21% over the prior three years and had fallen 2% in the 12 months prior to the close of the transaction.

In the last 12 months, revenue in LoopNet's core business, Premium Lister, had strongly rebounded and grown to 20%. So LoopNet Premium Lister is 20% up year-over-year. The turnaround is even more impressive at LoopNet when you consider that at the same time we removed 31% of the costs in the LoopNet business.

I believe one of the fundamental changes driving success in that business is that the new management team recognizes the massive revenue potential of LoopNet Premium Lister and has given it the priority it deserves.

Each month, approximately five million unique visitors from all over the country come to LoopNet.com and view commercial properties. I believe it's a great service with the ability to help connect the right buyers with the right properties in a way no traditional off-line method could ever do. LoopNet makes a huge difference to the owner or broker that gets the deal done through a connection made in LoopNet's massive community of buyers and tenants.

We have also made a number of tactical adjustments to how we sell core LoopNet products that are directly contributing to driving our strong results. We increased Premium membership average revenue per unit of new sales 57%, from $56.47 in the second quarter of '12 two $88.65 in the second quarter of '13. Overall Premium membership RPU is up 10% year-over-year, from $66.04 to $72.90.

Prior to the merger, 90%-plus of LoopNet Premium Lister subscriptions were inefficiently sold to the individual on a month-to-month basis via inside sales. The typical commercial real estate property takes more than a year to sell or lease, so a 30-day marketing program did not make a whole lot of sense to us. We've changed that. In the second quarter of '13, 48% of all Premium memberships sold were on an annual basis, and 24% were quarterly.

At this point, we've now eliminated the monthly option altogether. This means that the average contract term has gone from one month prior to the merger to approximately seven months now, and that the average new LoopNet contract value has moved from $56 at the merger to $620 today.

We found that when a broker was subscribing to LoopNet only 20% of the brokers in that broker's shop were subscribing to LoopNet Premium Lister. A major reason is that if a broker was in a 10-person shop, say, the LoopNet sales force was trying to reach each broker one by one to sell them each a month-long contract. Theoretically, in a worst-case scenario, that could require 120 sales per year, at $56.

We have now clearly shown that a much more efficient way to sell LoopNet is to reach out to the principal of the firm and sell the firm an annual contract with volume pricing covering 100% of the firm's brokers. This means we only need to make one sale, not 120. We believe that these longer-term firm-level contracts will reduce churn.

In the past year, we have reduced cancel rates on LoopNet Premium members 10.7%, from 6.1% in the second quarter of '12 to 5.48% in the second quarter of '13. I believe it will go down further.

In the three years prior to the merger, only a minority of product design and software development resources were allocated towards enhancing my favorite product, LoopNet Premium Lister. We changed that and made it a top priority of LoopNet.

We are making significant progress on two product enhancements to LoopNet's marketplace that we expect will launch this year or, at the latest, early next year. First, we do not currently give brokers the opportunity to market their services to the millions of monthly visitors interested in commercial real estate that come to LoopNet's website. Not only have we received feedback from brokers that they would like to have this opportunity, but in fact we've received complaints that they cannot get this opportunity. We are designing and building a new product that will enable brokers to market their services to tenants or buyers looking for properties in areas they specialize in. On the residential side -- good companies like Zillow, Move and Trulia earn tens of millions of dollars annually from similar product offerings for their brokers.

Second, brokers and prospective tenants spend a significant amount of time driving from building to building, touring available space to see which ones are a good fit for their needs. They need to do this because there's such a wide range in the quality of spaces within buildings. If an owner has a higher-quality space they're marketing, it is in their interest to make sure brokers know it's great space, even if the broker has not had time to drive out and see it.

We're going to make this easier for owners to accomplish by offering walk-through video advertising on our website. We are very well positioned to offer this service, as we have infrastructure of a nationwide team of field photographers we've trained to film walk-through videos. We expect to offer LoopNet Premium Listers the opportunity to purchase walk-through videos later this year.

Now, let's go across the pond, to the UK. We launched CoStar Suite and CoStar Go in the UK just six months ago. We have had a very positive reaction to the products, with strong uptake; and the second quarter sales result was our best ever for the UK operation. Since the beginning of the year in the UK, we have sold 200 firm-level subscriptions to CoStar Suite. About 60% of these sales were from new customers and 40% from upgrades to existing customers.

A number of owners have subscribed, including one of the largest property companies in the UK, Grosvenor Estates. Another notable new institutional client in the UK is Citibank. Prior to the UK release of our CoStar services, only about 12% of our UK information revenue was from commercial real estate owners and institutions. Since the launch of CoStar Suite and CoStar Go, we're seeing 40% -- not 12%, 40% -- of our sales coming from owners and institutions. This is a large customer vertical, so we believe that delivering products that are appealing to them indicates significant upside potential in our UK operation.

Our profile is definitely growing throughout the United Kingdom, and we're getting positive feedback from users and prospects alike. We conducted a survey of CoStar subscribers and our newsreaders in the UK. 78% of CoStar Suite subscribers told us that they believe that we have better data than our closest competitor. It was only a couple percentage points going the other way. So this was a dramatic shift from earlier surveys. I believe we are now the clear number-one provider of commercial property information services in the United Kingdom.

The survey also provided an indication that there is a large market for us to target. So far, we've upgraded about 5% of our UK client base. We believe that we can over time up-sell most of the remaining 95% of the clients still on our old focus system and hence be confident of significant growth potential over the coming years.

Toronto, Canada is just a 90-minute flight from our headquarters in Washington, DC. The greater Toronto area has a population of six million people; is the fourth-largest city in North America, behind lovely Mexico City, New York and Los Angeles. CoStar markets that are similar in size to Toronto generate $10 million to $25 million and more in revenue annually on very high margin. So these large markets are valuable.

The majority of major commercial real estate firms in Toronto are already CoStar clients in the US, the UK, or both. We are unaware of a competitor with CoStar's capabilities in Toronto. We believe this market has significant earnings potential over time, so we've invested several million dollars over the past 18 months building what we believe is the most comprehensive database of commercial real estate information available for that market.

Our Toronto research team has built a database with details on 1.3 billion square feet of commercial real estate and 55,000 properties with 200 million square feet of available space. Based upon the number of properties in the database today, Toronto, Canada is the seventh-largest market of CoStar's North American markets. We expect to launch our service in Toronto before year's end. While it represents a substantial revenue and leveraged opportunity in the intermediate term, we do not expect Toronto to generate meaningful revenue within the first year, as none of our major markets have historically done that; it's usually in years two, three, four that they really start to pick up.

Turning to our software development and product enhancement efforts -- we've invested approximately $5 million over the past two years into the first of a series of significant product enhancements for our core CoStar Suite and CoStar Go products. We expect to release the first of these enhancements in the fall, and we believe that they will enable us to increase customer satisfaction and achieve even better sales results.

We have built a new query interface for CoStar Suite that builds on the huge success we had with CoStar Go. Our clients have told us they love the visual intuitive interface CoStar Go offers, so we've built that into our Web environment. We have updated our interface to get our Web products greater visual appeal.

We have built a very robust lease valuation tool that a broker or owner can use to enter the myriad of parameters of a lease and determine the true time-adjusted cost or value of that lease. We believe that this will empower our brokerage clients to provide more insights to their clients and accelerate the decision-making process without having to expend extensive time and spreadsheets calculating lease values. We also believe that this tool could become the standard lease value calculation tool, and thereby become the preferred method of communicating lease proposals between brokers and owners.

We have built a new expanded analytics product that we believe will help us penetrate even deeper into the owner-banking investor verticals in commercial real estate. We have even built an analytical tool into CoStar Go which allows a user on a mobile platform to generate dozens of real-time market stats on CoStar Go in the field.

We expect to release our full new multifamily properties module with this next release of CoStar Suite and CoStar Go. We have invested millions of dollars over the past two years building what we believe is the most comprehensive database of multifamily properties in existence.

Multifamily real estate is one of the largest components in commercial real estate, as [in] an area in which we have not historically provided complete service. We are now tracking information on 290,000 apartment communities with five or more units, for a total of 16.8 million apartment units.

We are capturing information such as building details and quality, effective rents, concessions, occupancy levels, ownership, property sales, unit sizes and mixes, images and many other details. This data can be queried and analyzed on the product to provide valuable analytic insight and information on market trends. We believe we can sell this new service to an array of banks, investors, brokers and others with multifamily loans and investments.

In total, the new search interface, analytics tools, mobile analytics, lease valuation tool and multifamily product are expected to represent one of the biggest product releases we have ever made. We are very excited about it, and we anticipate it will position us for a strong fall sales season. Equally important, we believe that these product enhancements will give us a tailwind in our efforts in the United Kingdom and Canada.

In addition to our flagship services at CoStar and LoopNet, we have nearly two dozen brands and product offerings. We are hearing a clear message from our clients across these products that they're aware we own all these brands, and they prefer to use them as one integrated whole. They see the potential benefit of seamlessly moving data from CoStar to Virtual Premise to LoopNet to Reaction Web to REApplications, onto Resolve or to PPR Compass. Such integration would give them greater insight to the market and streamline their operations. They're not just looking for CoStar data tied into one of these various products, but they want one website with everything integrated.

We see the potential value, and we're responding to that demand. We've hired a strong firm named Interbrand to help us in organizing, updating, streamlining and optimizing our various brands. We expect to complete this study by the first quarter 2014. This work with Interbrand is expected to help us to set priorities and formulate a strategy and timeline with integration of our various software platforms in '14 and beyond.

Beyond CoStar and LoopNet, a number of our other services are doing quite well. BizBuySell, number-one site on the Internet for buying and selling businesses; Lands of America, number one for rural land; Land and Farm, REApplications, Virtual Premise and PPR all hit record revenue levels in the second quarter of '13.

One of the strongest standouts in this group is Virtual Premise, which turned in 52% revenue growth year-over-year in the second quarter. Virtual Premise is our real estate project and lease management solution for commercial real estate. Virtual Premise signed or upgraded services to major retailers in that period, including Texas Roadhouse, Robert [Hat], Kelly Services, Hibbett Sports, Charles Schwab, Polo, Michael Kors, Sony, Abercrombie & Fitch, US Bank, Genuine Auto Parts, Motorola, Goodyear, BBVA, Regents Bank, State of Georgia and Talbots; among some others. So congratulations are in order for all these market vertical teams.

Finally, real estate market conditions, briefly -- we're seeing the continued broadening of the recovery in the office markets. This recovery is no longer concentrated in tech and energy markets. It's slow but steady commercial real estate recovery, which is a very good operating environment for sustainable growth for CoStar.

The strength in office job growth supported 25 million square feet of net absorption in the first half of '13, up five million square feet, or 23% from last year. Office demand growth is widespread, with over one million square feet of net absorption year-to-date in eight metros, including Atlanta, Boston, Chicago, Denver, New York, Orange County, San Francisco and San Jose. So it's a nice, broad, healthy spread. This demand growth, plus a relatively modest five million square feet of net completions allowed vacancy rates to fall to 12.1%, which is okay.

Improving occupancy is beginning to generate increasing rents, a welcome change for our clients earn revenue based on commissions from leasing or selling space. Nationally, gross asking rents are up an average of 2% year-over-year, which is modest, but the highest growth rate since the recession ended.

Office sales volumes year-to-date is up 10% versus a year ago, similar to 2005. As investors search for return, the sales volume growth has been concentrated in secondary markets, such as a Seattle or a Denver.

Rent and demand growth in the apartment sector continues to be solid but slowing in many markets. Property sales for the first half of '13 are running 13% above year-ago levels for the same period. The fundamentals, rents and occupancies, are generally increasing, which should support equity values on average.

Recently, the potential for increased interest rates did send shockwaves through both equity and lending markets. However, we are expecting a relatively slow pace of interest rate increases. So the impact upon real estate is likely to be tempered because other factors, such as improved rents and net operating incomes, will likely offset the impact upon the commercial real estate market.

So, I'm very proud of our results and the progress we've made in the first half of 2013. I'm really excited about the second half of '13 and beyond as we launch some exciting new technology that I believe will provide significant additional value to our clients and appeal to our prospects. I believe this quarter is clear proof point that we are on our way to reaching our goal of $500 million, or $0.5 billion, annual revenue run rate with 30% to 35% margins when we exit '14. I think Brian will point out adjusted EBITDA margins. But we'll see where we go there. And we are well on our way to doubling the size of the business over the next five years on even higher margin rates.

At this point, I'll turn the call over to Brian Radecki. And Brian, I took about 15 minutes of your time, so if you could move through it quickly?

Thank you, Andy. I'll try to see if I can make up some time. I'll pick up the pace here.

As Andy mentioned, we're very pleased with our performance in the second quarter of 2013. CoStar's information and analytics services continue to show strong growth, and the successful integration of LoopNet continues to be a big contributor to the growth in our revenue and earnings.

EBITDA margins continue to expand, driven by accelerating revenue growth. Additionally, as Andy discussed, revenue synergies continue to ramp up and have increased to $27.3 million since the acquisition.

Now, let's talk some numbers. Starting with CoStar's revenue results for the second quarter of 2013, the Company reported $109 million of revenue, an increase of $23.8 million, or 28%, compared to $85.2 million in the second quarter of 2012. Along with strong core information services performance, and the continued progress on cross-selling efforts, we saw strong revenue growth from the LoopNet marketplace in the verticals.

On a pro forma basis, which takes into account LoopNet's pre-acquisition results, year-over-year revenue growth for the combined company is accelerating compared to pre-acquisition growth rates and continues to move up towards the mid teens, which we talk about frequently.

We reported adjusted EBITDA of $32.6 million for the second quarter of 2013, which is an increase of $12.2 million, or approximately 60%, compared to $20.4 million for the second quarter of 2012. Adjusted EBITDA excludes the impact of stock-based compensation and other items.

Adjusted EBITDA margins increased to approximately 30% in the second quarter of 2013 from 24% in the second quarter of 2012. This is consistent with our stated medium-term goal of achieving a $500 million revenue run rate and 30% to 35% margins by the end of 2014.

Clearly, I'm pretty excited about the fact that we're able to demonstrate that level of margin six quarters earlier than expected. While adjusted EBITDA margins may move around a little due to the timing of marketing and other investments -- and, I'm sure, stuff that Andy hasn't told me about yet -- our second quarter results demonstrate the potential for continued strong earnings and expanding margins.

Gross margin of $76.9 million in the second quarter of 2013 was up compared to $57.1 million in Q2 of 12. Gross margin percentage was 70.5% in the second quarter of 2013, a 3.6% increase year-over-year compared to 66.9% in the second quarter of 2012.

Earlier this year, I indicated that I expected to see the number eventually climb to 70% mark at some point in the future. Well, let's say the future is now. And again, this demonstrates the strength and the earnings power of our business model as we continue to grow revenue, dropping it to the bottom line at high incremental margins.

Non-GAAP net income for the second quarter of 2013 was $17.2 million, or $0.61 per diluted share, a 64% increase from the $10.5 million or $0.39 per diluted share in the second quarter of 2012. Net income increased to $8.3 million in the second quarter of 2013 compared to a net loss of $6.7 million in the second quarter of 2012, which included costs associated with the LoopNet acquisition.

Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all 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, on the Internet, at www.costar.com.

Cash and investments totaled $211.8 million as of June 30th, up $22.7 million from $189.1 million last quarter. Cash flow remains strong, and cash investments are nearly $50 million higher than our short-term and long-term debt of $161.9 million. Clearly, our balance sheet is in great shape, and Charlie sleeps well at night.

At this point, I'm going to give some additional color on a few numbers to further highlight our strong performance in the second quarter of 2013. As Andy noted earlier, we achieved a record high $14.4 million in annualized net new sales in the second quarter based on our ongoing success of driving sales of our information analytic services, LoopNet's Premium Lister product, and our cross-sell efforts. I'd like to point out that we believe that this great sales number actually understates our success.

Net new sales of subscription services on annual contracts is even higher, at $16.1 million. The higher sales level of annual subscriptions reflects our efforts to replace the short term LoopNet agreements with higher-value, longer-term, and hopefully higher-renewing contracts.

Revenue from subscription services on annual contracts was $80 million for the second quarter of 2013, or 73.4% of total revenue. For the trailing 12 months ended June 2013, subscription revenue totaled $296.4 million, up 17% from the 12-month period ended June 30th, 2012.

At this point, approximately 73% of our revenue is coming from annual subscriptions, while the remaining 27% is primarily made up of the marketing services, including LoopNet's Premium members on monthly or quarterly agreements, showcase revenue, as well as revenue from advertising across both platforms. As we continue to progress on up-selling LoopNet subscribers to one-year contracts, we expect an increasing amount of marketing revenue to be included in our subscription revenue metric.

The renewal rate for annual subscription revenue remained very high in the second quarter. The 12-month trailing renewal rate for CoStar's subscription-based revenue remained at approximately 94%. Looking forward, as we see more and more annual Loop contracts becoming a part of the subscription base, it is possible to see the 12-month renewal rate edge down slightly, possibly a percent or two. We plan to watch this closely and expect to continue to provide clarity on the trends as we move forward. The renewal rate for CoStar subscribers who have been with us for five years or longer was consistent with last quarter and remained at a high 90%.

In a previous call, I discussed ongoing patent lawsuits in which LoopNet and CoStar were sued for patent infringement by Civix, a firm that owns several patents but does not have a real business of its own, other than to sue technology companies for patent infringement. I guess the legal term for this is very, very technical. John Coleman, our GC, who's sitting here with us, tells me they call them patent trolls. Sounds scary.

CoStar has filed its own lawsuit seeking a declaratory judgment against Civix. These cases, as well as another lawsuit Civix filed against LoopNet involving another patent, are now pending. CoStar intends to defend itself vigorously against Civix's claims and believes neither the Company nor LoopNet has infringed the Civix patents, and the patents are invalid. John Coleman is shaking his head yes.

Outlook -- now I'll discuss the outlook for the third quarter and full-year 2013. Our guidance takes into account recent trends, revenue growth rates, renewal rates, which all may be impacted by economic conditions in commercial real estate or by the overall global economy. Our position on the impact on foreign currency exchange fluctuations on our top-line results remain consistent. We do not attempt to predict the exchange rate fluctuations, and our guidance assumes little or no volatility to the current rate. Actual results may vary from these estimates. Call your doctor if you have a headache.

Based on the continued strong sales performance of our core information, analytic and marketing services, our sustained high renewal rates, and the significant cross-selling results we've achieved to date, we are raising their revenue in earnings guidance for the full year 2013. We now expect revenue of approximately $134 million to $138 million,(sic-see press release "$434 million to $438 million") which is a $6 million increase to the midpoint compared to prior guidance. We also expect revenue for the third quarter of 2013 in the range of $10 million to $12 million,(sic-see press release "$110 million to $112 million") which factors in the usual slower summer months.

Also, due to the cost and revenue synergies materializing from the LoopNet acquisition and our ability to grow revenue at high incremental margins, we expect a full year 2013 non-GAAP net income per diluted share of approximately $2.31 to $2.36 based on 28.1 million shares, an increase of approximately $0.16 at the midpoint compared to prior guidance. For the third quarter 2013, we expect fully diluted non-GAAP net income per share of approximately $0.61 to $0.63 based on 28.2 million shares.

Additionally, and to restate the key point from our last call, we're taking steps to deemphasize or discontinue certain products and services. And the expected 2013 impact is included in our revenue and earnings guidance I just talked about.

Currently, we expect to stop offering certain services at the end of this year. Therefore, the first quarter of 2014, our revenue run rate would mechanically go down by $2.5 million to $3 million to account for this. As a result, Q1 2013 revenue would be flattish, or possibly up $1 million or so, compared to the fourth quarter of this year based on current estimates. After the first quarter of 2013, we expect year-over-year growth to continue in the mid-teens range.

Essentially, all this equates to $10 million to $12 million less of revenue in 2014, all of which we discussed several times on prior calls. This is just something that should be considered by analysts and investors in their forward-looking models. Also in 2014, we expect our weighted average shares to be approximately $28.7 million.

In summary -- I'm very pleased with the second quarter 2013 results, which provide insight into the outstanding revenue and earnings of the combined businesses and even higher potential moving forward. Revenue growth is strong, and we expect to continue to see high margins through 2013 and beyond.

Based on the revenue and earnings results for the second quarter of 2013, I continue to believe we're well on our way to the goal I first shared with you in early 2012 of $500 million in annual revenue run rate by the end of next year, with adjusted EBITDA margins in the 30% to 35% range.

We also remain focused on the longer-term goal of building the business I shared with you last quarter and doubling it over the next five years, and growing our revenues to $800 million of annualized run rate exiting 2017 at even higher margins. We continue to believe the potential revenue opportunity for CoStar is massive. And as with our track record, as it shows, we believe we have the operational depth cash flow and market position to take advantage of these opportunities.

As always, I look forward to sharing our progress with you on these goals in the coming quarters. Let's open it up for questions.

(Operator Instructions) Will Marks, JMP Securities.

I wanted to ask about the balance sheet. And you talked about the pristine balance sheet. But cash keeps growing. So what do you plan to do with cash, besides let it build?

Excellent question. I just bought a new mattress.

That can be $5,000.

I'd like to apologize for the fact that Brian's a little punchy on the results.

As you know, it's been building very quickly off the LoopNet acquisition. So as always, we are addressing what we believe is a huge market opportunity. And also, as we've mentioned in the past, there are other opportunities for acquisitions over the next year or so. And we're constantly evaluating that. Right this moment, we are focused on achieving the synergy potentials from LoopNet, along with a lot of organic product initiatives.

But generally, we would not look at this level of cash is being excessive, and we'll watch that question as we move over the next year or two in balance questions, like when and how much of the debt we should retire.

Thanks.

And I know I've heard you on the road talking about some of the smaller US players. Are there any large overseas -- Asia, Europe -- competitors or buying opportunities?

Obviously, I don't want to -- I want to be careful not to mention anything specifically. I think the seas are changing, and there's some pretty interesting things. If you go back 10 years ago, I believe -- just roughly, on the back of a napkin -- 10 years ago, there was probably about $500 million of market cap with publicly traded companies providing real estate services on the Internet. And today, before we come out of this year, we'll probably be at $22 billion of market cap globally, with some substantive players, be it residential or commercial, in China, Australia, France, the United Kingdom, the US.

So I think that over the next five to 10 years, I think there's some wildly interesting opportunities. And we're not going to be looking at anything that is small or very small. But we're intrigued by some of the opportunities out there and think there is some interesting stuff. It's usually a little bit bigger.

But right now, as you can see from the earnings call and all the things we have talked about, we got some good things going on, and we want to focus on doing that well and not getting ahead of ourselves.

That's great. That's all for me, thank you.

Thanks, Will.

Andrew Jeffrey, SunTrust.

Thanks for taking the question. Appreciate it.

A couple things --

Thank you.

Hey, Brian, can you clarify a little bit? As I go through the 10-Q and look at your MD&A, the discussion of the LoopNet revenue contribution, which I think you said this quarter was $14.8 million -- I just back that out from the revenue growth. It implies CoStar organic revenue growth that would have decelerated to just under 11% in the second quarter versus the first quarter. Is there something that I'm missing, or some mechanical or other adjustment that needs to be made, to get to the true, underlying organic revenue growth --

Yes. I think what you look at is prior to the acquisition, both companies are growing at 10%, both CoStar and LoopNet. So the core information services are all now moving up and accelerating into the mid teens. The LoopNet business is growing, obviously in the high teens and 20% in some product areas of LoopNet. Obviously, their core services are growing at 20%; some of those other ones are growing in the mid teens.

So they're definitely growing a little bit faster than CoStar. But CoStar continues to accelerate. And of course, the majority of the cross-so is really going to be attributed to sort of selling the information and analytics. So $27 million, 18-some million of it, is really selling CoStar's services to the LoopNet client base. So both companies are growing, accelerating, into that mid-teens area, which is where I think we'll be for years and years to come.

But is it accurate, though, that LoopNet contributed $13.2 million in the second quarter a year ago from one month of operations -- or, sorry, from two months -- from one month, pardon me -- and that this quarter, you had it -- no, I was right the first time, two months --

Yes.

And this quarter, if you had it for one month, and it was $14.8 million.

Sure. (Multiple speakers)

I guess there's some crossover in the way you're reporting the (multiple speakers).

Yes. What it is is that there's some deferred revenue adjustments in there. Then it's probably where you're looking at the synergies coming in, and are you attributing it to either CoStar or LoopNet? I mean, overall, we view the business in sort of one -- as one in one segment, in the commercial real estate, and we really report our stuff geographically, US and UK. So I guess it just depends on which place you're allocating the sales for.

I mean, my view is we have one sales force. That sales force sells CoStar, it sells LoopNet. So obviously, as long as we continue to produce record sales results, to me, it doesn't really matter which side of the business it comes from. So a lot of it is just allocations.

So look at the net new as the best indicator?

100%. And I always say, if you look at that, that's definitely what I'm looking at.

Okay.

And then, housekeeping question -- could you give us the number of subscription client sites at the end of the quarter? And also -- I may have missed it -- the number of Premium LoopNet members?

Sure. Subscription client sites were about 21,770.

Okay.

And Loop Premium members were about 84,320, both of them up pretty significantly year-over-year.

Brian, is the number just CoStar property?

CoStar subscriber sites --

Right.

-- 21,770.

And one of the challenges there is that 21,000 subscriber sites gets a little less meaningful as you look at -- the number is probably dramatically higher when you look at all the other companies.

Correct.

Sure. Sure, no, I understand and appreciate that dynamic.

And then, Andy, a high-level question -- you noted that the CRE market recovery seems to be gaining some momentum. Can you talk about where you think we are in the cycle? And if we see a full-blown recovery, what does that mean for CoStar's sustainable organic revenue growth? Is there still an incremental tailwind to come, as the recovery matures and expands?

Yes, for sure. If you're dealing with a 12-hour clock with the beginning of the recovery, six o'clock on the clock would be the height of the next -- top of the next cycle. We're probably at quarter after, at best. So we are -- the industry's looking at it and saying clearly things are improving.

So we're in the phase where people are saying -- okay, now I'm admitting things are clearly improving. But there are so many things that people out there would look at and say -- ouch, this isn't quite right. So rents are still relatively soft on an inflation-adjusted basis. Rents have not really moved up in quite some time.

And you've got this low deliveries. But the demand really hasn't been massive. I was looking at these good absorption numbers, but they're not massive. And one would expect in a full economic recovery, you would get absorption numbers orders of magnitude higher here. And when that happens, with the absolute, complete lack of supply except on multifamily, I would expect you'd get some significant rent growth and some significant NOI growth, which is good news. Because you're going to have interest rates come up, which is going to leave people that bought buildings for a 4% yield feeling silly. And so it's going to be a balance between those two. But I would say that there's a lot of room for significant tailwind here.

But again, CoStar makes money from different segments of the market when things are going to hell in a hand basket, and CoStar makes money from a different segment when things are going well. We definitely prefer when things are going well. That's where we make the most money.

But we're definitely in the early, early, early phases. Most people -- I'd say probably, the sentiment is that probably half the industry would say we're still in the downturn. They just haven't realized that we're coming out of it yet. That's a long answer.

No, it's helpful color, thank you.

Brett Huff, Stephens, Incorporated.

Good morning, guys, and congrats on a nice quarter.

Thank you.

Thanks, Brett.

One numbers question, and I think I just missed it -- the number of salespeople -- and I can't remember if, Andy, you talked about that, or Brian, you did. Can you guys just run through what you said again? I apologize.

Sure, yes.

We've got about 180 in the field. We've got about 100 or so inside sales reps. In total, we've got about 335. So that's been pretty consistent the last few quarters. We would expect obviously to continue to work on getting that field number up. Field number is up pretty significantly year-over-year, but we're going to continue to try to grow that over the next few quarters and really through next year.

And I just saw 10 in the lobby that just started today.

Okay. So the total -- so 180 plus 100, and then 335 -- I don't -- I missed the --

Well, the difference is just in the verticals and advertising reps in the UK, and a bunch of other ones. But the key numbers, which we talked about -- there's about 180 or so in the field, which is up pretty nicely compared to when we closed the deal -- and then, sort of 335 in total.

Okay.

And again, I think -- we've been talking about this for the past three or four quarters. I think the total number is plus or minus in sort of the range that we'll be in. But more and more are getting more in the field is obviously the important factor.

Okay.

And then, on the cross sales -- obviously, you had -- cumulative cross sales in an annualized metric were up 50% again, and they were up about 50% last quarter, too. Tell us about how that continued, other than we're all recognizing that your revenue is sort of a layer cake, and that once you have a certain amount of revenue, it just continues. It doesn't go away, you don't have to resell it. We get that. But tell us about how it's increasing so much so quickly. Just more color on that would be helpful. I think people are trying to figure out if we're nearing a peak on Loop sales or we still have a lot more to go. Is sustaining the 50% sequential increase the kind of thing that we can continue to see? Or what's the trend there?

Well, you have to imagine, I think about this a fair amount. And one of the challenges is we've got a large sales force; they're scattered all over the United States. That's one of our greatest strength. And it also is like a large ship -- it turns slowly. And when you have an opportunity like this to cross-sell these [to] massive audience -- and they really are massive -- it requires a lot of training. You got to take both these prospects for your products and get them to change a decade-long held belief on which information product would be right for them, or what marketing solutions are good for them.

You also have to simultaneously change the deeply engrained, well-practiced behaviors of the sales force. Both these groups have got to change some behaviors and do some learning. And didn't expect that to happen overnight.

So what's happening is the sales managers, the salespeople, are learning more about how to communicate the differences in benefits of the services. And you're starting to see that take hold, and people are getting better at it. So initially, you might've had 20% close rates, and now you're moving up to 30-some percent close rates.

And the thing I'm the most excited about is this whole automation thing. These are massive databases, they're geographically disperse databases. They're not very homogenous. You can call a building lots of different things. So it's very difficult for a salesperson to walk in and talk to someone that's been using LoopNet for 10 years, and say -- hey, this information system is twice as powerful as the one you've got from LoopNet. Well, the LoopNet person thought LoopNet was great. And they're right, but the other one's even greater.

So the automated tools takes something that almost nobody can do and makes it really easy to do. And then right there, boom, you can look at a neighborhood and say -- in this neighborhood where you, Mr. Broker, are practicing, here are 20 properties that you would not find in LoopNet because they're only discovered from our field research and our people calling in the research center.

And you need to upgrade from our LoopNet information product to our highest end product to take advantage of that. These people cannot stand it if they think they're missing one listing. And these new automated tools will help them get there.

I was in England last week and I was talking to a client in a focus group. And I had forgotten that we had put one of those automated tools in our system in our retail information solution on the web in the U.K.

And the broker was saying -- you know, I feel like I have to buy all these things from you. I was buying your shop properties like the email distribution. But this little box kept popping up telling me there were more properties in your other higher end system focus. So I had to go buy that.

And it just reminded me that the automated tools work. And my belief is that you will see our sales force get more and more productive over the next three or four quarters in doing this cross selling.

You've seen that we're only addressing, in the LoopNet group it's only 5% we've gotten to. And so I think we'll see progression here over the next three quarters if we do this well. And if we achieve what I think can be achieved.

We also, we're just putting a round of price increases through on LoopNet premium searchers who had not had a price increase in five or six years. And they basically are paying the same price they were paying in, like, 1970 or something.

And of that group of people who are high -- intense users, long-term customers of LoopNet, we had not demoed 80% of them. So 80% of the people I would think were the very best prospects had not yet been met with.

So I think we will be able to see continued traction here. And I wish I could train the whole sales force faster and develop better sales tools faster. But it just has taken a year and it'll take a little bit longer.

And just to add onto to Andy's short remark, and I keep saying this and I think I'm going to keep beating this drum. This isn't a -- I mean, someone said to me that we had a quote-unquote blow-out quarter.

It clearly was the best financial quarter we've ever had and sales quarter. I mean, obviously you can't expect that every quarter. Q3 is typically sort of slower in the summer months. But I think year over year I expect progress. I'm not sure I would expect every quarter to have the same quarter over quarter results.

The other thing, though, is that what we've been saying. This is just a massive opportunity. This isn't something that we're just going to sell into this quarter, next quarter and next year. We're going to be selling into this for the next five years, possibly ten years.

I truly, truly believe that there's hundreds and hundreds of millions of dollars. And it comes in over time. It just -- you can't get to everybody fast enough. You can't demo everybody fast enough. And obviously we continue to do all the things and increasing the size of the field sales force. And automated tools, everything else that Andy said.

But people should look at this as a long-term thing. They shouldn't be looking at it as a short-term thing. I think year over year we will grow the numbers. Again, I wouldn't expect massive every quarter.

Okay, thanks. And then one last question. And can -- Andy, you talked about the leads going from 100,000 to 140,000. And I think you also alluded at least maybe in your answer to my question before about you're thinking at least maybe they're segregated a little bit more.

One is folks in the Loop segment that might get CoStar stuff. It sounds like maybe you've got another segment now, too. Can you just fill us in on how that number expanded and what segregations you think about them?

Yes. I expected -- when we closed the deal and we started actively going after folks who were buying Premium Searcher and trying to upgrade them to CoStar Property, I expected Premium Searcher to contract.

I really thought as you had 180 salespeople clean the Premium Searcher universe, try to pull people out. Not to CoStar info you'd see it contract. It grew. And the site traffic grew. And the registered members grew. And the unique monthly visitors grew.

So the pool of people engaged in LoopNet is growing much faster than we're pulling people out of it and moving them up in the information part. Which is fantastic. And again, there are three segments.

The first, hardest focus rationale prior merger was selling information to people who were using LoopNet as an information tool. And that one's the most mature of our sales process. That one's the $18 million, that one's going great. And that's the one that's going to get the most benefit of the next three or four quarters. I think that'll accelerate more.

The second group is, as we go out to meet with someone to up-sell them to CoStar info, they still need that separate value proposition of advertising on the internet. But they usually have just one or two people in the shop buying these marketing packages.

The salesperson while they're trying to up-sell them to the information sale says -- guys, you shouldn't buy LoopNet for one or two brokers for a marketing (inaudible) for one or two brokers. You should buy it for the whole firm. Get a much better value.

And that's the second component. That's the -- what was it, $6.8 million?

Yes.

And that was then grown -- one that grew a little faster. That one's growing faster as well because it's easy for the salespeople. It's a no-brainer.

And then the one that hasn't even begun to rumble yet, the one that is still in the early, early stages is selling LoopNet advertising into the CoStar Group.

That one's only -- I forget the number. $2.9 million?

Yes. Only 45%.

And that one grew 45%. That one -- and that one we haven't yet begun to really put as much effort into the training on. But I have a lot of confidence in that one. So that one probably is one that will accelerate in '14 or later '14.

I don't know if I answered your question. But --

Yes. And it just sounds like that the answer from going from 100 to 140 is that the contraction in the searcher didn't happen. That that's growing. Is it also because you're data mining more? I mean, you now know what kind of leads make sense? Or what prospects are converting to leads? Is that also part of it?

No, I -- yours truly can spend ten minutes in the spreadsheet and fire out more leads than these people can get to in the next three years in under ten minutes.

So it's not the data mining. It's the fact that with recovering commercial real estate, with better S.E.O. on the LoopNet side, with better customer experience on the LoopNet side, just more people are gravitating to LoopNet.

The LoopNet brand is really strong. It's the preferred. It is the place to go for tenants and buyers. And there's millions of them. And it's just growing.

And so you've got two different worlds. LoopNet is all about the tenants and the small investors. And CoStar is about the hardcore commercial real estate professionals. And as the cons -- the prosumer base of LoopNet grows that just gives us more people to upgrade to the hardcore professional system.

Great. (inaudible) thanks for your answers. I appreciate it, guys.

You're welcome.

Thanks, Brett.

Michael Huang, Needham & Company.

Thanks very much. Just a couple questions for you guys. So first of all, not sure if I missed this. You had talked a little bit about kind of field sales and how that's rampant. But did you throw out a number for what you would expect growth to be in that group by end of next year?

What's your assumption so far, given the massive kind of and perhaps even better than expected lead base that you could sell them to?

Well, remember we're shifting our resource allocation from inside to field. But I would like to see us come out of this year at 225 salespeople. And I would like us to at a minimum to be at 250 in '14.

Now, remember, we're also going to move to more customer vertical selling orientation. So what you would see is where right now you might have eight salespeople in Washington, D.C., next year you might have 12 salespeople in Washington, D.C., but two focusing on owners, one focusing on lenders and one focusing on retailers. And the rest general.

So we're going to -- we're generally looking for 250 some middle of the next year, end of next year. And (multiple speakers) 225 this year, which is very aggressive.

Yes. And 225's aggressive. I think our original goals are to get up to 200. So if we can get above that, that would be great. And obviously there'll be a lot of new people and a lot of training.

So I think the productivity of them you'll start to see as you move into next year. I think that will help continue to grow. And as Andy says, as we start to look at the different client verticals the -- and it's not just with the sales force. It's with the product releases that Andy talked about.

This is where you look at all of these verticals where we're less than 10% penetrated. Which we've got great clients and great prospects, this is where over again not -- this isn't just about one quarter. This isn't just about next quarter. It's not just about next year.

It's where over the next five to ten years I think we can continue to penetrate and go from single digits to double digit penetration levels. Because now we're focused with the sales force. Now we're focused with marketing plans. Now we're focused with the services and the software that meets the needs of those various client verticals we've been talking about.

So I think these are things that we're doing are not short-term. They're for long-term. And I think everybody sees the potential that we have.

Got you. And so the vertical orientation of a sales force, is that beginning now? Or does that begin at the beginning of 2014?

That'll probably begin fourth quarter.

Okay.

I mean, we have a little bit of that now. We have probably -- we have a little bit of that going on right now. But it'll be -- it'll pick up in the fourth quarter, first, second, third quarter.

Okay, got you. And I guess, when you -- obviously you've seen some pretty strong kind of bookings performances over the past several quarters here. As you release kind of the next version of CoStar, what does that do to bookings growth rates?

Is it possible that we could see even further acceleration than kind of what we're seeing right now, which is pretty impressive?

Well, the -- absolutely. So, one of the things we're trying to do with these enhancements, we've got some great customers. We've got great market position. And we want to give our clients the products they deserve. And make sure that we're doing what we can do. And increase customer satisfaction.

So I'm looking forward to hopefully in the third or fourth quarter having our customers feeling really good about CoStar. And LoopNet. And -- but I think inevitably it will make it easier again to up-sell people on the information side.

I think it'll help the multi-family. It'll help us reach people that prior wouldn't have had a value for our systems. They really didn't cover their segment of real estate. And then also the new LoopNet product opportunities I think are huge.

Like the -- I have said before and it may happen, may not happen. But I think the broker advertisements in LoopNet could one day be bigger than the property advertisements in LoopNet. So I think that -- so the answer is yes, the stuff could absolutely.

And it could be any one of the three or four things we're doing. But we're also -- we've got a full pipeline. So we got additional stuff we're trying to do in '14 and '15 as well. And I was really quite pleased with Virtual Premise. And if we -- as we integrate that and I think that will be very attractive to the retail (multiple speakers).

And hopefully people got the thread which we've had in the last few calls and Andy talked about now is that we're operating and hitting on all cylinders where we're still investing in the business while we're able to grow the margins.

And this is a long-term business model. This is where you're dropping $0.70 to $0.80 from the top line to the bottom line. Where we can still invest in multi-family retail and software development and all the different areas that Andy talked about. We can still invest in Toronto.

So I think we're able to as a larger company than we were a few years ago or five years ago or ten years ago, we're able to balance investments and still growing both the top and bottom line. And we're laying out a lot of investments that I think over 2014, 2015 will continue to allow us to grow in the mid-teens for five, ten plus years.

Got you. And last question for you. Can you talk a little bit about the prudent sales productivity. And kind of the impact it has on conversion rates of a Loop base.

Brian, so when you're thinking about 2014 and kind of what you've laid out for exiting 2014, what kind of assumptions have you made around conversion rates of kind of the Loop leads that you're going after?

Is there an assumption that we're going to see an aggressive improvement there? Or have you held it pretty constant with kind of what you're seeing now?

What I usually do when I'm looking through my crystal ball is I don't project blow-out quarters. And I don't take all the most aggressive assumptions. I think people have been watching us for years.

But I do challenge the assumptions. So I think that I look at where we are at today with those conversion numbers. And where we are with the sales force. And I try to come up with sort of realistic goals to get to. And then as always we like to do better than that.

I don't think it's a secret that Andy and I are both pretty aggressive guys. We like to do better than what we put out there. But we do put out some pretty aggressive goals.

When I put out the $500 million run rate over a year and a half ago, which is still a year and a half away. So it was sort of a three-year goal. I held -- I had a lot of people tell me -- no way. And now I have people telling me -- okay, that's done. Which it's not done. We've still got another year and a half to go. What's the next thing?

So I think that we try to put out reasonable goals. And Andy and I always strive to do better than that.

Great. Thanks so much.

Thank you.

Todd Lukasik, Morningstar.

Hi, guys. Thanks for taking my question. And as usual, great job with the business this quarter.

Thank you very much.

Thanks, Todd.

Just a question, I think last quarter you mentioned that March was a particularly strong month for the annualized net new sales. I was wondering if there were any differences across the months of this quarter?

Which was our best month?

April.

I think April was our best month ever. So I guess 200 in April. And I'm not sure about June and --

Yes, there were some -- pretty much all very strong.

Yes. They're pretty much -- what I would say, Todd, is that March was our best month ever followed by April's our best month ever. But it's not --

April was stupid.

It -- but it's not -- but they're not significant enough through the quarters. I think that it sort of averages out through the quarter. So it's not like we're getting 80% of our sales in one month then it drops off the next one.

It's pretty consistent from quarter to quarter. But obviously we've had some really, really good record months. We are coming in the summertime, which is typically slower. We have a lot of stuff happening in the fall as far as product releases and ramp-up of the sales force.

But we're pretty excited about where we are and where we're going.

Okay, great. Thanks for that. And then just a point of clarification. The annualized net new sales, $14.4 million. And I think you mentioned, Brian, the net new sales under annualized contracts was -- I think it was $16.1 million?

Yes.

If I heard you correctly? Okay. So that difference, do we expect those numbers to converge at some point over time? And I'm wondering if that point in time would be sort of second quarter of 2014 after you've gone through this process of de-emphasizing or discontinuing the products in the first quarter of next year.

I think there will be a difference for quite some time. And probably forever. I do think they might get closer. And the reason why is because essentially what this is, is -- one of the big differences is you're converting out the LoopNet client base.

I don't actually expect that the LoopNet client base will ever get to the CoStar 90% plus on annual contracts. I think there's always going to be a bigger piece of their client base that stays on something less. And that's the big difference in the two numbers.

So I don't think they'll ever become exactly the same. There'll be a difference. And I do think it'll continue to close. But then I think it'll stay like that.

Okay.

I think that the subscription one is obviously what the majority of the business is driven on.

Sure.

So what that sort of shows is that you're driving the business at sort of higher rates. I think that implies positive momentum moving forward, is the way I'd describe it.

Okay. And then last question from me, I think you talked about 5% of the U.K. having switched to the new technology where they can get CoStar Go. I know you guys released CoStar Go a while ago in the U.S. and that requires the subscription to the full suite of products.

Do you have a similar percentage for the U.S. in terms of what percentage of your subscribers get all three and have access to CoStar Go versus ones that just get kind of one-off products?

We do not, off the top of our heads. My -- I'm going to give you a broad range guesstimate. I would say 50%, 60% have access to suite.

Okay. And it -- and is that still -- are you guys still seeing an upgrade opportunity there? Or has the focus really moved to the cross sales and things like that?

We're definitely seeing an up-sell opportunity there. And I hate to -- having to get specific. One of our very best customers over two decades, approaching three decades, will be Jones Lang LaSalle, we're close partners and work very closely together.

There are a number of (inaudible) where Jones Lang LaSalle in the United States does not have our suite product. So there's still a lot of revenue up-sell potential there.

Okay, great. Thanks for taking my questions, guys.

Thanks, Todd.

Great. Thanks.

And at this time there are no further questions.

Great. Well, thank you all very much for joining us for the second quarter '12 -- '13 earnings call. And we look forward to updating you on our progress next quarter.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.